ACCC issues pricing principles for Telstra local loop services

The Australian Competition and Consumer Commission today issued its discussion paper on the pricing of the declared unconditioned local loop service.

The unconditioned local loop service allows competitors direct access to Telstra's copper lines that connect customers to local telephone exchanges. This enables other telecommunications companies to supply both advanced, high-speed, including Internet, services as well as voice services in competition with Telstra.

"In the ACCC's view, and on the basis of previous network costing work undertaken by the ACCC, the charges for the ULLS proposed by Telstra appear too high" ACCC Chairman, Professor Allan Fels, said today.

"Comparing Telstra's proposed charges with the cost estimates for similar network components that have previously been looked at by the ACCC, the Telstra charges are nearly double the ACCC's estimates – even with the inclusion of ULLS specific costs.

"Most of this difference relates to Telstra's continued use of certain costs which the ACCC has previously rejected. This includes line provisioning and trench sharing, the cost of capital and the efficient level of indirect costs that should be included.

"At this stage, the ACCC considers that the Telstra assumptions which are common to both costing exercises are no more appropriate to the estimation of ULLS costs than they were to PSTN costs. The ACCC has, however, made certain modifications to its cost model to make it more suitable to ULLS".

Over the past month, Telstra has made several announcements about its pricing approach and proposed charges for the ULLS, which has resulted in some strong reaction from industry about the appropriate pricing of this service. The ACCC has also expressed some concern about Telstra's approach and indicated that it would be reviewing aspects of Telstra's proposals.

"The ACCC's discussion paper considers the appropriate pricing approach that should be used to determine access charges for the supply of the ULLS. The paper also provides some preliminary views about various pricing claims, particularly those made by Telstra, in relation to this service. This preliminary view reflects previous work that the ACCC has undertaken as part of its assessment of Telstra undertaking.

"It is intended that the pricing comparison, in particular, will provide some guidance to both Telstra and access seekers, who are negotiating access to the ULLS, to try and narrow the rather broad range of pricing expectations that are being canvassed within the industry at the present time, with a view to facilitating access negotiations.

"In terms of pricing principles, the ACCC considers that ULLS access charges should not be inflated by monopoly profits, which may be embedded in their existing cost base.

"It is appropriate, however, that additional costs associated with the efficient provision of this service should be recovered in the charge. The ACCC also agrees that the charges should be de-averaged along geographic lines as proposed by Telstra, but at this stage queries whether an access deficit contribution is appropriate for this service".

The ACCC is not in a position to form any final views about the reasonableness of the proposed Telstra charges at this time. The ACCC will, however, be progressing its consideration of these matters as part of arbitrations in relation to this service as expeditiously as possible.

Further, the ACCC's views are necessarily preliminary and are not binding on the ACCC as it may be constituted for the arbitration of any dispute between Telstra and another industry participant about the price for access to the ULLS.

The ACCC's discussion paper is available from its website and interested parties are invited to comment by 15 September 2000.