ACCC v Telstra: Samuel hits back

Stuart Corner
Sunday, 06 November 2005 13:48

IT Policy - Regulation

ACCC chairman Graeme Samuel has hit back strongly at allegations made by Telstra CFO, John Stanhope.

Stanhope's letter and Samuel's reply were both released to the ASX. In his reply, Samuel notes that "Telstra is now attempting to justify its claim that a de-averaged pricing model for ULLS would result in an $800 million loss - having failed to do so previously, including at its Senate Committee hearing last Monday evening... despite intensive questioning on the subject."

In his letter to Samuel Stanhope justified the claim by reference to a hypothetical Band 4 (rural and remote areas) ULL price of $144 per month, but Samuel notes that a different explanation has been presented by another Telstra executive. "I note in reports in this morning's Melbourne Age and Sydney Morning Herald that Mr Phil Burgess has an alternative explanation. 'The mathematics are simple Mr Burgess is quoted. He then justifies the $800 million claim by reference to a hypothetical access price for Band 2 (metropolitan areas outside the CBDs). Mr Burgess is then quoted as saying 'That is one way to calculate it. There are others' - with the suggestion that the loss might be closer to $360 million."

Samuel then asks: "Will the $800 million loss result from the hypothetical Band 4 pricing as suggested in your letter to me, or it will it result from the hypothetical Band 2 pricing as attributed to Mr Burgess. And is the projected loss $800 million, $360 million or some other figure?

According to Samuel, despite Telstra's claims of a potential $800 million loss in one year from the ACCC's proposed ULL pricing, the two organisations' positions are in reality quite close. "Telstra has submitted a voluntary undertaking to the ACCC in relation to access to the ULL, which proposes a de-averaged price based on the costs of supplying the service in different geographic areas. The main point of difference between ACCC and Telstra is in relation a relatively small amount of IT and systems costs which Telstra claims it incurs to make the ULLS available, which amount to $20-25 million over five years. The logic of Mr Burgess's arithmetic suggests that Telstra needs $800 million per year to recover a total outlay of $20-25 million over five years."

And while Telstra is lobbying hard for geographically-averaged ULL price, according to Samuel, "Telstra has charged access to the ULL on a deaveraged basis since regulation began. Its current ULLS undertaking proposal before the ACCC also proposes a de-averaged approach. This has also been adopted for PSTN interconnection charges so any move to averaging would be a significant change to the regulatory pricing approach."