Back off: Optus, TPG tell Govt on Telstra pricing

news Major telcos Optus and TPG have joined the rest of Australia’s broadband sector and sharply warned Malcolm Turnbull’s Department to stop interfering in the competition regulator’s decision to cut Telstra’s wholesale pricing by 9.6 percent.

In late June, the ACCC made a draft determination on pricing for a certain number of fixed-line telecommunications services, revealing that it had decided Telstra would need to issue a 9.6 percent drop in prices to its wholesale customers. This could mean that broadband providers such as Optus, iiNet and TPG could cut their prices substantially.

However, last week it was revealed that This week it was revealed that Turnbull’s Department of Communications had written to the ACCC arguing that the decision was flawed and could lead to slower migrations to the National Broadband Network. Telstra also published a statement agreeing with the Department.

The Department argued the ACCC should seek “price stability” in the broadband market ahead of the NBN migration process.

However, the Competitive Carrier’s Coalition, representing companies such as Vodafone, iiNet, Macquarie Telecom, Nextgen Networks and Mynetphone, came down heavily on the department’s letter, labelling it as “extraordinary, unwelcome, unwarranted” and setting a “dangerous precedent”.

Last week, Optus and TPG wrote to the ACCC agreeing. The news appears to have first been broken by ZDNet.

Optus Head of Interconnect & Economic Regulation Andrew Sheridan wrote to the ACCC (PDF) stating that his company believed the Department had misunderstood the ACCC’s modelling of Telstra’s costs/ “As indicated in Optus’ submission to the ACCC, the proposed access prices are largely based on Telstra’s data and cost allocation factors,” wrote Sheridan. “… the Department’s concerns about lack of cost recovery by Telstra appear overstated. In addition, it is incorrect to claim that the decision limits Telstra’s ability to recover costs.”

Sheridan said what was “more concerning”, however, was that the Department considered it appropriate to intervene in the way it had.

“This intervention is unlikely to build confidence in the policy settings surrounding the NBN,” the executive wrote. “At the core of the Department’s submission is the request that access prices be kept high now so that consumers don’t face any price changes when they migrate to the NBN. This proposition is inconsistent with consumer interests and the matters that the ACCC has to take into account in setting access prices.”

TPG also criticised the Department for its letter to the competition regulator, noting that it agreed with the ACCC’s rationale for its decisions. The telcos’ letter is available online in PDF format.

“If the draft pricing is confirmed, competitive forces should result in a price reduction for fixed line services for end users. All carriage service providers will seek to use those reduced costs to win as many customers as they can prior to the migration to the NBN. However, the long term interests of end users are of course best served by a cheaper price today, regardless of what the cost of the NBN will be to them,” TPG noted.

“Carriage service providers will not have an incentive to not promote migration to NBN. The migration event is an important one and all carriage service providers are competing heavily to make sure that they get their share of the NBN migrations. Even today, the costs of supplying an NBN service are higher than the costs of supplying a copper based service but this is not stopping all carriage service providers from trying to win customers to their NBN services.”

“The fundamental principle should always be that Telstra is paid a reasonable cost recovery on assets. TPG submits that Telstra has long over-recovered and that it is probably significantly overrecovering from the Definitive Agreements. If the pricing is not reduced, this will result in the continued transfer of wealth from the end users of copper based services to Telstra shareholders. Such a position cannot be reasonably maintained having regard to the principles that the ACCC is obligated to consider.”

opinion/analysis
What we’re seeing here is a strong rejection by pretty much the entire non-Telstra telecommunications industry of the Government’s intervention into a legitimate process by the Australian Competition and Consumer Commission, and rightly so.

Even if you agree with the arguments being made by the Government and Telstra on this matter (and I, and it appears, pretty much the entire telco sector, don’t), then it’s extraordinary that the Government would seek to undercut this kind of decision made by the ACCC.

The ACCC has been setting pricing and examining Telstra’s wholesale costs for decades now. It is the only organisation in Australia which is a complete expert in this field, and the only organisation with the teeth to be able to rein in Telstra’s monopolistic powers over the telco sector. This is the very definition of the ACCC’s job, and it should be left to get on with it. You don’t set up an independent arbitrator and then try and stop it from functioning correctly.

Even if you did want to intervene … one would expect a Minister and his Department to do so using back channels rather than formal letters. Letters that are inevitably going to wind up in the media and raise the hackles of the industry.

I can’t understand why Turnbull and his Department felt this was the right way to insert themselves into the ACCC’s process. All they have done is create further acrimony between a Government and a telecommunications sector which they are already at loggerheads with, and for what? The concept of “price stability” and ensuring telecommunications prices don’t fall? That’s not precisely the sort of aim Coalition Governments are known for seeking.