ACCC rebuffs Telstra's rivals on wholesale pricing

NBN Co payments to Telstra won't be incorporated in wholesale formula

Australia's competition watchdog won't take into account payments made to Telstra by NBN Co when it determines new pricing arrangements for the telco's wholesale services.

The Australian Competition and Consumer Commission this morning released a position statement on how it would tackle the migration of end users to the National Broadband Network when it came to determining how much Telstra can charge other telcos for access to its copper network.

Telstra has told the ACCC that it should be allowed to raise its wholesale charges for fixed line services by 7.2 per cent

Optus has argued the payments Telstra receives to migrate users away from the copper network to the NBN should be taken into account when setting fixed line prices.

"Optus notes that a number of the payments Telstra will receive from NBN Co relate to long-term arrangements that enable NBN Co to access and use existing Telstra infrastructure and assets, such as ducts and transmission capacity," the telco argued in its submission to the ACCC's inquiry on the issue.

"Many of those assets are also used to provide retail and wholesale services and are relevant inputs to the ACCC’s building block methodology. In addition, payments for the migration of Telstra customers can be seen either as a return of capital or as compensation for declining services on the legacy copper network.

"It is important for the NBN payments to be taken into account when setting access prices otherwise there is a very real risk that Telstra will be over compensated for the provision of fixed line services."

"We have identified the arrangements regarding the migration of customers to the NBN and the use of Telstra’s assets by NBN Co as key issues in setting prices for declared services," the ACCC's chairperson, Rod Sims, said in a statement.

"The ACCC does not propose to take the value of payments made by NBN Co to Telstra into account in setting prices for declared services," states the ACCC paper setting out the organisation's view.

"Use of regulatory values maintains the current cost based approach to setting prices for Telstra’s declared fixed line services, and is consistent with the common practice in regulated sectors of relying on regulatory asset valuations for price setting purposes."

"The ACCC will use the regulatory value of Telstra’s assets, not the higher payments agreed between Telstra and NBN Co in their Definitive Agreements, to adjust the cost base for NBN effects when determining regulated charges," Sims said.

The ACCC's approach "accords with common regulatory practice," the watchdog's chairperson said.

"The ACCC’s position involves the same regulatory principles as arise when one business buys regulated assets from another. If regulated prices were adjusted up to reflect an asset sale price above the regulatory value of the assets this would result in price increases due solely to ownership change and not to changes in underlying costs. This outcome would clearly not be in consumers' interests

"Further, if values in excess of regulatory values were deducted from a businesses' cost base as some stakeholders have suggested we could reach a future point where regulated asset values become negative. This would clearly be a nonsensical outcome."