The Australian Competition and Consumer Commission has made a draft determination rejecting Telstras proposed charges to other carriers for interconnecting to its network.
"The ACCC concluded that for the proposed charges to be acceptable, they would need to be halved," ACCC Chairman, Professor Allan Fels, said today.
Interconnection allows carriers to provide international and national long-distance calls (a $5 billion market) by gaining access to customers connected to Telstras network. Without interconnection consumers would be unable to choose their long-distance carrier. Charges for interconnection are a major part - at least 35 per cent - of the costs of providing national long-distance calls.
"Halving interconnect charges could reduce the prices of national long-distance calls by up to 15 per cent," Professor Fels said.
"Telstras competitors could save up to $200million. Recent experience shows that competition among carriers in the long-distance market would see most of these savings flow through to consumers through lower prices.
"If Telstra were to react substantially to the likely price reductions of its competitors - and past behaviour suggests this would be likely - the savings to users of all kinds, including small business users, could be in the vicinity of $400 million per year.
"A lower price for interconnection would be likely to encourage long-distance companies to compete with Telstra for customers in areas, particularly country areas, where they currently dont offer long-distance services".
The proposed charges were provided by Telstra in an undertaking submitted to the ACCC specifying the terms and conditions of interconnection.
The ACCC conducted a full investigation of the Undertaking. This involved a number of projects, including: an independent analysis by international experts National Economic Research Associates of the costs of providing interconnection in Australia based on efficient telecommunications practices; an examination of the costs Telstra incurred in the past in providing interconnection; and comparisons with best practice charges for interconnection overseas.
"Each of these studies leads to the same conclusion - that Telstras proposed charges should be halved", Mr. Rod Shogren, Commissioner responsible for telecommunications said. "Moreover, some of the non-price terms and conditions in the Undertaking would provide Telstra with too much discretion over how interconnection is provided. This would be likely to further disadvantage Telstras competitors and reduce the benefits of competition to consumers".
Under the Trade Practices Act, Telstra is encouraged to reach commercial agreement with carriers such as Optus and AAPT over the terms and conditions of interconnection. If they cannot agree, then the ACCC can arbitrate.
As an alternative to arbitration, the Act provides that Telstra may submit an undertaking to the ACCC specifying the terms and conditions of interconnection. The ACCC must not accept the Undertaking unless it believes the terms and conditions are reasonable.
In November 1997, Telstra provided an undertaking specifying its proposed terms and conditions (including the proposed charges) for interconnection. The charges in the Undertaking were specified by Telstra to be valid until 30 June 1998. The ACCC has issued a draft determination to reject the Undertaking based on its finding that the non-price terms and conditions are not reasonable. A final decision will be made once industry have had an opportunity to comment on the draft determination.
The ACCCs detailed draft determination will provide guidance to industry in determining interconnect charges. The ACCC is aware that Telstra has given the Undertaking more consideration since it was submitted. The ACCC looks forward to receiving a new undertaking from Telstra.
A report detailing the reasons for the ACCCs draft determination will be made available on the ACCCs web site - http://www.accc.gov.au. The ACCC seeks comments on the draft determination by 26 February 1999.
