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The Australian Competition and Consumer Commission (ACCC) has made a draft decision to exempt Telstra from its obligation to supply the wholesale line rental service (WLR) and local carriage service (LCS) within 229 exchange service areas (ESAs) in metropolitan Australia.
If confirmed in the final decision, the exemptions will significantly limit the ACCC’s ability to set terms and conditions of supply for WLR and LCS, which allow Telstra’s competitors to resell line rental and local calls, without investing in their own infrastructure.
Perhaps the most significant aspect of the decision for Telstra, and for infrastructure owners more generally, is the ACCC’s recognition that the timely removal of regulation is necessary to promote investment in new networks. New network investment is likely to deliver more effective and vigorous competition than competition based solely on price.
The draft decision grants exemption to Telstra in 229 of the 387 ESAs for which exemption was sought. The 229 ESAs were selected on the basis that they:
- have 14,000 or more addressable services in operation (ie customers to whom ULLS can be provided), or
- have three or more ULLS-based competitors to Telstra within the ESA.
The ACCC proposes to grant both individual and class exemptions. This means that other carriers supplying LCS and WLR would also have the benefit of exemption. Both would be subject to a condition that they not apply to ESAs that are “capped” - that is, subject to physical constraints on the ability of access seekers to locate DSLAM equipment in the applicable local exchange. The individual exemption would also not apply in any ESAs where the ULLS becomes unavailable or obsolete.
The exemptions would come into effect 12 months after the date of the ACCC’s final decision, and continue until the declaration expires on 31 December 2012.
Reasons for the draft decision
The ACCC found that granting the exemptions would promote competition in the supply of voice services through a combination of increased take-up of ULLS and more efficient use of access seekers’ existing digital subscriber line multiplexer (DSLAM) infrastructure.
Telstra’s submissions to the ACCC, supported by Paul Paterson of Concept Economics, argued that the ongoing necessity for regulated access to WLR and LCS had been affected by the significant competitor uptake of the ULLS. Professor Martin Cave, a well-known exponent of the “ladder of investment” hypothesis, also observed that the ongoing deployment of DSLAMs was evidence of a movement by access seekers up the ladder.
The ACCC gave in-principle support to Telstra’s position by proposing to exempt an ESA from regulation where at least three ULLS-based competitors to Telstra are present. However, it based its threshold for exemption upon a strong observed correlation between the size of the addressable market in each ESA and the extent of DSLAM rollout in that ESA.
While acknowledging concerns that a fibre development (such as FTTN) may render DSLAM equipment obsolete, it rejected those concerns on the basis that efficient use or investment in ULLS would be available in the near term.
Next steps
The ACCC is seeking submissions in response to the ACCC’s draft decision by 27 May 2008.