As previously reported in iTWire in June, Telstra was ordered by the Australian Competition and Consumer Commission (ACCC) to drop its wholesale charges, and today the big telco has said that draft decision by the ACCC has some serious flaws and contradicts its own principle of full cost recovery.

The ACCC is expected to respond to Telstra’s submission on fixed line costs sometime today.

But, in a blog published today, ahead of the ACCC’s response, Telstra’s regulatory affairs executive director Jane van Beelen reiterates Telstra’s previous comments that as consumers and businesses progressively shift to the NBN, its unit costs on the legacy network will inevitably – but modestly – increase.  

“Many of our costs are fixed, so as people leave the network the cost of maintaining it for each of the remaining customers will rise.  Additionally, we want to keep investing in the network for broadband customers who don’t yet have access to the NBN.

“The ACCC agrees that unit costs are on the rise.  In their latest draft pricing decision the ACCC accepted our forecast expenditure and their model showed a one-off price increase of 5.5% is required in order for Telstra to have an opportunity to recover our costs over the next four years. Accounting for inflation, this one-off increase is actually equivalent to a price reduction in real terms of 4% by 2019.

“Despite their model and pricing principles indicating this modest increase is required, the ACCC draft decision was that prices for wholesale customers should be cut by 9.6%.”

Beelen says that having accepted Telstra’s 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.”

“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,” Beelen complains.

According to Beelen, the impact of a 9.6% cut in wholesale prices would be significant - and would mean the prices other companies pay to use its fixed line network would be below Telstra’s actual cost “to the tune of hundreds of millions of dollars over several years, with consequences for both Telstra’s network and the new NBN.”

“The ACCC’s decision would apply to both our existing infrastructure and new infrastructure Telstra might invest in to provide services in areas where the NBN is not yet available,” Beelen says, adding that it would also mean “service providers would have a profit motive to keep their customers on the higher margin copper network for as long as possible, rather than move their customers across to the NBN.”

“This would make migration to the NBN even harder to achieve and put important revenue to NBN Co at risk.  In this way, a cut to prices on the legacy network poses a serious danger to the success of the NBN policy,” Beelen warns.

In a final ‘note’ to the ACCC, Beelen says Telstra remains hopeful the commission will amend its draft in line with Telstra’s actual costs:  “Certainly, the ACCC and Telstra agree on much in this review in terms of what the costs of operating the network will be, so it comes down to making sure these costs are borne fairly by all the companies using it, as the ACCC’s pricing principles require. We keenly await the final decision to see how they plan to do so.”