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ACCC issues annual reports on telecommunications competition, price changes and\nprice controls.



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price changes and price controls

Attn: Telecommunications writers

ACCC issues annual reports on telecommunications competition, price changes and price controls The Australian Competition and Consumer Commission today issued three reports on issues relating to competition in the telecommunications industry in 2002-03.

The annual reports into competitive safeguards, price changes for telecommunications services and Telstra's compliance with price control arrangements, will help inform the ACCC's approach to regulating the industry in the future.

ACCC Commissioner, Mr Ed Willett, said the Competitive Safeguards Report revealed competition in the telecommunications industry has not developed to the extent expected at the time the industry was substantially deregulated in 1997.

"Of the carriers to emerge in that time, many either operate solely at the retail level and have relatively few directly connected customers or operate in niche markets only", he said. "One result of this is that Telstra continues to account for the majority of directly-connected fixed-line services, and indeed Telstra and Singtel Optus account for around 99 per cent of these services between them".

In several markets, effective competition is limited principally to services or access based competition, with service providers competing at the retail level only.

"While access or service-based competition is certainly beneficial and can help companies build a retail customer base, the ACCC believes that in the longer term, facilities-based competition is required to continue to drive efficiency, wider choice of services and price competition".

The report shows that, more so than in previous years, there was evidence of consolidation in 2002-03.

"In the fixed line customer access market, there was some slow down in new carrier investment", he said. "In the market more generally, there was a drop off in price reductions and, in some cases, price increases".

The report on Prices Paid For Telecommunications Services provides further insights into the state of competition in the telecommunications industry.

This report shows that, overall, average prices paid by telecommunications consumers increased by 1 per cent during 2002-03. This is the first time there has been a rise in this index since the base year in 1996-97.

Increases in the average price paid for both fixed line (PSTN) and mobile services underpin this result.

"With regard to PSTN services, the most significant increase was in the average price paid for basic access (or line rental) services", he said. "While there was a decrease in the average prices paid for local, national long distance, international and fixed-to-mobile calls, these decreases were insufficient to outweigh the increase in charges for basic access".

The other notable feature of the prices report is the widening gap between price movements in the residential market and certain segments of the business market.

"In 2002-03, residential consumers paid on average 5 per cent more for PSTN services than the year before, and small business consumers paid 1.1 per cent more on average", he said. "In contrast, however, other business consumers paid 8.6 per cent less, on average, for PSTN services during 2002-03".

This trend was also evident with regard to the provision of fixed-to-mobile calls.

"While the overall average price paid for fixed-to-mobile calls during 2002-03, residential consumers paid on average 5 per cent more for these services and other business consumers paid 10.9 per cent less.

"It is not clear whether this disparity arises from the fact that big businesses are able to negotiate more favourable deals with carriers, or whether it reflects stronger facilities-based competition in more densely populated CBDs".

In respect of mobile services, the ACCC published changes in average prices paid for both GSM and, for the first time, CDMA mobile services.

While the overall average price paid by mobile consumers increased by 0.9 per cent, there was a decrease in the average price paid for CDMA services.

"The relative disparity between changes for GSM and CDMA services may reflect strategies by network operators to increase the existing low level of CDMA subscribers", he said.

"The other notable trend from the pricing report is that mobile operators appear to be competing more aggressively to attract pre-paid subscribers than post-paid services".

This year's report on Telstra's compliance with the price control arrangements was the first report prepared under the Government's latest price control arrangements, which apply for the years 2002-03 to 2004-05. The report was provided later than anticipated due to delays in obtaining all the necessary information required to complete the analysis.

The report concluded that Telstra had adequately complied with all price control requirements established by the Government.

A dispute between Telstra and the ACCC in relation to the carry-in amount to 2002-03 from previous price controls for line rentals has been resolved, with Telstra agreeing not to use the disputed credits in the 2003-04 price cap for line rentals. The ACCC believes that this is the appropriate way to ensure the benefits of the price control arrangements are passed onto end-users.

