ACCC rejects Telstra's $30 per month price of local loop access

Stuart Corner
Tuesday, 28 April 2009 13:09

IT Industry - Strategy

The ACCC particularly noted that it had already rejected Telstra's August 2006 undertaking where Telstra had proposed a uniform $30 per month price for all areas in Australia. The ACCC said "it [is] surprising that Telstra chose to submit an undertaking proposing a $30 price for metropolitan areas - a price, in effect, significantly higher than that which had been rejected in 2006."

The final decision is in line with the ACCC's draft rejection issued on 13 November 2008. It followed the ACCC setting final indicative ULLS prices for 2008-09 earlier in the year. These prices, to apply from 1 July 2008 to 31 July 2009, were increased slightly over the ACCC's previous determination.

The CBD (band 1) indicative price rose from $6.20 to $6.60, metropolitan (band 2) from $14.30 to $16.00 and band 3 from $28.50 to $31.30. The ACCC said the increase reflected the rise in interest rates and input costs. No price was determined for band 4 as there had been no demand for this service.

The ACCC cannot impose a set price on Telstra: it can only accept or reject prices proposed in an undertaking and arbitrate in specific disputes when potential users of the service will not accept the price Telstra wants to charge.

Telstra's pricing was derived from its TEA pricing model which has been the subject of much controversy between the ACCC and Telstra's competitor on the one side and Telstra and various economics consultants on the other.

Telstra claimed that its proposed monthly charge could be supported by the results of the TEA model under any reasonable set of inputs. The ACCC said, however that "When the TEA model is run with other parameter values, the resulting range of monthly charge estimates are significantly less than $30. This leaves the ACCC with significant doubt as to whether the proposed monthly charge of $30 is reasonable."

Telstra's $30 price, had it been accepted, would have been short lived and would likely have been followed by demands for a significantly higher price. Telstra proposed it be increased to about $48 using the TEA model either through commercial negotiation, arbitration or Telstra lodging another undertaking.