ACCC reverses Telstra wireline regulation exemptions

16 Dec 2011

The Australian Competition and Consumer Commission (ACCC) has revoked a ruling which exempted fixed line incumbent Telstra from providing a range of wholesale services at more than 200 exchanges. Having completed a public inquiry examining the geographic exemption provisions of Wholesale Line Rental (WLR), Local Carriage Services (LCS) and PSTN Originating Access (PSTN OA) services, the regulator has said it will vary final access determinations (FADs) to remove the exemptions.

The ACCC said its analysis had found three key reasons for reversing its previous ruling, with the first of those being ‘uncertainty surrounding the timing and location of the rollout of the National Broadband Network (NBN), and subsequent de-commissioning of the copper network.’ The regulator argued such uncertainty had increased the risks associated with investing in copper-based infrastructure, reducing the likelihood of access seeker investments in traditional copper-based voice-capability. Further, the ACCC also noted that Telstra remains the main provider of wholesale voice-only services, and claims there remains ‘little prospect of a wholesale market developing in voice-only resale services in the exempt areas’. Finally, the watchdog pointed to the incumbent’s continued dominance in the retail markets as ‘limiting the effectiveness of retail competition in restraining Telstra’s exercise of its wholesale market power’. Following the ACCC’s latest decision in the matter, the supply of WLR, LCS and PSTN OA services in those currently exempt Exchange Service Areas (ESAs) has in effect be re-regulated, and both Telstra and alternative operators offering such services are once again required to offer them at the regulated price and non-price terms and conditions set out in the FADs.

Commenting on the development, ACCC chairman Rod Sims noted: ‘The ACCC believes that removing the exemptions will promote competition, the efficient use of and investment in infrastructure, and the long-term interests of end-users … Telstra is currently exercising its market power to charge WLR prices that are significantly above supply costs in the exempt areas. There is a strong case for removing the exemptions.’

As previously reported by CommsUpdate, in July 2011 the ACCC was revealed to be reconsidering its previous exemption rulings amid claims that some of the exchanges in question were not meeting the requirements set out. The ACCC in August 2008 had exempted Telstra from its obligation to supply WLR and LCS in 248 ESAs, following this in October that year by exempting Telstra from PSTN Originating and Terminating Access (PSTN OTA) obligations in the same 248 areas. Unhappy with the decision, broadband operator iiNet appealed to the Australian Competition Tribunal (ACT) to have the regulator’s ruling reversed – an appeal it won – only for Telstra to appeal the ACT’s decision in the Federal Court. In March 2009 the court passed the matter back into the hands of the ACT, saying the tribunal had made a number of errors in its original findings, and having been tasked with investigating the issue once more, in September 2009 the ACT released its revised findings, this time reiterating the standpoint of the ACCC that there was in fact a case for lessening regulation regarding access to Telstra’s wholesale voice services in certain metropolitan areas. Subsequently, it was not until June 2010 that the ACCC completed the first round of calculations regarding possible exchanges that could be exempted, at which date it then published a list of 129 ESAs that had met the requirements of the ACT’s orders to become ‘Exemption ESAs’; the exemptions did not take effect until 30 December 2010. A second round of exemptions calculations was subsequently announced in December 2010, at which date the ACCC added a further 52 ESAs to the exempted list, with the new areas freed from standard access obligations for the provision of WLR, LCS and PSTN OA services from 30 June 2011.