Further information please contact

● Mr Bob Weymouth, Regional Director, (08) 8213 3444

● Mr Michael Cosgrave, General Manager, Telecommunications, (03) 9290 1914

● Ms Lin Enright, Director, Public Relations, (02) 6243 1108, (0414) 613 520

Release # MR 097/04 Issued: 17th June 2004

Links

● Annual telecommunications reports -

http://www.accc.gov.au/content/index.phtml/itemId/356654/fromItemId/35 6751

Background

The ACCC is required to provide three annual telecommunications reports to the Minister for Communications, Information Technology and the Arts, under Division 11 and 12 of Part XIB of the Trade Practices Act 1974:

● the competitive safeguards report under sub-section 151CL(1) of the Act

● the changes in the prices paid by consumers for telecommunications services report under paragraph

151CM(1)(a) of the Act

● Telstra's price control compliance report under sub-section 151CM(1)(b) of the Act

Competitive safeguards report

This report comprises an overview of ACCC regulatory activities during 2002-03, including its responsibilities in relation to Parts XIB and XIC of the Act and under the Telecommunications Act 1997. It also includes an examination of the state of competition across various telecommunications markets. The markets examined in detail include:

● local telecommunications services

● national long distance and international calls

● mobile services market

● fixed-to-mobile services

● data and internet services

The competition analysis draws on information contained in the changes in prices report in making assessments and judgements.

Change in prices report

This report details how average prices paid for various telecommunications services have moved in real terms from one financial year to the next. The comparison dates back to 1997-98 for most indexes, although some have a more recent base year.

The report measures average changes in real prices paid by consumers for telecommunications services. In this regard, real price movements for services may not necessarily follow the trend observed in nominal (or actual) price movements. In particular, by taking out the effect of inflation, real price movements are likely to overestimate price decreases and underestimate price increases.

The telecommunications services covered in the 2002-03 report include PSTN services, which are fixed-line services, and mobile telephony services provided by GSM (global system for mobiles) and CDMA (code division multiple access) networks.

For PSTN services, the average prices reported are split into three consumer groups (residential, small business and other business consumers) and five services (basic access, local call, national long distance, international and fixed-to-mobile services).

In 2002-2003, the average price paid by PSTN consumers for basic access services increased by 12.4 per cent. The average prices paid for local, national long distance, international and fixed-to-mobile services fell by 3.8 per cent, 4.7 per cent, 5.8 per cent and 2.4 per cent respectively.

For GSM and CDMA mobile telephony services, the Commission reported on average price changes for two types of services (prepaid and postpaid) and five consumer groups (very low, low, average, high and very high users of these services).

Within this overall index, average prices paid by GSM consumers rose by 1.1 per cent, while average prices paid by CDMA consumers fell by 2.3 per cent.

A 2.2 per cent rise in the GSM postpaid index was perhaps the most noteworthy result. Measured by revenue, GSM postpaid is the largest user group. The price rise in 2002-03 shows this market may be approaching maturity.

By contrast, average prices paid for GSM prepaid, and CDMA postpaid and prepaid consumers fell.

CDMA prepaid saw the largest price fall, by 3.6 per cent. It appears carriers in these segments continue competing to attract new subscribers.

Price control report

Price controls on Telstra were first introduced in 1989. Since then, the Government has made several alterations to the arrangements, with the most recent changes being introduced from 1 July 2002. Under these price controls, the ACCC is responsible for developing a detailed methodology, assessing the accuracy and completeness of Telstra's report and providing an annual report to the Minister on Telstraâ??s compliance.

The current price control arrangements include separate price caps on three baskets of services, as follows:

● local calls, trunk calls and international calls, which have a cap of CPI - 4.5 per cent

● line rentals, which have a cap of CPI + 4 per cent

● connection services, which have a cap of CPI-0

These caps apply to the weighted average prices of the services in the baskets as supplied to all Telstra's retail customers. Carry-over of the unused component of a cap is permitted from one year to the next and from the previous price control arrangements. This means that the prices of services supplied to groups of customers may exceed the level of the caps and that the overall average price increase for a basket in a given year may exceed the value of the cap.

The price control arrangements also require untimed local call charges to be broadly similar for both metropolitan and non-metropolitan consumers and for Telstra to conform with a number of other specific pricing and notification requirements.