Telstra lodges draft undertaking for interconnection prices

Telstra has lodged a draft undertaking with the Australian Competition and Consumer Commission. The undertaking specifies the prices Telstra proposes to charge other carriers for interconnection with its fixed-line and mobile phone networks.

The terms and conditions Telstra charges other carriers for interconnection to its networks will have important implications for the development of competition in the industry and will ultimately affect the prices consumers pay for telecommunications services, Mr Rod Shogren, Commissioner responsible for telecommunications, said today.

Under the Trade Practices Act, the ACCC is responsible for determining whether the terms and conditions in Telstras undertaking are reasonable.

The undertaking, if accepted by the ACCC, will determine the terms and conditions on which other carriers obtain interconnection to Telstras networks in the absence of commercial agreement between the parties.

The ACCC intends to make a full and detailed assessment of the undertaking in an open public process.

Telstras draft undertaking specifies the terms and conditions for the origination and termination of calls on its fixed-line and GSM (mobile) networks, as well as the resale of AMPS (mobile) calls. The undertaking covers a period of three years.

Interconnection prices can have important implications for investment and competition in the industry.

On the one hand, interconnection prices must be sufficient to encourage Telstra and other carriers to continue to invest in infrastructure to support competition and to provide and develop services for end-users. On the other hand, the price must be low enough to allow other providers to compete with Telstra in the provision of services to customers.

It is through competition that many of the gains to consumers through lower prices, improved service quality and a greater range of services will be achieved, Mr Shogren said.

A lot can be learned from recent experience overseas and recent history in Australia. The ACCC intends to complete a detailed study of the prices in the undertaking, which will include scrutiny of the costs of using Telstras networks. In conjunction with the information provided in the public process, this will assist the ACCC in making its decision.

For further information about this media release: Mr Rod Shogren, Commissioner, mobile (0414) 613 521 Ms Lin Enright, Director, Public Relations, (02) 6243 1108

Background

Notes on Telstras Draft Undertaking

Telstra has lodged the draft undertaking with the Australian Competition and Consumer Commission.

The draft undertaking specifies the terms and conditions on which Telstra proposes to meet its obligations under Part XIC of the Trade Practices Act to supply declared services to carriers and carriage services providers.

The draft undertaking predominantly covers services to allow carriers to interconnect with Telstras fixed-line and mobile phone networks. Interconnection allows the users of one network to communicate with the users of other networks. Specifically, the draft undertaking covers PSTN origination and termination services, GSM (digital mobile) origination and termination services and AMPS (analogue mobile) resale. The undertaking covers a period of three years.

Under Part XIC of the Trade Practices Act, the ACCC must accept or reject the undertaking based on the whether the terms and conditions are reasonable.

If the ACCC accepts the undertaking, the terms and conditions in the undertaking will apply if the parties cannot come to a commercial agreement. In this way the undertaking substantially reduces the role of the ACCC to arbitrate disputes between parties over the terms and conditions of interconnection.

The level and structure of interconnection prices have important implications for the development of competition and investment in the industry. Interconnection prices that are either too high or low can be detrimental to the long-term interests of end-users of telecommunications services.

The basis upon which the ACCC will establish whether the terms and conditions specified in the undertaking are reasonable is detailed in the ACCC's Access Pricing Principles Telecommunications - a guide released in July.

The ACCC will seek to assure itself that the prices in the draft undertaking are consistent with the pricing guides in the Access Pricing Principles. For example, the ACCC will seek to determine if the prices in the undertaking are consistent with the price Telstra charges itself for the same services. The ACCC will also assess the implications of these prices for competition in different retail markets by determining whether the prices squeeze carriers out of certain parts of the market such as the residential long distance market.

Consistent with the Access Pricing Principles, the ACCC will undertake a detailed costing analysis of the prices. This will involve estimation of the forward-looking costs an efficient firm will incur in providing these services. This analysis will not necessarily be based on Telstras historical costs of providing the services.

A lot can also be learned from recent experience overseas. The ACCC will, where appropriate, consider recent movements in interconnection prices overseas and endeavour to determine relevant international benchmarks for interconnection prices.

The process the ACCC will follow to assess the undertaking will be open and public allowing parties to express their views on the undertaking, provide relevant information to assist the ACCC and allow comment on any analysis and preliminary views formed by the ACCC.

To enable the ACCC to fully assess the draft undertaking and provide the opportunity for all views to be heard and examined, it is unlikely that the assessment of the undertaking will be completed before mid-1998. However, the ACCC envisages releasing the findings of the analysis described above and preliminary views as soon as they are formed throughout the process. This will provide industry with a guide to the ACCCs initial views during the assessment of the undertaking.

The ACCC is concerned to ensure that the development of competition in the industry is not impeded during the period the undertaking is being assessed. The ACCC will ensure that Telstra continues to supply interconnection services to carriers and carriage service providers, and that carriers and carriage service provides are not disadvantaged over this period.

The ACCC will ensure that Telstra negotiates in good faith over interconnection prices consistent with Part XIC of the Trade Practices Act. The ACCC expects that Telstra will negotiate at least within the confines of the draft undertaking during the period it is being assessed by the ACCC. This will prevent carriers and carriage service providers being disadvantaged in the event that the undertaking is accepted.

The ACCC is also considering extending the transitional interconnect prices it specified in June this year. These interconnection prices, determined under section 41 of the Telecommunications (Transitional Provisions and Consequential Amendments Act) 1997, currently expire on 31 December 1997. The ACCC will consider extending the determination until at least 30 June 1998. This will prevent any carrier or carriage service provider currently receiving interconnection on the terms specified in that determination being disadvantaged.