Telstra set to lose fight for 7 percent wholesale price hike

Telstra is likely to lose its push for a 7 percent increase to fees it charges wholesale partners to access its fixed-line copper network, and may instead be forced to drop its charges by 12 percent in real terms over the next four years.

In a submission [pdf] to the Australian Competition and Consumer Commission's inquiry into pricing for the declared fixed line services, the telco last year claimed that its costs would rise as users churn off its network and onto the NBN.

It argued that while some of its fixed-line costs would fall as a result of the increasing shift off copper and onto the NBN, this decline in costs would not match the decline in demand.

Telstra said it would therefore need to hit wholesale partners with a 7.2 percent increase to its prices for fixed-line services to compensate for a forecasted 62 percent fall in fixed-line demand by FY2019.

But in its draft decision on the matter today, the Australian Competition and Consumer Commission said Telstra should instead drop its wholesale fixed-line prices by 0.7 percent over the next four years - which given inflation would mean a decline in real terms of 12 percent.

ACCC chairman Rod Sims said such a drop would ensure price stability and competition in the wholesale telecommunications market.

“There are two conceptual underpinnings to this decision. First, Telstra will no longer bear all the costs of declining consumer demand for fixed line services," Sims said in a statement.

"Second, however, access seekers will only pay for the assets needed to supply them, and not for any under utilisation caused by the NBN."

The ACCC said it was taking a new approach to the way Telstra's copper network costs are allocated between users.

Telstra will no longer bear all the costs of declining consumer demand for fixed line services, the ACCC said - costs will now be fully allocated across all services supplied over the network, including to access seekers.

The regulator said it had also begun to implement a new cost allocation framework for NBN effects.

It will allocate costs to NBN Co for its use of leased assets, while assets that are decommissioned or used less because of the NBN will be removed from the cost base for the fixed line services.

Telstra will also not be allowed to pass on the costs of capital expenditure incurred in preparing for the NBN, the ACCC said.

“This means that the prices that access seekers pay do not include a component for the migration of customers off the legacy copper network and onto the NBN or NBN Co’s use of Telstra assets,” Sims said.

The ACCC said it will consider whether Telstra's costs forecasts represent the "prudent and efficient costs of supplying services over its copper network" before making a final decision on the wholesale charges.

Also to be considered in the final ruling will be whether rising unit operating costs - a result of the loss of economies of scale on Telstra’s network as users migrate to the NBN - should be excluded from the prices access seekers pay, the ACCC said.

The primary price terms will be included in the final access determinations covering the next regulatory period for the seven declared fixed line services.

The regulator will take views on the draft decision until April 30. It said it intended to release its final decision at the end of June.

Telstra said its proposal of a 7.2 percent increase would result in a 3.6 percent price reduction in real terms over the four years.

The telco's executive director of regulatory affairs Jane van Beelen said it was "disappointing" the ACCC was proposing to remove infrastructure costs from the asset base as a result of the NBN.

"[This] will prevent recovery of costs fairly across all users of our network. NBN Co has not compensated Telstra for these costs," she said in a statement.

"The starting point for [the final] decision should be the ACCC’s own fixed pricing principles that the regulatory asset base is locked in, and we should have the opportunity to recover our actual costs fairly across all users of the copper network."