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ACCC won't factor in NBN Co payments in pricing decision

ACCC won't factor in NBN Co payments in pricing decision

The watchdog won't factor in NBN Co payments to Telstra when it decides on new wholesale fixed line services pricing next year

The Australian Competition and Consumer Commission has stated the regulatory value of Telstra’s assets, rather than payments made to Telstra by NBN Co, will set the price for wholesale fixed line services.

“The ACCC will use the regulatory value of Telstra’s assets, not the higher payments agreed between Telstra and NBN Co in their Definitive Agreements, to adjust the cost base for NBN effects when determining regulated charges,” ACCC chairman, Rod Sims, said.

“This is a straightforward matter and our approach accords with common regulatory practice.”

Sims said the ACCC’s position involves the same regulatory principles that arise when one business buys regulated assets from another.

“If regulated prices were adjusted up to reflect an asset sale price above the regulatory value of the assets this would result in price increases due solely to ownership change and not to changes in underlying costs. This outcome would clearly not be in consumer interest,” he said.

“Further, if values in excess of regulatory values were deducted from a businesses’ cost base as some stakeholders have suggested, we could reach a future point where regulated asset values become negative. This would clearly be a nonsensical outcome.”

However, Optus has stated in its submission to the ACCC that the NBN payments should be taken into account when setting access prices, otherwise there is a risk that Telstra will be over-compensated for the provision of fixed line services.

“Optus submitted that it is in the interests of competition and end-users that NBN payments be factored into wholesale pricing arrangements,” Optus stated in its submission to the ACCC.

“The NBN payments will significantly enhance Telstra’s capital position relative to its competitors, have the potential to distort competition in post-NBN fixed line and related horizontal communications markets, and undermine the benefits of NBN structural reforms. Optus submitted that this distortion could be mitigated through appropriate consideration of the NBN payments.”

The ACCC considers that an adjustment should also be made to account for assets becoming redundant as a consequence of the migration of customers to the NBN.

It will adjust the cost base to remove the regulatory values of decommissioned assets and to account for the declining utilisation of assets due to NBN migration prior to full decommissioning. This will ensure that Telstra does not recover through regulated prices the costs of assets that are no longer used to supply the declared services.

The ACCC expects to release its draft decision for consultation early next year, before making a final decision in mid-2015.

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Tags TelstraoptusAustralian Competition and Consumer Commission (ACCC)Rod Sims

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