ACCC brews TEA trouble for Telstra over ULL price modelling

By Stuart Corner
Thursday, 10 July 2008 11:07

Government Tech Policy

The ACCC has discovered serious errors in the modelling Telstra has used to justify its claim for $30 per month for uconditioned local loop (ULL) access, and an estimated $50 per month in 2011.

The ULL is the underpinning of naked DSL services, identifed ths week by IDC as a key driver behind the increasing uptake of VoIP services by Australian consumers.

Telstra in March lodged an access undertaking with the ACCC proposing a price of $30 per month for band 2 (suburban) exchange areas to apply from the time of acceptance of the undertaking until 31 December 2010. Beyond that date it wants charge a price based on the total service long run incremental costs (TSLRIC) as determined using what it calls the Telstra Efficient Access (TEA) model. It has put this price at around $50 per month.

However the ACCC has uncovered serious errors in the TEA model which would increase these estimated costs. It has written to Telstra demanding it to fix the problem and threatening to ignore the model entirely in its assessment of th undertaking, but has not indicated what impact it believes the error has on the ULL cost as estimated by the model.

There are two errors. Cable routes in Telstra's network are identified by 16 digit numbers for the purpose of the model and in calculating costs data on individual routes are summed. However the summing function looks only at the first 15 digits of the route identifier so could apply the calculation to multiple routes.
The ACCC notes that this error cannot lead to an understatement of the installed cables – only an overstatement of the network and hence an over estimate of underlying costs. As a result of second error, where there are multiple paths in the network the shortest will not be used in the cost calculation. Again the result will be to increase estimated costs.

Errors in cable counting will have a significant effect on the end price for the ULL. In a discussion paper issued on the undertaking in March the ACCC noted that 'the cost of main and distribution copper cables...contribute significantly to the total annual cost (about 35 percent). The ducts and pipes which carry the cables are the biggest cost contributor, about 55 percent.

This is not the first error of its kind and the ACCC is clearly losing patience. It says in the letter "To properly assess any undertaking, it is essential that the ACCC is given information which is relevant and accurate...In January 2008, the ACCC wrote to Telstra and identified a malfunction in the TEA model relating to generating the default scenario in the TEA model.

"At that time, the ACCC formally requested that Telstra provide a model free of errors. Further, it appears that the >15 digits 'SumIf' calculation issue is widely documented in publicly available material...The ACCC is concerned that: (a) the model may contain other material errors; (b) both the ACCC and access seekers may have spent significant amounts of time and money reviewing flawed models lodged in support of various Undertaking applications; (c) the model cannot be properly relied upon in support of your Undertaking.
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