Reasons For Rejecting Telstra’s ULLS Bid Revealed

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The Australian Competition and Consumer Commission has welcomed the release of reasons for the decision of the Australian Competition Tribunal, affirming the ACCC rejection of Telstra’s undertaking for the unconditioned local loop service (ULLS).

The ULLS is generally supplied as the copper line between the telephone exchange and the consumer or business end-user premises. This is an essential input used by other telecommunications access seekers in combination with their own equipment to provide competitive telephony and high-speed broadband services to consumers and businesses.

Under Telstra’s plan, each customer line would have incurred a charge of $30 per month in the Metropolitan Band 2 exchange service areas, which cover approximately 70 percent of the population of Australia. This price proposal was significantly higher than the $16 price published by the ACCC for the period of 31 August 2009 to 31 December 2010 for Band 2.

Telstra’s undertaking was rejected by the ACCC and the Australian Competition Tribunal on the basis that the proposed price did not reflect the efficient costs of providing the ULLS.

The Tribunal concluded it was not reasonable that: “the ULLS should be priced on the basis of the up-to-date costs of replacing a historical relic while keeping most of its essential design features and merely updating its equipment.”
 
It also stated that Telstra’s legitimate business interests are largely confined to receiving: “a commercial return on its prudent (past) investment in the infrastructure used to supply the ULLS, not a hypothetical new investment.”

Since 2004, such services have been the subject of a series of six undertakings by Telstra to the ACCC. Five were rejected by the ACCC, with one withdrawn before decision. In three of those instances, Telstra applied for review of the ACCC decision and the Tribunal affirmed the ACCC decision each time.

Over the years, the ACCC has been forced to make many bilateral arbitration decisions due to Telstra’s failure to make reasonable access undertakings for these services. Notably, 17 of these ACCC arbitration pricing decisions were taken to the Federal Court for judicial review by Telstra – in all these cases the ACCC pricing was upheld.

 

The complex legislative provisions currently in place have encouraged a litigious environment, which has created a high level of uncertainty and significant costs for Telstra, access seekers and the ACCC.

“Ensuring access seekers can utilise the unconditioned local loop service at reasonable prices, with certainty, continues to be essential to promote competition in broadband and voice services,” ACCC chairman Graeme Samuel said today.

The Tribunal also gave full support for the current ACCC review of the access pricing principles for fixed line services. It noted that: “a simpler and more appropriate pricing methodology might be, for example, to apply a ‘regulated asset base’ approach, like that used in relation to other regulated infrastructure providers.”

In December 2009, the ACCC indicated that it was considering adopting this approach to determining pricing principles for fixed line services. In the meantime the ACCC rolled over its indicative prices for all the regulated fixed line services until December 2010. The aim was to provide certainty and minimise price disruption in a period of significant regulatory and industry change.

The ACCC observes reports of prospective wholesale price increases with some disquiet. The ACCC reiterates, as stated in its determination that: “while the ACCC would continue to see indicative prices as an appropriate starting point, the ACCC would still take into account any further and better information that comes to hand during the term of this determination, which it would consider relevant to any dispute.”

The ACCC recognises certainty is important for the sector, and this would be helped by an early indication of views on pricing for the period after 31 December 2010. It is working towards developing a position on a new pricing method by the middle of this year.

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