AUSTRALIAN COMPETITION TRIBUNAL
Telstra Corporation Ltd (No 3) [2007] ACompT 3
SUMMARY
FILE No 8 of 2006
TELSTRA CORPORATION LTD (ACN 051 775 556)
Applicant
JUSTICE GOLDBERG (President), MR R DAVEY and PROFESSOR D ROUND
17 MAY 2007
MELBOURNE
SUMMARY
1. In accordance with the practice of the Australian Competition Tribunal (“the Tribunal”) for matters of significant public interest, the following summary has been prepared to accompany the Decision today and the Reasons for Decision which will be published on Monday 21 May 2007 after any outstanding issues of confidentiality have been resolved. The summary is intended to assist in understanding the outcome of this proceeding and is necessarily not a complete statement of the reasoning, nor of the conclusions, of the Tribunal. The only authoritative statement of the Tribunal’s reasons is that contained in the published Reasons for Decision which will be published on 21 May 2007 and will be available on the internet at www.competitiontribunal.gov.au, together with this summary.
2. The matter before the Tribunal constituted by Goldberg J (President), Mr Robin Davey and Professor David Round was an application by Telstra Corporation Limited (“Telstra”) for review of the decision of the Australian Competition and Consumer Commission (“the Commission”) to reject two ordinary access undertakings given by Telstra to the Commission pursuant to s 152BU(2) of the Trade Practices Act 1974 (Cth) (“the Act”).
3. Telstra’s undertakings set out certain terms and conditions upon which Telstra was prepared to provide access to its Unconditioned Local Loop Service (“ULLS”) to access seekers from 1 January 2006 until 30 June 2008. The ULLS is a service for access to unconditioned cable, usually a copper wire pair, between an end-user and a telephone exchange. The ULLS essentially gives an access seeker the use of the copper pair without any dial tone or carriage service. This allows the access seeker to use its own equipment in an exchange to provide a range of services, including traditional voice services and high speed internet access, to the end‑user.
4. The Commission rejected the undertakings in its final decision published on 25 August 2006 on the basis that it was not satisfied that the charge for access to the ULLS of $30 per month and certain non‑price terms and conditions specified in the undertakings were reasonable having regard to the matters set out in s 152AH and the objectives in s 152AB of the Act.
5. Particular terms and conditions of access to its ULLS proposed by Telstra related to:
· a monthly charge for access to the ULLS of $30 per service;
· Network Modernisation Provisions whereby Telstra set out the terms on which it would carry out network upgrades which included the possibility that the ULLS would no longer be able to be supplied.
6. These terms and conditions gave rise to issues whether it was reasonable, having regard to the matters specified in s 152AH and the objectives in s 152AB, for Telstra:
· to arrive at its $30 charge by averaging its costs of supplying the ULLS across four geographic areas throughout Australia, namely central business districts, metropolitan areas, provincial areas and rural areas;
· to rely on its PSTN Ingress and Egress II Model (“PIE II model”) to estimate the network costs sought to be recovered by the $30 charge;
· to include the Network Modernisation Provisions; and
· to use two distinct values for its Weighted Average Cost of Capital (“WACC”) in determining its costs of supplying the ULLS and, regardless of whether one or two WACC values were accepted, whether it was reasonable for Telstra to adjust the WACC by the addition of an amount equal to one standard deviation to allow for an alleged asymmetry in the social consequences of errors made in estimating the WACC.
These were only some of the issues addressed by the Tribunal.
7. By virtue of s 152BV(2)(d) of the Act, the Tribunal cannot accept Telstra’s undertakings unless it is satisfied that the terms and conditions specified in the undertakings are reasonable having regard to the matters set out in s 152AH and the objectives in s 152AB. The matters to which the Tribunal must have regard in determining whether particular terms and conditions of an access undertaking are reasonable include:
· whether the terms and conditions promote the long‑term interests of end‑users of carriage services which, in turn, requires the Tribunal to have regard to the extent to which the terms and conditions are likely to result in the achievement of the objective of promoting competition in markets for carriage services and encouraging the economically efficient use of, and the economically efficient investment in, infrastructure generally;
· the legitimate business interests of Telstra;
· the interests of access seekers, such as Optus Networks Pty Limited and the other access seekers who participated in the proceeding; and
· the economically efficient operation of a carriage service.
8. The Tribunal has reached the conclusion that it is not satisfied having regard to the matters set out in s 152AH and the objectives in s 152AB that:
· the charge for access to the ULLS of $30 per service per month in the undertakings, based on the averaging of its costs of supplying the ULLS across the four geographic areas, is reasonable;
· the Network Modernisation Provisions in the undertakings are reasonable;
· the PIE II model can be relied upon to estimate accurately Telstra’s costs of supplying the ULLS for the periods covered by the undertakings;
· Telstra’s estimated network costs represent a reasonable estimate of its projected network costs for the periods covered by the undertakings;
· Telstra’s allocation of its ULLS specific costs across ULLS lines only is reasonable with the consequence that the Tribunal is not satisfied that Telstra’s estimates of its ULLS specific costs are reasonable;
· the use by Telstra of two values for the WACC in determining its cost of supplying the ULLS is reasonable;
· the calculation and estimate of the WACC by the addition of an amount equal to one standard deviation in order to allow for the alleged asymmetry and the social consequences of errors made in estimating the WACC, for the purpose of determining and estimating Telstra’s specific ULLS costs, is reasonable.
9. It follows from these conclusions that the Tribunal is not satisfied, having regard to the matters set out in s 152AH and the objectives in s 152AB, that the terms and conditions specified in the undertakings, in the respects referred to in the Reasons, are reasonable and that the Commission’s decision on 25 August 2006 rejecting the undertakings should be affirmed.
10. The decision of the Tribunal is that the decision of the Commission on 25 August 2006 rejecting the two ordinary access undertakings given to it by Telstra Corporation Limited on 23 December 2005 is affirmed.