EXPLANATORY STATEMENT
Pricing Principles for the Unconditioned Local Loop Service Amendment Determination 2008 (No.1)
Trade Practices Act 1974
Legislative Provisions
The Pricing Principles for the Unconditioned Local Loop Service Amendment Determination 2008 (No.1) (the Determination) has been made by the Australian Competition and Consumer Commission (the Commission) in accordance with section 152AQA of the Trade Practices Act 1974 (the Act).
Section 152AQA(1) of the Act requires the Commission to, by writing, determine principles relating to the price of access to a declared service.
Section 152AQA(2) of the Act notes that the determination may also contain price-related terms and conditions relating to access to the declared service.
Section 152AQA(6) of the Act requires the Commission to have regard to the determination if it is required to arbitrate an access dispute under Division 8 of the Act in relation to the declared service.
The Determination is a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Background
The Commission declared the Unconditioned Local Loop Service (ULLS) under section 152AL of the Act in July 2006. The Commission’s declaration decision is set out in its report Declaration inquiry for the ULLS, PSTN OTA and CLLS—final decision, published in July 2006. The report is available on the Commission’s website www.accc.gov.au.
Following the declaration, the Commission consulted the public with respect to the appropriate principles relating to the price of access to the declared ULLS.
The process concluded in the making of a determination - Pricing Principles for the Unconditioned Local Loop Service dated 21 November 2007 (the 2007 Determination). The results of the public consultation and the Commission’s analysis are set out in the Commission’s report Unconditioned Local Loop Service (ULLS)—Final pricing principles, published in November 2007. The report is available on the Commission’s website www.accc.gov.au. The 2007 Determination set out the pricing principles to which the ACCC must have regard in arbitrating access disputes in relation to the ULLS. The ACCC chose not to specify indicative prices at that time but nonetheless indicated that it might consult on indicative prices for the ULLS at a later time.
Subsequently on 23 April 2008 the ACCC released the draft 2008 ULLS Pricing Principles and Indicative Prices Determination. The 2008 draft Determination is based on the 2007 Determination but with the addition of indicative prices for the period to 31 July 2009. The ACCC received six submissions in response to the draft Determination from interested parties. The resulting final Determination is named the Pricing Principles for the Unconditioned Local Loop Service Amendment Determination 2008 (No. 1).
Regulation Impact
The Commission has obtained the advice of the Office of Best Practice Regulation (formerly the Office of Regulation Review) that a Regulation Impact Statement is not required for Pricing Principles made in accordance with s 152AQA.
Consultation
Draft Pricing Principles were published in Chapter 7 of the Commission’s July 2006 Declaration inquiry for the ULLS, PSTN OTA and CLLS—final decision report. The report was published on the Commission’s website www.accc.gov.au and submissions from interested parties were sought at that time.
Three submissions were received at that time. However the Commission did not finalise the pricing principles at that time given that there were a number of ULLS pricing issues being considered in relation to Division 5 undertakings (including a review by the Australian Competition Tribunal).
The Commission moved to finalise the pricing principles in October 2007. Because of the time that had elapsed since the July 2006 consultation, the Commission sought further submissions in October 2007 by publishing a report titled Fixed services review—further consultation on draft ULLS pricing principles. The report was published on the Commission’s website www.accc.gov.au. The ACCC received a further six submissions in response to this additional consultation prior to making the 2007 Determination.
In April 2008, the ACCC released the draft 2008 Unconditioned Local Loop Service Pricing Principles and Indicative Prices Determination. The ACCC sought submissions from interested parties on the draft indicative prices for the declared service. The ACCC received six submissions in response.
Commencement of Determination
The Determination commences on the day it is made.
Notes on the Determination
The Commission’s principles relating to the price of access to the declared ULLS are set out in Schedule 1 of the Determination.
The Commission’s price-related terms and conditions relating to access to the declared ULLS are set out in Schedule 2 of the Determination. An explanation of the price-related terms and conditions is set out below.
Schedule 1
The Determination provides that a TSLRIC+ pricing principle should be applied to the ULLS. The TSLRIC+ approach can be considered by breaking the concept into components:
- “Total service” refers to the cost of production of an entire service, rather than the cost of a particular unit. The cost is usually expressed on a per-unit basis by dividing by the number of units supplied.
- “Long run” means that the concept refers to a period where all factors of production can be varied, as opposed to the short run, where the amount of at least one factor of production is fixed.
- “Incremental cost” means that the concept refers to the additional costs of supplying the service over and above the situation where the service was not supplied, assuming the scale of all other production activities remains unchanged. Strictly speaking, the concept refers to only those costs that can be attributed to the production of the service. In practice, the strict TSLRIC concept is often expanded to include a contribution for indirect and overhead costs (TSLRIC+).
The Determination provides that a specific cost component should be included in the ULLS monthly price, calculated by combining ‘ULLS-specific costs’ with ‘LSS-specific costs’ and Telstra’s internal equivalent costs for ADSL, and allocating those costs across the number of active ULLS, LSS and ADSL lines. Specific costs are costs incurred by Telstra to allow for supply of the declared ULLS and other products. The costs typically claimed by Telstra are IT system development and operational costs, front-of-house connection group costs, wholesale product management costs and indirect costs. An access provider will face the above categories of costs when:
- supplying the ULLS (or LSS) to another service provider, or
- when providing line sharing to itself – that is, when it uses a copper loop to supply both voice and data services (either retail or wholesale) on the line.
The Determination provides that the ULLS charges should be geographically de-averaged. Geographic de-averaging provides that prices are set for the ULLS such that they reflect significant cost differentials in different geographic regions.
The Determination provides that connection charges should be set with reference to the amounts charged by third party contractors to Telstra for jumpering work in exchanges, indirect costs and back-of-house costs. Connection charges recover the costs of technicians performing jumpering work inside Telstra exchanges, travel and vehicles costs for the technicians, back-of-house costs and materials costs.
Schedule 2 – INDICATIVE PRICES
The Commission issued price-related terms and conditions (also known as indicative prices) relating to access to the declared ULLS that apply to 31 July 2009, the expiry date of the ULLS declaration. An explanation of these terms and conditions is as follows:
ULLS Monthly Charges
The ULLS monthly charge is an ongoing rental charge paid by an access seeker to the access provider on a monthly basis for the use of the ULLS. The indicative prices are on a per service per month basis in the relevant bands.
ULLS Single Connection Charges
A ULLS connection can be made using Telstra’s standard ordering systems or processes, or alternatively, using a Managed Network Migration (MNM) process. A ULLS single connection is when Telstra’s standard ordering system and processes are used and comprise all ULLS connections that occur outside an MNM process
ULLS Managed Network Migration Connection Charges
A Managed Network Migration (“MNM”) is a transfer or migration of multiple services.
ULLS managed network migration – fixed amount
The charge for ULLS managed network migration - fixed amount is a once-off charge per MNM for work performed to connect services as part of a MNM.
ULLS managed network migration – variable amount
The charge for ULLS managed network migration - variable amount is a once-off charge per connection for work performed to connect services as part of a MNM.
ULLS Cancellation charges
The charge for ULLS cancellation is a once-off charge per connection cancelled and a once-off charge per MNM where a migration is completely cancelled.
ULLS Call Diversion Charges
The charge is a once off connection charge to activate call diversion and a pro rata monthly charge per service.