The Australian Competition and Consumer Commission today issued its final decision on Telstra's Unconditioned Local Loop Service (ULLS) and Line Sharing Service (LSS) monthly charges undertakings, and its draft decision on Telstra's ULLS and LSS connection charges undertakings.
The two services allow access to use the most basic elements of Telstra's customer access (copper) network. They are considered key inputs into the development of infrastructure-based competition in Australian telecommunications and can be used by all telecommunications companies to provide a wide range of services to end users.
"The ACCC's final decision is to reject Telstra's monthly charges undertakings for the ULLS and the LSS", ACCC Chairman, Mr Graeme Samuel, said today.
"The ACCC has also reached a draft decision to reject Telstra's ULLS and LSS connection charge undertakings. The ACCC is not satisfied, at this stage, that the terms and conditions of those undertakings are reasonable".
The background note (below) provides further details on the ACCC's undertaking decisions.
In assessing Telstra's undertakings, the ACCC needs to have regard to specific statutory tests which require it to ensure Telstra can recover its costs and take account of the legitimate commercial interests of Telstra and access seekers. This is in addition to promoting competition and efficient investment objectives.
Consistent with this, both the ACCC and Telstra agree that the ULLS monthly rates should contain two cost elements – the cost of the copper lines themselves and a component to recover certain IT and system costs associated with Telstra's obligation to provide the ULLS.
One component, the cost of the copper lines, is conservatively estimated to be in excess of $3 billion per year. The other component, the ULLS-specific costs, amount to less than $5 million per year. The ACCC largely accepts the appropriateness of these costs.
However, the ACCC has formed the view that the monthly access charges proposed by Telstra are higher than what is required to recover these costs in full. The key issue in dispute revolves around the way the $5 million in costs should be recovered. The ACCC considers Telstra's approach – recovering them over too few services – leads to unreasonably high charges distorting competition and investment outcomes.
"The undertaking assessment process only involves a decision on whether the prices proposed in Telstra's undertakings are reasonable. In the absence of approved undertakings, specific charges are expected to be set through negotiations or ultimately through arbitrations if no agreement can be reached", Mr Samuel said.
At the present time, the ACCC is considering three arbitrations relating to ULLS and LSS charges, including two which specifically deal with monthly rates. The decision today on these undertakings does not deal with these arbitrations.
The ACCC has accordingly not made any decision to set or determine ULLS or LSS charges.
Separate to the undertaking process, the Government has now decided to make explicit Telstra's retail price parity obligations and has asked the ACCC to provide advice about the impact of this policy on the approach that should be taken to ULLS pricing. More particularly, the ACCC will report to Government on the compatibility of ULLS pricing with the Government's policy on retail pricing parity.
The ACCC is also separately beginning a major inquiry into the regulation of fixed network services, which primarily results from the need to review the current declaration of the ULLS and PSTN (and related) access services in 2006. However, the ACCC will also use this opportunity to look more broadly into the regulation of fixed networks (see A.C.C.C. Initiates Broad Ranging Strategic Review Of Fixed Network Services, MR 324/05).
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