A 'greedy' Telstra will test ACCC's resolve

Telstra's call to the Australian Competition and Consumer Commission that it would like to raise the price it charges for access to its copper deserves full marks for audacity, which befits a company that's pretty much got every card falling in its favour.

It also illustrates just how contorted the idea of competition in our telecom landscape has become. The inception of the National Broadband Network has so far only managed to muddy the waters even further and the competition watchdog faces now faces a critical test.

Telstra's appeal to the ACCC may seem rich to its rivals – it already swallows up 75 per cent of all the profit in the Australian communications industry – but that doesn't mean the incumbent has a weak argument.

Given that the last increase in wholesale access price took place in 2011, Telstra's call for a 7.2 per cent hike hinges on the fact that the cost of maintaining the copper has to be shared around evenly, especially as customers migrate to the NBN.

There's that little matter of the billions of dollars of compensation already promised to Telstra as part of the NBN negotiations. However, it's important to bear in mind that the minute the Coalition's multi-technology-mix NBN came into the picture, all bets were essentially off.

Rather than being decommissioned, Telstra's copper now plays an integral role in the future of the NBN. The deal struck with the NBN Co in 2011 is still in the process of being hammered out.

Given the role its copper network stands to play in the fibre-to-the-node component, Telstra would be justified in asking for a fee hike to cover to cost of maintaining a network that it was until not that long ago getting paid to put to pasture.

However, as far as Telstra is concerned, it would rather not have the two issues (NBN and the continued use of the legacy network) conflated.

As the telco points out in its submission to the ACCC, it is seeking is a one-off increase of 7.2 per cent in the first year across all the declared services, followed by no price increases in the subsequent three years.

Telstra says the increase is necessary to ensure that the copper keeps chugging along while the NBN is built.

Whether or not the ACCC chooses to factor these NBN payments into the equation will be crucial to the final decision. Without them on the table, it's hard to see how the ACCC could rule against Telstra.

Its rivals may castigate Telstra for its greed but the incumbent shouldn't be blamed for how the NBN process had panned out, or for exploiting a system punctuated by poor policy.

The fact that Telstra can justify its position highlights just how torturous the task of regulating a monopoly network asset, like Telstra's copper network, has proven to be.

In navigating that fine line between fostering competition (by letting access seekers jump on the copper at a reasonable price) and encouraging investment (by allowing network owners to use their asset exclusively for a period of time to gain competitive advantage), the ACCC has managed to create an environment that has entrenched Telstra's power and turned its rivals into mere access seekers, clamouring for cheaper rent, rather than investors.

As Rob Burgess recently highlighted in his piece, the regulator's gambit to create a level playing field between Telstra and access-seekers relied heavily on cutting the cost of access, leading to a scenario where Optus was re-selling copper-based internet to customers who had its HFC cable running past their doors -- “because re-selling cut-price ADSL was more profitable.”

Given the state of where the NBN is, Telstra's call for a hike put the ACCC and its boss Rod Sims in a tricky situation.

Telstra rivals, those accustomed to seeking access to the incumbent's network, are holding their line that to acquiesce now would only further reinforce Telstra's ‘unfair' dominance.

It's an argument that the regulator has paid heed to in the past, but critics of the ACCC maintain that following that template has so far only created an illusion of retail competition.

Sims faces an unenviable task of passing judgement on a proposal that, on face value, has enormous implication on the costs that will be passed down to average consumers.

However, the decision also has a bearing on the NBN and NBN Co and comes at a time when the regulator's critics are sharpening their knives in Canberra.

The Coalition government has already shown its hand by insisting that the ACCC leave the NBN payments out of the process, citing the apparent instability it may cause in the process of installing a brand new wholesale access monopoly. And it's a view that's certainly backed up by Telstra.

There's a lot riding on this pricing process. It's not simply the legacy of Telstra's network that's under scrutiny but also that of the ACCC and the regulatory state of the fixed line market.