ACCC issues tenth Telstra accounting separation current cost report

The Australian Competition and Consumer Commission today issued the tenth current cost accounting report relating to Telstra for the period of July – December 2007.

The report contains current cost financial information for 'core' telecommunications access services.*  It constitutes the information that Telstra provides to the ACCC, which the ACCC is required to make public in respect to current cost accounting under the Direction issued by the Minister for Communications, Information Technology and the Arts in June 2003.

The report provides Telstra's current cost valuations of its assets that are compared with the historical or original costs of these assets.** The report also includes profit and loss and capital employed statements on a current cost basis.

The report indicates that on a current cost basis, Telstra's valuations of assets for the core access services are higher than the historical cost valuations.

It is important to note that the cost data presented in the report are not calculated using a fully or substantially optimised network configuration, and do not represent the efficient forward-looking cost of supplying the core services.***

Copies of the report will be available on the ACCC's website.

*The three core access services are the local carriage service (LCS), the PSTN originating and terminating access services, and the unconditioned local loop service (ULLS).  Telstra's ULLS allows a competitor to lease the use of a customer's line to supply any combination of access, voice, asymmetric digital subscriber line (ADSL) or other data services.

**Current cost refers to the present-day cost of acquiring an asset which is identical or substantially similar in capacity or functionality to the existing asset in use (which may have been purchased a number of years ago). Historical cost refers to the original purchase price of the existing asset.

***In determining access prices for a number of telecommunications services the ACCC has, in general, preferred a costing methodology based on total service long-run incremental cost (TSLRIC) which is a forward-looking costing approach for an optimal network.

Background

In December 2002, the Federal Government made provision for an enhanced accounting separation of Telstra's wholesale and retail operations with the passage of the Telecommunications Competition Act 2002.  Under this Act, the Minister for Communications, Information Technology and the Arts issued a direction on 19 June 2003 instructing the ACCC to issue record keeping rules under its powers under the Trade Practices Act 1974, requiring Telstra to provide the ACCC with reports on, among other things, current costs in addition to historical costs for the core access services.  The direction requires that certain information contained in the reports be made available to the public.

The ACCC issued an RKR to Telstra relating to the first reports required under the direction at the end of June 2003.  In September 2004, the ACCC issued a new RKR specifying the requirements on Telstra to fully implement the current cost accounting framework.  Leading up to this, the ACCC worked closely with Telstra to determine the timeframes within which systems can be put in place to provide regular current cost valuations.  To date, except for customer access network (CAN) assets, Telstra has put systems in place to enable periodic revaluation and reporting of all of its assets on a current cost basis.