Telcos fight over ACCC wholesale pricing

The Australian Competition and Consumer Commission's (ACCC) decision to enforce a flat monthly rate for wholesale prices has concerned the major telcos, with Telstra saying that the ACCC has undervalued its copper network asset, while Optus is concerned that Telstra will be paid twice as much as it should be.

In March, the ACCC mandated that in most areas, Telstra could charge $16 to its competitors for access to the "unconditioned local loop service", or ULLS, with which they can offer broadband services.

The ACCC used what it called a "building block pricing model", or a regulated asset base (RAB) model, which calculates a price based on Telstra's assets and the costs associated with providing the services to its rivals.

The price was set as a benchmark, and the other telcos can negotiate with Telstra for a better deal.

In a submission (PDF) to the discussion paper for fixed-line access pricing, Optus welcomed the shift to a building block model, but said that the $16 flat cost overpriced Telstra's assets by around 50 cents, and would deliver a windfall to Telstra of $1.8 billion.

Optus said that the $16 price would more than cover Telstra's costs.

"The proposed adjustments result in a RAB which is overvalued from the outset ... it denies consumers the opportunity to benefit from lower access prices and does nothing to encourage further ULL roll-out in advance of the NBN," Optus said. "This approach will provide Telstra with both the incentive and the means to 'game the system' and recoup revenue substantially greater than its actual expenditure, leaving its wholesale customers to pay the difference."

The over-pricing, in conjunction with the pending finalisation of the $11 billion deal between NBN Co and Telstra to lease Telstra's ducts and pits, could also mean that Telstra is paid twice for its copper network asset, Optus said.

"The ACCC appears to be minded not to take into account these substantial payments, either in its consideration of the initial RAB or in the context of ongoing regulatory depreciation," Optus said. "There is a real risk that Telstra will be compensated twice for its investment. It is even more concerning that the ACCC has flagged that it may reduce demand forecasts to take account of NBN migration when information becomes available, thus taking into account the impact of the NBN on one side of the ledger, but failing to take it into account on the other side."

Telstra, however, reiterated in its submission (PDF) that the ACCC had undervalued its assets.

It said that the move to a new pricing model should not have resulted in a drop of the value of its network.

"Any substantial change would indicate either a problem with the application of the previous methodology, or a problem with the application of the new methodology, or both, and it would certainly be a matter calling for investigation," Telstra said. "Yet, in the present case, the commission is proposing a substantial and irreversible reduction in the value of Telstra's investment ... without attempting to reconcile or justify the disparity between the old methodology and the new."

It also said that if the NBN deal was to be taken into account in determining wholesale pricing, the ACCC did need to consider the impact that the network would have on the lifespan of its copper network.

"If NBN roll-out was to be taken into account in setting the initial RAB value, it would also need to be taken into account in other areas, such as demand forecasting and determination of asset lives," it said.

A Herbert Greer submission (PDF) on behalf of iiNet, Internode, Adam Internet and Aussie Broadband argued that the ACCC appears to have decided on an appropriate ULL price before actually determining the value of Telstra's assets and costs. The consortium has recommended that the ACCC go back and determine the value before setting a proper price, taking into account whether Telstra has recovered the costs for investing in the network in the first place. Herbert Greer warned the ACCC to ensure that Telstra's maths are carefully examined in this process.

"It appears to our clients that the ACCC may simply have accepted at face value much of the information and data provided by Telstra. Given Telstra's obvious, and understandable, self-interest in achieving as high an access price as possible, it is not appropriate for the ACCC to proceed in this way. Rather, the ACCC must ensure that the information and data provided by Telstra is subject to an appropriate level of scrutiny."