ACCC 'squibs' on pricing reform

Stuart Corner
Thursday, 03 December 2009 11:27

IT Policy - Government Tech Policy

According to Forman, the ACCC had set, and missed an earlier deadline for announcing new lower prices based on a new cost-based modelling. "They missed their own deadline...which left everybody in an invidious position at the end of June when they came out of contract with Telstra. Some took the offers on the table from Telstra even through they were not as good as the prices indicated by the Commission. Then the ACCC came out with indicative prices in August that were not nearly as good as they had said. That threw the whole industry into chaos."

Forman blamed the present situation on the ACCC getting into, and losing a "battle of the models" with Telstra. The ACCC's Analysys cost model was subjected to a protracted attack from Telstra, which developed its own rival TEA model. According to Forman, "The ACCC said they would move to cost-based pricing via the Analysys model and they said repeatedly they did not want to get into battle of models with Telstra, because inevitably they would get out-resourced by Telstra. But in the end that is what they did and their model got subjected to death by a thousand cuts...Telstra will be laughing about this."

In March, in the midst of this 'battle of the models', Tony Warren, Telstra's executive director regulatory affairs, wrote to the ACCC, claiming significant errors in the ACCC model and expressing concerns that industry was setting too greater store by price cuts that would result from the model's application. He called for a rapid response from the ACCC saying that Telstra had seen "substantial evidence that some firms are placing considerable weight on the published results from an early version of the ACCC's model."

The ACCC's general manager, telecommunications, Michael Cosgrave, wrote back saying "The Commission has indicated since at least 2004 that the current Retail Minus Retail Cost (RMRC) approach is transitional and has indicated a desire to move towards cost based pricing." He acknowledged the difficulty of setting cost-based prices using models but sought to re-assure the industry that models were not the ACCC's only means of establishing prices and that, regardless of conflict around models, the industry could look forward to lower prices than those set by retail-minus principles


"The Commission's multi-input approach to cost based pricing recognises that the development of cost models within the telecommunications sector has been highly contentious for the past decade. This continues to be the case both in relation to Telstra's TEA model and the Analysys model commissioned by the ACCC. Both models are subject to further development. There is a current consultation process on model design and parameter settings for the Analysys model.

"Equally however, the initial outputs from the model suggest that in the event of redeclaration and the adoption of a cost-based pricing principle, prices for WLR and LCS are likely to be less than under an RMRC approach.