Turnbull's mob sides with Telstra in wholesale price fight

The Department of Communications has echoed Telstra's calls for the competition watchdog to rethink its draft decision to impose a 10 percent wholesale price drop for the telco's copper network over concerns it will negatively affect the wider industry.

Late last month the ACCC issued a new draft determination on pricing for the declared fixed-line services, revealing it wanted to lump Telstra with a 9.6 percent drop in wholesale fixed-line prices compared to the 0.7 percent drop it had previously proposed.

Telstra has argued for a 7.2 percent increase in the charges to account for rising costs resulting from users churning off its network and onto the NBN.

But in a submission [pdf] to the ACCC, the Communications department yesterday "encouraged" the ACCC to revisit its decision given the impact it could have more widely on the sector.

Communications secretary Drew Clarke said the decision would affect price stability in the telco industry and negatively impact on the transition to the NBN.

"The department is concerned that the proposed price decrease for fixed-line services will discourage migration through the migration window and could lead to a significant number of customers remaining on the old network in the lead-up to the disconnection date."

He also argued the proposed price increase would not allow for Telstra to recover its costs in supplying fixed-line services.

"Despite the loss of economies of scale due to the migration to the NBN, network costs are still casued by, and attributable to, the users of the network and should be recovered from them," Clarke wrote.

“The ACCC's suggestion that Telstra should have sought to recover the costs through the definitive agreements confirms there is an under-recovery of costs but it would not have been appropriate to recover them through that mechanism and it is not the mechanism that is available anyway."

In a blog post yesterday, Telstra regulatory affairs director Jane van Beelen repeated Telstra's resistance against the draft decision, arguing it had serious flaws.

“Having accepted our cost and demand forecast, the ACCC’s approach then effectively pretends that the NBN is not happening, thereby assuming higher demand for Telstra’s services and accordingly lower average costs," she wrote.

"The ACCC has also mischaracterised the deal we did with the government to facilitate the NBN, which is about a loss of future revenue after services are disconnected from the copper network, not the cost of maintaining our network for those customers who remain on it as the NBN is rolled out."

In its own submission to the ACCC, Telstra echoed Clarke's concerns that the price increase would disincentivise migration from Telstra's copper to the NBN and result in price hikes for end users.

“The proposed adjustment will negatively impact the broader industry and the migration to the NBN by distorting the incentives of access seekers to efficiently migrate to the new network and raises the risk of “sticker shock” for end users undertaking this migration," the telco wrote [pdf].

"As noted earlier, in real terms the ACCC’s proposal would result in a price decrease of more than 18 percent by FY2019. This is clearly inconsistent with an objective of price stability to facilitate a smooth industry migration to the NBN."

The new access prices will apply from October until June 2019. The ACCC is scheduled to publish its final decision in September.