ACCC blasted over local looping price by Telstra
Following the ACCCs rejection of a proposal by Telstra for access to its telephony local loop to be charged at $30 per month, the telco has now launched a scathing attack on the ACCC.
The charge should be should be half this say the ACCC, although later this year Telstra were looking to raise this from $30 to $48. In what has become a bitter fight between the two for more than a year the rebuttal by Telstra of the decision made by the ACCC is just the latest of many disputes.
The Unconditional Local Loop Service (ULLS) in metropolitan areas is the area of pricing in question. This price will be essential in how viable many companies are that use their own DSLAMs to provide an ADSL broadband service and as many as 70 percent of the 10 million Australian lines come into the ULLS category.
March 2008 saw Telstra lodging an access undertaking which proposed a price of $30. Then in November 2008 a draft decision that rejected the proposal was issued by the ACCC, which is a rejection that Telstra have now lodged an appeal against.
The final indicative ULLS prices for 2008-2009 were set by the ACCC in June and it then issued a discussion paper on the ULLS undertaking by Telstra. Based on the previous determination by the ACCC prices that were to apply from July 1st 2008 to July 31st 2009 were slightly increased. Indicative prices of CBD (band 1) increased from $6.20 to $6.60, metropolitan (band 2) saw an increase from $14.30 to $16.00 and Regional (band 3) increased from $28.50 to $31.30. The recent rise in input costs and interest rates reflected these increases said the ACCC. Due to there being no demand for Rural (band 4) no price was indicated.
Telstra said in its submission “The ACCC chooses to assume a new network build for some inputs and an old network build for others, whichever reduces the TEA model’s cost estimate. Specifically, the ACCC assumes that the TEA model should model the costs of a network provider that benefits from the cost savings associated with building a network (and carrying out trenching work) over many past decades, while also benefiting from the cost savings associated with building a network today (using the latest technologies and most efficient practices). As hard as one might try, a network provider can have a network that is new or old, not both. The ACCC uses the tilted annuity formula to push cost recovery far into the future, allowing it to set low prices today. The extent of the ACCC’s backloading is shown with the modelling used by the ACCC to set current prices ($12.30 to $16).
The network cost component of prices, under those determinations was assumed by the ACCC to increase 50 percent in nine years, over 100 percent in 15 years and 200 percent in 23 years…The price increases required under this approach to ensure cost recovery ever occurs lack all credibility, and hence greatly increase the risk being placed on the access provider; yet the ACCC pretends that the provision of ULLS at regulated terms is a low risk activity, which merits a corresponding low cost of capital. The ACCC has to adopt unprecedented inputs for the TEA model’s result to be below $30. The ACCC assumes that 100 percent of trenching is undertaken in turf, which implies that all roods, footpaths, driveways in Band 2 areas of Australia are turf.
The ACCC adopts a WACC that is 93 basis points below its WACC determined for the some period in June 2008 despite a global financial crisis that is making it more difficult by the day for firms to raise capital. And as explained above, the ACCC backloads depreciation to such on extent that virtually no capital recovery would occur during the term of the Undertaking but provides no recompense for the greatly increased risk this back-loading causes.”
