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Regulation of the Unconditioned Local Loop Service (ULLS). Presentation to ACMA International Training program 2006 Michael Eady Communications Group Compliance and Regulatory Operations Australian Competition and Consumer Commission michael.eady@accc.gov.au.
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Regulation of the Unconditioned Local Loop Service (ULLS) Presentation to ACMA International Training program 2006 Michael Eady Communications Group Compliance and Regulatory Operations Australian Competition and Consumer Commission michael.eady@accc.gov.au
The telecommunications access regime • What is the ULLS? • Declaration • Level of prices for the ULLS • Recovery of ULLS-specific costs • Averaging vs. de-averaging • Conclusion
Technical definition • The unconditioned local loop service is the use of unconditioned communications wire between the boundary of a telecommunications network at an end-user’s premises and a point on a telecommunications network that is a potential point of interconnection located at or associated with a customer access module and located on the end-user side of the customer access module.
Or in other terms… • More usefully (but less accurately): • piece of unconditioned wire between an end-user and a customer access module • Most often: • copper between a residence/business and a telephone exchange
What is the ULLS used for? • ULLS gives the access seeker complete control over the wire • Access seekers will use the ULLS in conjunction with exchange equipment to provide: • Broadband internet access • Traditional voice services • VoIP
When was ULLS declared? • ULLS was originally declared by the ACCC in 1999 • It was re-declared for a further three years in July 2006.
How does declaration occur? • Declaration can only occur if the ACCC is satisfied that declaration will promote the long-term interests of end-users. • promotion of competition • ensuring any-to-any connectivity • economically efficient use of and investment in infrastructure
Relevant markets • wholesale and retail supply of fixed voice services • wholesale and retail supply of customer access services • wholesale and retail supply of: • business grade broadband • residential grade broadband
Facilities- and quasi-facilities based competition • Some alternative access networks • wireless, Optus cable, other fixed-line • Telstra’s copper network is dominant: • around 87% of Australian homes rely on voice services over Telstra’s Customer Access Network (CAN) • 12% over Optus cable • alternative networks are typically in geographically discrete areas
Facilities- and quasi-facilities based competition • Also these networks’ existence does not necessarily imply effective competition • However quasi-facilities-based competition is developing: • access seekers use ULLS and LSS • deliver services via Telstra’s network but also using own infrastructure • e.g. Optus, iiNet, Primus, TPG, others
Basic access • Resale of Telstra’s services still the primary form of competition in the retail supply of basic access • Telstra still the predominant retail supplier of basic access (around 79%) • Overall number of basic access lines decreasing
Broadband internet • Around 80% of broadband connections are provided using DSL technology • Increasing use of ULLS for supplying broadband in past year or two. • Wireless is growing, but in early stages, although significant in rural areas.
Barriers to effective and sustainable competition • Substantial sunk costs • Economies of scale • High customer switching costs • Customer inertia
Assessment of declaration – promotion of competition • Wholesale • Before 1999 declaration, Telstra did not provide a ULLS service • Alternative networks provide only localised pressure on Telstra’s ULLS pricing
Assessment of declaration – promotion of competition • Retail • ULLS important basis for competition in basic access, voice and broadband • larger variety of possible providers • speed and price variation much greater on own infrastructure • without it, companies limited in many cases to reselling Telstra’s products
Assessment of declaration – promotion of competition • ACCC signalled would be open to providing exemptions for certain geographic areas where effective and sustainable competition existed • audit of competitive infrastructure
Assessment of declaration – economic efficiency • Depends on price, but • increased competition encourages investment in infrastructure by Telstra and its competitors • need to use infrastructure more efficiently • Telstra keeps ability to exploit economies of scope and scale and recover costs • allows alternative technologies where appropriate
History • Long history since declaration of dispute between Telstra, ACCC and industry over appropriate pricing and costs for ULLS • Incentives fairly clear for Telstra and access seekers • Cost-based (TSLRIC+) pricing
History • Pricing principles paper Mar 02 • Undertakings submitted by Telstra in Jan 03, Nov 03, Dec 04 and Dec 05 – the first two withdrawn by Telstra, the latter two rejected by ACCC • Model prices Oct 03 • Access disputes (currently 9)
Issues in dispute • Demand adjustment mechanism • Access deficit contribution • Cost of capital • Network costs • Recovery of ULLS-specific costs • Averaging of prices
ULLS-specific costs? • Certain computer systems had to be put in place to enable Telstra to supply the ULLS (and LSS) • Telstra must employ people to • manage the ULLS project • liaise with wholesale customers • Indirect costs
ULLS-specific costs? • ACCC and Telstra in disagreement over the level of costs • However main area of disagreement is how the costs should be recovered.
How should the costs be recovered? • Telstra • Should be recovered only from the current number of ULLS lines:
How should the costs be recovered? • ACCC • Should be recovered from a wider cost base such as total lines or all DSL lines:
How should the costs be recovered? • Disagreement stems from debate over: • the causation of the costs • Declaration? • Users of the ULLS? • consideration of statutory criteria • e.g. effect on promotion of competition
Resolution of dispute? • Telstra has appealed ACCC’s recent rejection of ULLS undertaking to Australian Competition Tribunal • Tribunal supported ACCC’s position in an appeal on the LSS
Averaging? • Australia a large country with a small population concentrated on the coasts • ULLS pricing has in the past recognised this disparity in teledensity with “banded pricing” • different prices in different geographic areas • supported by Telstra and the ACCC
Averaging? • The model prices in October 2003 had prices in CBDs of $13, in metropolitan areas of $22, regional areas of $40 and rural areas of $100
Averaging? • Telstra’s most recent undertaking proposed averaged prices • Government has placed obligation on Telstra to provide a basic line rental and local call product at the same retail price across the country • Telstra now proposes one $30 price for ULLS in all geographic regions
Reasons for disagreement • Disagreement stems from views on: • effect of Government retail pricing obligation • feasibility of bypass • ability to recover overall costs
Reasons for disagreement • Some considerations: • might induce inefficient bypass in metropolitan areas • ability to compete in rural areas might be limited
Resolution of dispute? • Telstra has appealed ACCC’s recent rejection of ULLS undertaking to Australian Competition Tribunal
ULLS pricing • Long history of dispute • Contentious issue between Telstra and ACCC • Large number of issues in dispute • Examples include: • recovery of ULLS-specific costs • averaging or de-averaging
ULLS pricing • Large number of access disputes over ULLS charges • ACCC has made interim determinations in some of these disputes • Australian Competition Tribunal appeal to be heard in coming months
Further information • ACCC, Declaration inquiry for the ULLS, PSTN OTA and CLLS—final determination, July 2006. • ACCC, Assessment of Telstra’s ULLS monthly charge undertaking—final decision, August 2006. • www.accc.gov.au