ACCC issues its views on access pricing to encourage negotiated settlements over access to Telstra's fixed network in 2001-2002

The Australian Competition and Consumer Commission has today provided its views in relation to the transitional pricing of Telstra's network for 2001-2002, in order to facilitate the negotiation of any future access disputes.

"In the ACCC's view, a new provisional headline rate of 1.3 cents per minute for access to Telstra's network in 2001-2002 would seem reasonable", ACCC Chairman, Professor Allan Fels, said today. "This would result in a similar percentage reduction to access prices in 2001-2002 as those which the ACCC has formally determined, using a more extensive modelling process, for 1999-2000 and 2000-2001".

Telstra's competitors use Telstra's fixed network mainly to supply long distance, fixed-to-mobile and mobile-to-fixed services to their customers as well as other services.

The ACCC's current determinations cover the 1999-2000 and 2000-2001 periods and expire on 30 June this year. They followed extensive work on estimating the efficient costs of using Telstra's network as part of assessing Telstra's access undertakings for these PSTN access services.

In its July 2000 assessment report of Telstra's 1999 undertakings, the ACCC indicated that the charges should be, on average, 1.77c per minute for 1999-2000 and 1.53c per minute for 2000-2001. This compared to Telstra's proposed charges in its 1999 undertakings of 2.37c per minute for 1999-2000 and 2.01c per minute for 2000-2001. In its first PSTN undertakings submitted in 1997, Telstra's proposed charges were more than 4.7c per minute for 1998-99. By contrast, the ACCC considered the relevant charges should be around 2c per minute for that period.

The ACCC's determinations are currently under review by the Australian Competition Tribunal following two appeals made by Telstra in October last year. These appeals are unlikely to be decided until mid-2002 at the earliest. As well, any changes to existing Telstra retail price control arrangements will also affect the level of access charges which Telstra's competitors will be required to pay. These arrangements are currently under review by the Government.

"Against this background, it would be inappropriate for the ACCC to undertake a further major costing of Telstra fixed network prior to the conclusion of the Tribunal's deliberations and other reviews", Professor Fels said.

"Accordingly, the ACCC favours an approach where an adjustment to the existing ACCC set charges is undertaken to take account of updated volume and cost and revenue factors for the 2001-2002 period and establishes a transitional pricing approach in a more expeditious manner.

"Such an approach will also provide greater certainty to industry participants regarding access charges and will ensure telecommunications investment continues to expand. It will also avoid unnecessary disputation in the industry by encouraging the resolution of disputes on a more commercial basis, consistent with the objects of the regime, and correspondingly reduce the current unhealthy reliance by industry participants on regulatory processes and gaming behaviour".

The ACCC notes that, using this partial adjustment approach, Telstra proposes to offer access seekers a headline rate of 1.3c per minute for PSTN access in 2001-2002.* This offer is based on the current ACCC economic cost methodology which was used to determine PSTN charges for 1999-2000 and 2000-2001 and is subject to the Tribunal's decision. Telstra will also offer access seekers an alternative (risk averse) option which will fix the charge at the ACCC's existing 2000-2001 rate, but which will not be subject to any variation on the basis of the Tribunal's decision. The choice of option is essentially one for access seekers to make.

"The ACCC has reviewed Telstra's proposals for 2001-2002 charges and considers Telstra's offer of a headline rate of 1.3c per minute for 2001-2002 would appear reasonable, having regard to the limited nature of the adjustment and the parameter values that have been considered".*

Of course, as such an offer is subject to the Tribunal's final decision, the actual price ultimately payable may be higher or lower than this.

The ACCC's views in this release can not bind the ACCC or any parties in the exercise of its statutory power in the event that an access dispute is subsequently notified by any industry participant or an access undertaking is lodged for approval.

*Telstra indicates that this comprises an interim rate for 2001-02 equivalent to the 2000-01 rate determined by the ACCC in its final report on Telstra's second PSTN undertaking, appropriately adjusted for changes in a number of parameter values for 2001-02. These include: line costs and line growth, line and rental revenues, PSTN and ISDN traffic growth, interconnect traffic growth, retail costs changes and the extent of line-rebalancing over this period.

It should be noted that there are a range of other input assumptions used to derive the economic costs of access to Telstra's network but which are currently the focus of the Australian Competition Tribunal's review. These include line provisioning, trench-sharing, share of indirect costs, depreciation and WACC (capital cost) methodology. Under the partial approach proposed by the ACCC and followed by Telstra, these have not been adjusted from that used in the current ACCC approach.