Application by Optus Mobile Pty Limited & Optus Networks Pty Limited

The case involved an application by Optus Mobile Pty Limited and Optus Networks Pty Limited, where the Australian Competition and Consumer Commission (ACCC) reviewed the reasonableness of the pricing structure proposed by Optus for its Digital Global Terrestrial Access Service (DGTAS). The dispute centred on whether the proposed prices, particularly the Network Externality Surcharge (NES), were reasonable and aligned with the relevant statutory objectives. The matter was heard by the Australian Competition Tribunal (ACT), which had to determine the reasonableness of the price Optus proposed for its DGTAS, considering the statutory framework and the methodology used to calculate the costs.

The primary legal issue before the tribunal was whether the NES component included in Optus' pricing structure for DGTAS was reasonable, given the statutory requirements under the Telecommunications Act 1997. The tribunal needed to assess whether the methodology employed by Charles River Associates (CRA), commissioned by Optus to estimate the costs, appropriately accounted for the relevant market conditions and externalities in determining a reasonable price. Additionally, the tribunal had to evaluate the international benchmarking analysis conducted by CRA and compare it against the benchmarks established by the ACCC in its mobile services review.

The tribunal concluded that the NES component of Optus’ costs was not reasonable, as it did not adequately align with the statutory objectives and considerations outlined in sections 152AH and 152AB of the Telecommunications Act. The tribunal expressed doubts about the CRA model's ability to accurately reflect the Australian market conditions in 2005, particularly in light of the changing market dynamics and the selective adjustments made in the international benchmarking analysis. The tribunal also found that CRA's benchmarking analysis was flawed as it failed to consider several factors that significantly affected the cost differences between Australia and the benchmark countries. Consequently, the tribunal ruled that Optus' overall price for DGTAS was not reasonable.

The tribunal ordered Optus to provide an undertaking to the ACCC regarding the prices for its DGTAS. The undertaking specified the prices for the service, which were based on a forward-looking long-run incremental costs (FL-LRIC) model adjusted for fixed and common costs and a Network Externality Surcharge. The prices were set out in Schedule 2 of the undertaking, which was to remain in effect until 31 December 2007 or until terminated by the ACCC. The tribunal's decision highlighted the importance of aligning pricing methodologies with the statutory objectives and the need for a comprehensive analysis of all relevant factors affecting costs in determining reasonable prices for telecommunications services.