The Australian Competition and Consumer Commission today issued its fifth imputation testing report under the enhanced accounting separation regime for Telstra. The report relates to the quarter ending 30 September 2004.
The report presents an imputation analysis that compares Telstra's retail prices with the prices of three core* telecommunications access services. The analysis is designed to reveal whether there are sufficient margins between Telstra's retail prices and the prices it charges other service providers to use the core services (plus related costs) to allow efficient firms to compete at the retail level.
The results for fixed line voice services show that sufficient margins were available for domestic and international long-distance calls and fixed-to-mobile calls, but not for local call services (line rental and local calls combined).
"At this stage, the ACCC does not necessarily regard the insufficient margins for local call services to be a competition concern", an ACCC Commissioner, Mr Ed Willett, said today.
"This is mainly because of the common bundling of local call services with other telephony services. However, the margins on local call services appear to be gradually deteriorating. The ACCC will further evaluate its approach to the pricing of wholesale local call services in the new year".
This is the first report to contain imputation testing of the unconditioned local loop core service (ULLS). The ULLS essentially allows a competitor to lease the use of the customer’s line from Telstra to supply any combination of access, voice, ADSL or other data services.
"The report strongly indicates that the average margins available in the provision of ADSL or of a bundle of ADSL and voice services over the ULLS are not sufficient to recover costs. The results are a concern, and are a warning signal to the ACCC to take a greater look at the costs of supplying retail services using the ULLS.
"The insufficient margins appear to result from the costs of transforming the ULLS core service into the downstream retail services, rather than the cost of the ULLS itself. The ACCC intends to examine possible price and non-price impediments to using the ULLS, such as costs of access to Telstra’s exchanges".
The ACCC notes that the imputation testing uses cost data that is highly aggregated.
"The test includes the higher costs of rural and regional areas, as well as metropolitan areas. Competitors are more likely to enter lower cost areas and target customers that generate above average revenues".
The ULLS test is in its infancy and the ACCC anticipates that it will require further development.
This imputation testing is different from the ACCC's investigation into wholesale ADSL pricing, which is currently subject to a Competition Notice. That investigation relates to the retail pricing of ADSL for competitors who resell Telstra's ADSL wholesale service, not competitors who use the ULLS.
The report is available on the ACCC website. The report on non-price terms and conditions, usually published with the imputation testing results, will be published separately.
*The three core access services are the local carriage service, the PSTN originating and terminating access service and the unconditioned local loop service (ULLS).