Telstra hit by ACCC ULLS pricing decision

Stuart Corner
Monday, 14 August 2006 13:28

IT Policy - Regulation

Telstra's shares have taken their biggest dive in five months after details leaked out of the ACCC's first determination of the price rivals should pay for access to Telstra's unconditioned local loop service (ULLS).
The Australian Financial Review reported today, Monday August 14, that the ACCC had set a price of $17.70 per month in band 2 (suburban areas) in its arbitration of an access dispute lodged by an unnamed rival of Telstra.

Investors took the news badly. Telstra shares opened at $3.70 and fell to $3.64 during the day. Telstra issued a statement to the ASX revealing that the ACCC had also made an interim determination of $7.20 for band 1 (CBD) (currently $13) and $34.20 for band 3 (regional).

Band 2 is the most significant because it embraces the greatest number of broadband customers and potential customers. The current price is $22. Telstra submitted and access undertaking in December proposing a flat rate of $30 per month regardless of location, but the ACCC has yet to rule on that pricing. However it does not accept the view that a geographically averaged price should be charged.

Subsequent to lodging its undertaking in December, Telstra wrote to ULL customs in February saying it intended to implement the $30 per month price without waiting for an ACCC decision on the undertaking.

In projection made when it reported its annual results for 2006 last week, Telstra said it had used a $22 figure and warned that a reduction in the regulated ULLS price could adversely affect the projections and result in lower dividend.

In its ASX statement, Telstra said that the pricing decision applied only to "one of Telstra’s lower volume ULLS wholesale customers" and that the ACCC "may now follow this interim determination with other interim determinations in respect of other ULLS access disputes."

It noted that these would all be interim determinations pending final determinations being made "at a date or dates to be determined by the ACCC."

However on past form the ACCC is likely to apply the same figure to all ULLS access disputes presently before it: that is what it did with a number of recent access disputes for mobile termination services.

The ACCC has before it ULLS access disputes form Chime and iiNet, Optus, Primus, PowerTel.

A reduction in the ULL price would have a double impact on Telstra: reducing wholesale revenues and enabling competitors to reduce retail prices while maintaining the same margin, or applying the increased margin to more aggressive rollout or marketing of their competing services.

Unlike ACCC findings on access undertakings ACCC rulings on access disputes cannot be appealed to the Australian Competition Tribunal. However Telstra could launch a challenge to the ACCC in the federal court claiming failure to follow due process in making the arbitration and could conceivable ask the court to stay the implementation of the ACCC arbitrated price while the case is heard.