ACCC proposes new simpler approach for wholesale fixed line telecommunications services pricing

The Australian Competition and Consumer Commission today released a draft report and draft indicative prices to apply to the regulated fixed line telecommunications services. These services are currently used by communications companies to provide voice, facsimile and broadband products to consumers and businesses over Telstra's copper network. The ACCC is yet to consider pricing on fibre access networks.

The release of the report and draft prices results from a period of industry consultation that commenced on 3 December 2009. The proposed prices are intended to apply from 1 January 2011 to 31 December 2014 to provide a period of price certainty and stability for industry.

"This draft report proposes indicative prices based on a significant change in the method of pricing, which has already been broadly supported by the industry," Chairman Graeme Samuel, said today. "The ACCC recognises that a four year pricing guidance period will provide a level of certainty which is essential to support commercial negotiations in the industry and to continue to support the competitive supply and rollout of telecommunications services to consumers".

The ACCC has used a building block pricing model (also known as a regulated asset base, or "RAB" model), which calculates prices based on the assets and costs associated with providing the regulated services. It is consistent with the ACCC's approach in other regulated industries. All submissions received in response to the ACCC's December discussion paper supported such an approach.

In determining its approach, the ACCC has also had regard to the recent decision of the Australian Competition Tribunal, which noted that a RAB pricing approach may be "a simpler and more appropriate pricing methodology" than the hypothetical replacement cost model that the ACCC has applied since 1997.

The shift to a building block approach also delivers on a long standing commitment by the ACCC to replace the "Retail Minus Retail Cost" approach used to price wholesale voice line rental and wholesale local calls.

It is notable that the prices for these resale services are estimated to fall as a result of this change, while prices for other services have remained fairly stable. For example, the price for direct access to the copper wire path from the telephone exchange to a consumer's residence (the unconditioned local loop) is estimated to
remain at $16 per month for metropolitan areas (excluding the CBD). The headline PSTN OA (originating) and TA (terminating) rates are estimated to rise slightly.

"In reviewing its approach to pricing, the ACCC has balanced the need for stability with ensuring that the wholesale prices are based on the actual costs of providing the services," Mr Samuel said.

The draft prices, and a description of the relevant services, are set out below. A copy of the draft pricing principles report and draft indicative prices is on the ACCC's website Access pricing principles for fixed line services review draft report.

Submissions on the draft report and indicative prices are due by 22 October 2010.

Guide to the declared fixed line services

The proposed new pricing approach and draft indicative prices are specific to wholesale access to the six declared fixed line services.

ULLS – The unconditioned local loop service is the use of the whole copper line from the telephone exchange to the home. By using this service a company can supply telephone and/or ADSL services to consumers using their own equipment in the telephone exchange.

WLR – The wholesale line rental service allows a company to supply voice services to consumers using Telstra's equipment.

LSS – The line sharing service allows a company to supply ADSL services to consumers using their own equipment in the telephone exchange, while the consumer is able to get their voice service from another provider.

PSTN OA and TA – This refers to both the public switched telephone network originating access and terminating access. PSTN OA allows a telephone call from a caller to be connected to a point of interconnection within the network of a company that provides telephone services. PSTN TA allows a telephone call to be carried from a point of interconnection within the network of a company that provides telephone services to the party being called. The services together allow a company to connect their customers to customers on other networks.

LCS – The local carriage service allows a company to supply end-to-end voice services to consumers without having to install their own equipment in the telephone exchange. It is generally sold with the WLR so that a company is able to supply a full voice service.

Draft indicative prices

For ULLS services, the Bands relate to different geographical areas.

• Band 2 covers non-CBD metropolitan areas, where approximately 70 per cent of Australia's population live.
• Band 4 price for more remote areas is notional, as there is very little demand, significant technological limitations on the copper and no reliable information on which to determine a price using the ACCC's model. In June 2010, there were only about 144 active ULLS services in Band 4 compared to over 690,000 active ULLS services across Bands 1, 2 and 3.