An important court case looms for the telecommunications
industry on the back of a claim recently lodged by Telstra in the
Federal Court. The outcome could significantly impact the prices
charged to consumers for fixed line telephone services and
internet. At stake for Telstra and its competitors is approximately
$120 million in annual revenue.
On 5 November 2015, Telstra Corporation Limited1
lodged a claim in the NSW registry of the Federal Court against the
Australian Competition and Consumer Commission's2
fixed line services declaration of 9 October 2015.
ACCC'S PRICE DETERMINATION
Following a public inquiry first initiated in 2013, the ACCC
determined in October 2015 that Telstra's wholesale price for a
number of services should be reduced by 9.4 per cent.
For Telstra, the price cut equates to an $80 million loss of
revenue for financial year 2016 from the date of the October
decision until 30 June 2016.
Conversely, Telstra's competitors will benefit from cheaper
wholesale pricing which may ultimately drive down the retail price
of telephony and internet for millions of Australian consumers.
THE ARGUMENTS: TELSTRA V COMPETITORS
In the lead up to the determination, Telstra had argued its
wholesale prices should rise by 7.2 per cent given the staged
migration of end users to the newly built Australian National
Broadband Network (NBN).
Telstra expects demand for fixed line services to fall by as
much as 60 per cent over the next five years as customers migrate
across to the NBN. Telstra argued that, as fewer and fewer users
remain on the legacy copper network, its net returns for
maintaining the network are diminished. Thus a price rise is
justified to offset decreased revenue.
Telstra's competitors took a contrary position. They argued
Telstra had effectively already been compensated for the impact of
customers transitioning to the NBN through an $11 billion dollar
deal between Telstra and NBN Co Limited (NBN Co).
That deal provides for a staged migration of Telstra customers
from the copper network to the NBN and the acquisition and leasing
of certain infrastructure in the copper network by NBN Co.
THE FEDERAL GOVERNMENT'S POSITION
In July of this year, then Communications Minister, and now
Prime Minister, Malcolm Turnbull and Finance Minister Mathias
Cormann publically wrote to the ACCC urging it not to take into
account Telstra's $11 billion dollar deal with NBN Co when
assessing the appropriate wholesale pricing.
They argued that doing so would undermine the deal between
Telstra and NBN Co as it would weaken the returns to Telstra
shareholders and therefore also weaken Telstra's commitment to
assist with the NBN rollout.
THE ACCC REPORT
The ACCC nevertheless has taken a contrary view in reaching its
decision. In publically releasing its report, ACCC Chairman Rod
"The ACCC has dealt with a number of complex
issues during this inquiry, including the unique circumstances of
the transition from Telstra's copper network to the NBN. Our
final decision on prices is the result of a number of
considerations, with downward pressures more than offsetting upward
On the specific issue of the $11 billion dollar deal with NBN
Co, the ACCC noted that payments Telstra receives from NBN Co under
the deal relate specifically to the migration of customers from the
copper network to the National Broadband Network. It stated in its
"Given that Telstra has undertaken to only
provide fixed line services over the NBN where the NBN is deployed,
Telstra will be receiving a financial benefit in return for the
permanent loss of wholesale and retail customers on its fixed line
BASIS FOR TELSTRA'S LEGAL CHALLENGE
Telstra's legal challenge in the Federal Court is based
primarily on administrative law grounds. Its argument is that the
ACCC took into account irrelevant considerations by not correctly
factoring in Telstra's $11 billion dollar deal with NBN Co when
reaching its price determination.
The matter is next listed for a case management hearing on 3
December 2015. Stay tuned!
1 Telstra is the monopoly owner in Australia
of the copper phone network which is used by Telstra and its
competitors to provide fixed line telephony and ADSL internet to
2 The ACCC is the Australian regulator of
competition in the telecommunications sector and has the
legislative power to determine the wholesale price that Telstra
charges its competitors for access to these services.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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