iiNet rejects any move to increase access charges
21 December 2014
Economic modelling commissioned by iiNet has led to a recommendation that fixed line access charges should fall by almost 17 per cent over the next three years.
Using ACCC’s existing cost model, independent expert consultants Frontier Economics found costs for declared fixed line services should fall significantly over the next three years.
iiNet engaged Frontier Economics to calculate charges if the ACCC’s Fixed Line Services Model (FLSM) was rolled forward into the next regulatory period. The model was based on Telstra's most recent forecasts for demand, capitalexpenditure and operational expenditure.
iiNet CEO, David Buckingham said this new modelling by Frontier Economics flew in the face of recent claims by Telstra that wholesale charges should rise.
“The Australian public is tired of the incumbent demanding cost increases for access to their aging copper telephone network, on top of the compensation it will already receive from selling this network to the NBN,” David Buckingham said.
If averaged over all services declared by the ACCC, Frontier Economics estimates a one-off, 16.9 per cent reduction in charges for the legacy copper network. Those prices would then be held for the following two years of a three-year regulatory period.
“Rather than wholesale costs increasing, our modelling, based on Telstra’s own forecasts of costs and demand, suggests charges should fall considerably,” Mr Buckingham said.
“Telstra's push for an increase in access prices for Declared Services is an attempt to move the goal posts which, if accepted, would lead to a significant and unjustified windfall.”
Increases would only occur if the ACCC departs from the principles established when they last set charges for Declared Services. The accelerating switch to NBN has been the basis of a recent argument suggesting the ACCC should provide more generous compensation to the incumbent for those customers remaining on the legacy copper network.
“The switch to NBN means the incumbent has little, if any, incentive to invest in the legacy copper network while being paid handsomely by NBN Co to migrate services. These facts, along with the fact that migration to the NBN is mandatory, mean the only rational pricing outcome for the Declared Services is that access charges should fall,” Mr Buckingham concluded.
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The ACCC is required to set prices for declared wholesale services provided over Telstra's copper network (the Declared Services).
When the ACCC last set prices for the Declared Services, it used its fixed line services model (FLSM). The FLSM is a building block costs model that determines output prices based on a number of different inputs, includingvalues for a regulatory asset base and forecasts for demand, capital expenditure and operational expenditure.The FLSM has been specifically designed so that it can be 'rolled forward' across regulatory periods (i.e.updated prices for a new regulatory period can be obtained by updating the relevant inputs).
iiNet engaged Frontier Economics to calculate what prices would result if the ACCC's FLSM was rolled forward based on Telstra's most recent forecasts for demand, capital expenditure and operational expenditure.
According to Frontier Economics, the rolled forward FLSM would lead to significant price decreases for each of the Declared Services except the LSS which will see a significant price increase (due to the fact that LSS has itsown asset base).
Uneven price changes between the Declared Services may be undesirable, and it may be preferable to 'smooth' the price changes in a manner that allows a uniform change to the price of each Declared Service and for the incumbentto recover the same amount of revenue as if the prices had not been 'smoothed'.This can be achieved by applying a uniform and one off 16.9% decrease to the price of each of the Declared Services. The smoothed and unsmoothedprice changes are set out in the graph below (to the nearest whole number):
Source: Frontier Economics
1. These are: the Local Call Service (LCS), Line Sharing Service (LSS), the Fixed Originating Access Service (FOAS), the Fixed Terminating Access Service (FTAS), the Unconditioned Local Loop Service (ULLS), the Wholesale LineRental Service (WLR) and the Wholesale ADSL Service (WDSL).
2. The calculations were done for a regulatory period of three years.
iiNet is Australia's second largest DSL Internet Service Provider and the leading challenger in the telecommunications market.
We're committed to making it simple for all Australians to connect across both our own network and the National Broadband Network (NBN). Our vision is to lead the market with services that harness the potential of the Internet and then differentiate with award-winning customer service.
iiNet has a proud history of delivering awesome customer service, which has won us dozens of awards, including Best Large Business at the 2013 International Service Excellence Awards.
We employ more than 2,500 enthusiastic staff across three countries - 80 per cent of whom are employed to directly service nearly one million customers. We maintain our own broadband network and support over 1.8 million services nationwide.
A lot has changed since iiNet was founded in a suburban garage in 1993 and the broadband landscape continues to evolve. What hasn't changed is our passion for the transformative benefits of the Internet and our commitment to helping Australians connect better.
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