Australia - Competition Tribunal rejects Telstra's cost model for local loops

[it wire] The Australian Competition Tribunal has published its reasons for last week's decision rejecting Telstra's proposed price for the unbundled local loop service, saying it does not accept Telstra's cost modelling methodology.

Telstra had submitted an access undertaking to the ACCC proposing a monthly charge of $30 for the ULLS in band 2 metro areas, representing some 70 percent of lines: significantly higher than the $16 price published by the ACCC.

The ACCC rejected the undertaking, and Telstra appealed that decision to the ACT, which rejected the appeal on 11 May.

Telstra's cost claim was based to a large extent on the results of the Telstra Efficient Access (TEA) cost model for its access network. (There is a long history of conflict between Telstra and the ACCC over Telstra's promotion of the TEA model, its criticism of the ACCC's rival model developed by Analysys; and visa-versa.)

The Tribunal disagreed with basic assumptions of the TEA model. It concluded it was not reasonable that: "the ULLS should be priced on the basis of the up-to-date costs of replacing a historical relic while keeping most of its essential design features and merely updating its equipment."

The Tribunal commented further that Telstra's legitimate business interests are largely confined to receiving: "a commercial return on its prudent (past) investment in the infrastructure used to supply the ULLS, not a hypothetical new investment."

In its reasons the Tribunal said: "The Tribunal…is not satisfied that the 2008 Undertaking is reasonable. Primarily, [The Tribunal] takes the view that the scorched node modelling used in the TEA Model version 1.3 makes assumptions about the location of the infrastructure of the ULLS and CAN that are not appropriate."

Competition Tribunal pans Telstra's ULLS cost modelling