ACCC to recommend consistent pricing principles for mobile services

The Australian Competition and Consumer Commission today issued its Draft Report recommending pricing principles to cover GSM and CDMA services, the two principal mobile technologies used in Australia.

"The present pricing principles, on which the ACCC would base its determinations in any access disputes, only covers GSM services", ACCC Chairman, Professor Allan Fels, said today. "But as CDMA mobile services have just become a declared service, it is appropriate and practical to extend the pricing principles to cover CDMA as well.

"This is consistent with the ACCC's belief that CDMA and GSM services are close substitutes and that both networks are subject to the same characteristics that allow mobile carriers to sustain high access prices.

"The extension will ensure regulatory consistency and give industry the certainty it requires in the regulatory regime. It will also help to guarantee competition continues to improve in the sector".

The development of the pricing principles follows the ACCC decision in April this year to include CDMA mobile services in the GSM mobile services declaration. The ACCC considered that the wholesale CDMA service was subject to limited competitive forces and was concerned that integrated mobile carriers could restrict price competition in the downstream market for fixed-to-mobile calls. It was judged that declaring CDMA services could reduce the opportunities for anti-competitive pricing and encourage lower fixed-to-mobile call prices.

The ACCC intends to do this by linking wholesale mobile prices to the price competition in the retail market for mobile services.

"The ACCC's draft pricing principles are to make sure the benefits of increased competition in the mobile market are passed onto fixed line users calling mobile subscribers", he said.

"The ACCC will be monitoring developments to ensure these benefits are passed on".

The pricing principles will cover only GSM and CDMA mobile services and are not applicable to other mobile technologies or services such as 2.5G and 3G.

The ACCC is seeking submissions on the Draft Paper from interested parties by close of business, 26 July 2002. The ACCC expects to issue the final pricing principles in August 2002. These pricing principles, along with the mobile services market generally, will be reviewed by the ACCC in 2003.

BACKGROUND

In September 2001, the Australian Competition and Consumer Commission commenced a public inquiry into whether the domestic GSM originating and terminating access service declarations (the GSM service declarations) should be varied to become mobile technology-neutral with respect to technologies currently deployed or in use.

The domestic GSM originating and terminating access services (the GSM services) are wholesale inputs used by carriers and service providers to supply mobile and fixed-to-mobile retail services to end-users.

They were deemed to be declared under s. 39 of the Telecommunications (Transitional and Consequential Amendments) Act 1997.

The ACCC initiated this inquiry following its decision that a retail benchmarking approach is the most appropriate pricing methodology for the domestic GSM terminating access service (the GSM terminating service).

In reaching this view, the ACCC noted that many of the issues relevant to the GSM terminating service may equally apply to other mobile technologies that are currently deployed or in use in Australia, such as CDMA. These mobile services, despite being considered close substitutes for GSM services, were not regulated.

Declaration ensures access seekers have access to the inputs they need to supply competitive telecommunications services to end-users in accordance with the standard access obligations under s. 152AR of the Trade Practices Act 1974. The terms and conditions of supply can be agreed through commercial negotiations. If the access provider or access seeker cannot agree on the terms and conditions of supply, either party can seek ACCC arbitration of disputes over access terms and conditions to regulated services. Where a relevant access undertaking (approved by the ACCC) exists, an arbitration determination made by the ACCC on access to the declared service must not be inconsistent with that undertaking.

It is likely that the ACCC will use its final pricing principles in making determinations in these access disputes.

In March 2002, the ACCC published its Final Report ‘Variation to make the

GSM Service Declarations Technology-Neutral’ that recommended that varying the GSM service declarations to include other mobile technologies currently deployed or in use would be in the long-term interests of end-users.

Section 152AQA of the Act requires the ACCC to determine pricing principles relating to the price of a declared service and sub-section (3) stipulates that the ACCC must make such a determination at the same time as, or as soon as practicable after the Commission varies the declared service.

Definitions

GSM (global system for mobile) and CDMA (code division multiple access) are both digital mobile transmission systems. The key differences that exist between GSM and CDMA networks pertain to:

• the spectrum required: GSM operates in the 900 MHz and 1800 MHz bands, while CDMA operates in the 800 MHz band;
• cell size: in general, CDMA cells can have a radius of 50 kms compared to the maximum 30 kms radius for GSM cells;
• cell coverage: the larger radius of a CDMA cell means that fewer base stations are required for a CDMA network, relative to a GSM network, to achieve the same coverage;
• how the spectrum is used to transmit information: CDMA uses the spread spectrum technique while GSM uses a combination of FDMA and TDMA; and
• spectrum re-use: CDMA networks can re-use the same spectrum in adjacent cells while GSM networks can re-use the same spectrum but only if the cells are not adjacent.