ACCC to deregulate wholesale local call services in CBD areas of major capital cities

The Australian Competition and Consumer Commission today announced its draft decision to remove current access regulation on Telstra and other carriers supplying wholesale local calls in the Central Business Districts of Sydney, Melbourne, Brisbane, Adelaide and Perth.

However in order to provide users of the services with time to adjust to any potential changes, the removal of regulation will not take effect until one year after any final decision is made.

The local carriage service is supplied predominantly by Telstra over its fixed line network and is used by access seekers to offer retail local calls to their customers in the absence of a direct customer connection.

"The ACCC's draft decision is based on evidence that in the specified CBD areas enough alternative facilities have developed to ensure competition in the provision of local call services on a wholesale and retail basis without the need for regulation", ACCC Chairman, Professor Allan Fels, said today.

In making its draft decision, the ACCC took into account the existence of extensive fibre optic and wireless infrastructure in the specified CBD areas, as detailed in an audit of telecommunications infrastructure in Australia recently carried out for the ACCC by BIS Shrapnel. Further details are provided in Attachment A.

"The draft decision indicates that the ACCC will not continue to regulate where regulation is not necessary. In making this decision, the ACCC is displaying its willingness to be flexible in response to market developments by removing regulation in areas where it considers regulation is no longer appropriate".

The draft decision would not change the existing regulation in areas other than those specified. In particular, any final decision by the ACCC will only effect regulation in the specified CBD areas where the vast majority of consumers are business customers. Importantly, it does not affect regulation in metropolitan areas, or rural and regional Australia, which are largely composed of residential customers. The ACCC believes regulation of the local carriage service in areas other than CBD areas is likely to be necessary into the foreseeable future.

"Telstra indicated to the ACCC during the exemption inquiry that it would continue to offer the local carriage service to access seekers. The ACCC is satisfied that in the absence of regulation, competitive market forces will ensure that access seekers have access to Telstra's service on reasonable terms. Notwithstanding, Telstra's pricing of the service would still be subject to the anti-competitive conduct provisions.

"When it declared the local carriage service in July 1999, the ACCC expressed the view declaration would serve to facilitate market entry by enabling Telstra's competitors to build a customer base quickly and reduce the risks associated with infrastructure investment. The ACCC considers that the growth of alternative infrastructure in the specified CBD areas over the past two years means that this rationale has become largely redundant in these areas", Professor Fels said.

The ACCC has issued a Draft Report detailing its decision and seeks comments from interested parties by Friday 12 October 2001. The ACCC will then finalise the report after considering any submissions made to the draft report.

Background

Part XIC of the Trade Practices Act 1974 establishes a process whereby providers of telecommunications services can obtain access to particular (input) services. There is no general right of access to such services. Rather, the ACCC must first declare (that is, decide to regulate access to) the service. Once a service is declared access seekers are entitled to have access to the service according to the standard access obligations (SAOs) under s.152AR of the Act. If an access seeker and an access provider are unable to agree on the terms and conditions of access to a declared service, the ACCC can be requested to arbitrate.

The ACCC can declare a service on the recommendation of industry or after it undertakes a public inquiry process and decides the declaration will promote the long-term interests of end-users (LTIE) of telecommunications services.

The local carriage service was declared in July 1999 on a national basis following a public inquiry by the ACCC. It is a service involving the carriage of telephone calls from customer equipment at an end-user’s premises to separately located customer equipment of another end-user in the same standard zone.

The ACCC can grant an exemption from the SAOs to an individual carrier or carriage service provider or a specified class of carrier or carriage service provider if it can be satisfied that this is in the LTIE.

On 30 May 2000, Telstra Corporation Limited applied to the ACCC for an individual exemption from the SAOs in relation to the supply of the local carriage service in the CBDs of Sydney, Melbourne, Brisbane, Adelaide and Perth. The application applies to for calls that originate in these CBD areas and terminate in any area of the corresponding local call zone.

The ACCC issued a discussion paper in August 2000, detailing the issues surrounding its consideration of Telstra's exemption application and a possible class exemption for the same areas covered by Telstra’s exemption application. It sought submissions from interested parties in response to the discussion paper.

The process of consideration of an individual or class exemption is similar to the process of declaration. The ACCC is required to have regard to the LTIE in considering whether to grant an exemption. The consideration of the LTIE involves assessing the whether the exemption will meet the following criteria:

• promote competition in the markets for carriage services and services supplied by means of carriage services

• encourage the economically efficient use of, and economically efficient investment in, the infrastructure by which carriage services and services provided by means of carriage services are supplied

• promote any-to-any connectivity, for carriage services involving communication between end-users

The ACCC's draft decision relates to a class exemption for all carriers providing the local carriage service in the CBD areas specified by Telstra’s individual exemption application. The draft decision to grant a class exemption has been based on the rationale that if it is in the LTIE to grant Telstra an individual exemption, a class exemption should be granted.

Since declaration, the ACCC has been notified of nine access disputes for the local carriage service, all involving Telstra as the access provider. It is currently arbitrating six of these disputes.

Attachment A

Competing infrastructure and declared services

In making its draft decision the ACCC took into account the existence of

• several competing fibre optic loop networks (two or more excluding Telstra's) in the CBD areas of the cities covered by the exemption

• at least two alternative wireless networks either operating or in the advanced stages of introduction in the five cities

• declared unbundled local loop services available at geographically de-averaged rates in all CBD areas

• declared PSTN originating and terminating access and local transmission services in all areas

On a city by city basis, in addition to Telstra's copper, optic fibre and DSL networks, the ACCC noted there are:

• 12 alternative carriers capable of offering services over 19 alternative networks in the Sydney CBD
• 13 alternative carriers capable of offering services over 20 alternative networks in the Melbourne CBD
• nine alternative carriers capable of offering services over 15 alternative networks in the Brisbane CBD
• eight alternative carriers capable of offering services over 14 alternative networks in the Perth CBD
• six alternative carriers capable of offering services over 11 alternative networks in the Adelaide CBD