Telstra seeking 7.2% increase in fixed line wholesale prices

13 Oct 2014

Australian fixed line incumbent Telstra is said to have called for a 7.2% increase in wholesale charges across its fixed line services, according to iTnews, with the telco claiming that such a hike is justified as its costs will rise as a result of subscribers moving from its infrastructure to the National Broadband Network (NBN).

With the call for the price increase made as part of the operator’s submission to the Australian Competition and Consumer Commission’s (ACCC’s) inquiry into pricing for the declared fixed line services, Telstra has argued that although it expects reduced fixed line costs as result of customers migrating to the NBN from its copper network, these would be unlikely to offset the decline in demand. ‘The transition to the NBN will significantly accelerate the decline in demand for fixed line network services and impact on the cost of operating our network … As most of Telstra’s network costs are fixed, it is inevitable that if the number of people who use the network declined the cost per user would rise … [this] will mean that current regulated fixed line service prices will have to increase – in nominal terms – to provide Telstra with a reasonable opportunity to recover its costs over the regulatory period.’ As such, Telstra has forecast demand for its fixed line services to fall by 62% by FY 2019, a drop which it said would justify it upping wholesale prices by 7.2%.

Rival Optus rejected such claims, however, saying in its own submission to the inquiry that the regulator should take into account the payments Telstra receives to migrate users off copper and onto the NBN when setting fixed line prices. In addition, Optus also argued that as many of the fixed line incumbent’s assets used to provide retail and wholesale services are also accessed and paid for by NBN Co, there could be a ‘very real risk’" of Telstra being overcompensated for the provision of such services. Despite this, the Department of Communications (DoC) supported Telstra’s argument that payments by NBN Co for access to the former’s infrastructure were ‘irrelevant’ in determining Telstra’s costs and wholesale prices, noting: ‘Payments by NBN Co to Telstra are generally irrelevant to the ACCC’s determination of [fixed line service] FLS access prices because the costs these payments relate to are not included in the cost of FLSs provided by Telstra … Consequently, the costs of the Telstra assets used by NBN Co should be recovered separately from NBN Co (unregulated sale or lease proceedings), and the costs of the assets used to provide FLSs should be recovered separately from the access seekers that use the FLSs.’