ACCC final decision to again reject Telstra's unreasonable ULLS undertaking

28 April 2009

The Australian Competition and Consumer Commission today issued a final decision to reject Telstra's Undertaking application for a $30 monthly charge for the Unconditioned Local Loop Service in metropolitan areas.

The charge relates to the rental price Telstra charges competitors for access to the copper wire from the telephone exchange to a house or office.

The ULLS essentially gives an access seeker (competitor) the use of the copper pair without any dial tone or carriage service.  This allows the access seeker to use its own equipment in an exchange to provide a range of services, including traditional voice services and high speed internet access, to the end-user.

There are approximately 10 million services in operation with around seven million in for the densely populated metropolitan areas (Band 2).  Telstra's Undertaking only covers the Band 2 exchange service areas of Australia servicing about 70 per cent of the population but only 0.2 per cent of the land.

"Following an extensive assessment of Telstra's Undertaking, including Telstra's own cost model, the ACCC is not satisfied the $30 charge for metropolitan areas is reasonable," ACCC Chairman, Mr Graeme Samuel, said.

"The ULLS is an essential input used by access seekers in combination with their own equipment to provide competitive telephony and high-speed broadband services to consumers and businesses.
 
"The ACCC believes that Telstra's proposed price is unlikely to promote competition in the broadband and telephony markets. It may also discourage investment in telecommunications infrastructure.

"The ACCC also considers that a $30 monthly charge would result in Telstra recovering more than is necessary to promote its legitimate business interest in providing this service."

In rejecting the undertaking the ACCC notes that Telstra's proposed monthly charge was significantly above estimates derived from benchmarking against comparator countries.

Since 2004, Telstra has submitted four undertaking applications - one was withdrawn and with this current decision, three have now been rejected by the ACCC as it could not be satisfied that the undertakings were reasonable.  Both earlier decisions to reject Telstra's undertaking applications were subsequently affirmed by the Australian Competition Tribunal on appeal.

The ACCC provides clear guidance in pricing principle and decision documents on how prices could be set to be considered reasonable. Despite this, Telstra has repeatedly submitted Undertakings that sought to recover an amount significantly above efficient costs.

The ACCC particularly notes its rejection of Telstra's August 2006 undertaking where it proposed an average $30 price for all areas in Australia.  The ACCC finds it surprising that Telstra chose to submit an undertaking proposing a $30 price for metropolitan areas   a price, in effect, significantly higher than that which had been rejected in 2006.

The ACCC's final decision on Telstra's ULLS Undertaking will be available on the ACCC website.

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Release number: 
NR 090/09
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