The Australian Competition and Consumer Commission has struck a welcome blow against Telstra using its ownership of the telephone network in an anti-competitive way to the detriment of consumers. At the same time it has illustrated that the method of the partial privatising Telstra was misconceived and would have been done in a different way.
Telstra had proposed to charge the other carriers that use its network 2.3 cents per minute for 1999-00 and 2.0 cents per minute for 2000-01. The ACCC has slashed that to 1.8 cents per minute for 1999-00 and 1.5 cents for 2000-01. It is a significant which will result in long-distance prices falling by up to five per cent and saving the average consumer $25 a year, according to the ACCC’s chair, Professor Allan Fels. Telstra charges other carriers wholesale prices to use its network. These carriers, such as Optus and AAPT, then use this as a base to charge their retail prices to customers.
The ACCC ruled that Telstra’s wholesale price was too high because it should have charged at cost level only and not put any margin on. That reasoning is stands up. The only possible way that effective competition in the telephone market can be sustained is to have the retail service deliverers operating from a level base. If Telstra were to charge its competitors a profit premium on their wholesale rates for access to the network, it would have an unfair advantage, because presumably Telstra itself would be getting access to the network for base cost.
Telstra has agreed to voluntarily abide by the ACCC’s ruling. That is just as well. To fight it would expose the awkwardness of the structure of Australia’s telecommunications industry.
As it is the ACCC’s ruling has done Australian telecommunications consumers a double favour. By reducing the wholesale price for access to the network by Telstra’s competitors, it will enable them to pass on the savings to their customers. But Telstra customers will benefit, too, because once its competitors reduce their prices, Telstra will have to follow suit to stay competitive and to retain market share. The new inter-connect charges would come into effect within a month, so consumers should see the result shortly thereafter.
But more is to come. There are 36 carriers other than Telstra. Four more disputes between them and Telstra are still to be ruled upon and the ACCC should deliver those in the next month or so. Yesterday’s ruling was on long-distance access. Other disputes relate to mobile-fixed connections.
Yesterday’s ruling shows the weakness in the way Telstra was partially privatised and the way the industry was deregulated. Telstra, unfortunately has been kept as a single entity. It owns the fixed telephone infrastructure as a monopoly. At the same time it is a retail provided and competes with other carriers on the very network it owns. Telstra was bound to pitch the price for competitors to access its network as high as possible. It did so. It was a hopeless conflict of interest. The other carriers have been waiting since 1997 to get a ruling on Telstra’s connect fees. It would have been far better if Telstra had been split into two or possible three parts. One part would have owned the infrastructure. The other part or parts would have supplied retail fixed and mobile telecommunications on an equal footing with the other carriers. That structure was more important than the question of whether Telstra was partially of fully privatised.
Even now it would be better for the Government to aim for that structure. The carrier part would obviously be fully privatised and could engage in mergers and takeovers with other new or established communications companies, for example. The infrastructure company would be different. It might be fully or partly privatised, but it would be under strong statutory control to ensure Australia’s telecommunications infrastructure serves national and community purposes.
That would be a far better model. As it is the ACCC is bound to have an endless task ensuring that the left hand of Telstra does not give the right hand of Telstra an unfair advantage. The model is flawed and invites anti-competitive conduct. Yesterday’s ruling has dealt with but just one incidence of it. More are bound to follow.