Issue: 27/08

ACCC Annual Reports

July 16, 2008

Two annual statutory reports prepared by the Australian Competition and Consumer Commission on telecommunications competitive safeguards; and changes in the prices paid for telecommunications services were released on 19th June, see here

According to the ACCC, the reports show end users continue to reap the benefits of competition through increased carrier investments, product innovation and lower prices.

Annual Report on Prices Paid by Consumers 2006-2007

The definition of consumers includes residential, small business and other business.

Fixed Network Services
Overall prices for telecommunication services fell in real terms by 2.7 per cent for the period. Average prices for fixed-line services fell by three per cent and average prices for mobile services fell by 2.3 per cent.

In the last 12 months of the Report, the fall in prices for fixed-line services was not reflected evenly across the residential and business segments. Average prices paid by residential and all business customers fell by 1.6 per cent and 5.3 per cent respectively. As in previous years, price falls for businesses continued to exceed price falls for residential consumers in 2006-07.

Over the last 10 years of reporting, across all groups, basic access charges have increased by 87%, call prices have decreased from 40% (fixed to mobile) -70% (international) for an overall reduction in prices of 26%.

For small business, access has increased by 54% and call charges decreased by between 10% (fixed to mobile) and 73% (international).

For other business users, the price of basic access has increased by 19% and calls decreased by between 62% (fixed to mobile) and 79% (international).

ATUG believes these outcomes indicate the importance and effectiveness of competition where the buyers have information and negotiating power.

Fixed to Mobile
A key issue for ATUG in recent years has been reducing the cost of Fixed to Mobile Calls. The mechanism to achieve this involved submissions to an ACCC regulatory consultation on Mobile Services during 2003 and 2004 and resulted in the ACCC determining that mobile termination rates should move from 21 cents per minute as at 1 July 2004 to 9 cents per minute as at July 1, 2007, a reduction of some 57% in that component of the retail price. At the time the carriers assured the ACCC that this reduction would be passed onto consumers.

The ACCC 2006-2007 report shows (for a group of carriers) that the Fixed to Mobile call index has reduced (% change) by:

	2003-04	2004-05	2005-06	2006-07	From 1997-98
Residential	+0.1	-1.7	-9.3	-8.1	-29
Small business	+1.4	+19.8	-11.0	-3.3	-10
Other business	-8.5	-21.3	-12.6	-12.4	-62
Overall	-2.2	-3.8	-8.2	-7.5	-40

The numbers indicate the majority of the decrease has occurred since regulatory action.

In absolute terms, Telstra (majority of fixed lines) Financial Reports for the same period indicate (in millions):

	2003-04	2004-05	2005-06	2006-07
F2M Revenues	1597	1566	1491	1487
F2M Minutes	4226	4375	4491	4687
Price in cents per minute	37.78	35.79	33.19	31.76
% change		-5.3	-7.3	-4.3

The question for ATUG is whether the full mandated reduction has been passed onto end users?

Mobile Services

The ACCC reports that average prices paid by consumers for retail mobile services fell by 2.3 per cent in 2006-07. Prices for GSM services decreased by 2.7 per cent, while prices for CDMA services increased by 2.6 per cent.

Over the 10 year period for post-paid GSM users, prices have decreased for:
Very low users – 53%
Low usage – 50%
Average usage – 33%
High usage – 47%
Very high usage – 52%

The ACCC notes that flagfalls have now become a standard fixed component for most mobile users. While the price of flagfalls overall has generally increasing in the bundles priced for the ACCC study, there have been some decreases for some consumers.

Internet Services

The ACCC reports that according to Spectrum/Strategy Consultants/Internet Industry Association’s Spectrum/IIA Broadband index of 1 October 2007, Australians paid a minimum of around $38.95 per month to access 256 kbps (ultra-light) and a minimum of $85.70 per month to access 17 Mbps+ unbundled plans. The equivalent bundled plans were $33.90 and $75.66.

A recent report commissioned by Optus and prepared by Spectrum Value Partners to analyze consumer DSL broadband prices of the incumbent telecommunications providers of 18 OECD countries. The report shows that among incumbent telcos, Telstra is between (1: least expensive; 18: most expensive) 11th to 18th across the five categories of Ultra Low (200MB per month), ‘Low’ (500MB per month), ‘Medium’ (2GB per month), ‘High’ (10GB per month) and ‘Ultra High’ (30GB per month)). Of the 72 plans surveyed across the OECD, 54% are now offering Unlimited data plans. The report also shows (Exhibit 12) excess usage charges at $150 per GB in Australia compared to $16.41 per GB in New Zealand (for whom distance ought to be the same problem) Click Here for the full report.

From ATUG’s perspective these numbers show that it is essential that strong competition continue in the broadband market to ensure all types of users have access to faster broadband, at competitive prices, particularly as we head into an NBN environment.

Competitive Safeguards Report 2006-2007

The ACCC reports that 2006-07 saw the highest level of investment in telecommunications in the 10 years since the introduction of open competition. During the period carriers announced, or commenced investment in expanding the footprints and/or improving the data capability of their 3G mobile networks, increasing speeds over HFC networks and investing in wireless networks and competing backhaul transmission capability.

The period was also significant in terms of take up of regulated unbundled services, with the number of unbundled lines increasing to over half a million by June 30 2007.

Increased investment enabled access seekers to differentiate their downstream product offerings to compete more vigorously for retail customers. As a result, end users are now able to access the internet using faster connections with increasing theoretical maximum speeds over ADSL2+ technology or upgrades to both Telstra's and Optus's HFC networks. The increased accessibility of mobile broadband internet is another recent innovation that is likely to contribute to future changes in consumer behaviour.

The ACCC notes that it is important to recognise that given the ability of fixed-line networks to evolve to meet ever-increasing consumer bandwidth requirements, alternative networks appear to be at best imperfect substitutes given the coverage and functionality which can be delivered over fixed-line networks.

The ACCC also notes that the emerging state of competition has not occurred without pressure on regulatory mechanisms. Industry has been progressively forced to rely more on ACCC processes to resolve impasses in commercial negotiations for access to regulated services. 2006-07 saw the highest number of access disputes notified in a single year, and continues the increasing trend for arbitration as a mechanism for resolving industry disputes.

The Australian Government has announced its intention to deliver a high-speed national broadband network to 98 per cent of Australians, increasing speeds to a minimum of 12 megabits per second (Mbps). The government has committed to making a public investment of $4.7 billion towards the new network, with the network builder to be determined through an open and transparent process to be held in 2008.

The ACCC comments that upgrading networks by pushing fibre closer to end users may mean that certain currently regulated bottleneck services, such as the ULLS and LSS may no longer be available, with subsequent implications for the effectiveness of competition in telecommunications markets. However, the ACCC considers that there are a range of regulatory and institutional arrangements that could potentially satisfy the government’s objectives for the national broadband network on price and open competition, and notes the government’s intention to enact legislative change if required to achieve those objectives.

In the summary, the report says consumers are starting to reap the benefits of the investments and innovations made by carriers. There is now a range of communications services available to consumers through an increasing number of access providers, over a range of different technology platforms, at competitive price points. As the industry continues to evolve, it is important that the benefits of competition are preserved.

For ATUG the key issues remain the effectiveness of competition in the sector and the benefits of competition for end users – better prices, better services, faster innovation. End users with effective choice between equally suitable providers, with the power to negotiate and the ability to easily switch providers in cases of dissatisfaction are signs of effective, not theoretical competition. There is a way to go yet in achieving the degree of market effectiveness end users want and, importantly, the gains won since 1981 must be preserved in the NBN environment.