ACCC Opens Up Telstra's Local Network

ACCC Opens Up Telstra's Local Network: Lower Prices and New High-Speed Services

The Australian Competition and Consumer Commission will mandate access to Telstra's local network, the last part of Telstra's original network monopoly, allowing competitors direct access to its copper lines that connect customers to local telephone exchanges.

"Telstra's competitors will be able to provide local and long-distance as well as advanced high-speed services to customers at lower prices, " ACCC Chairman, Professor Allan Fels, said today. "The decision has large implications not only in the short-term for the provision of local calls, but for the emerging high-band width services on which e-commerce, education and entertainment will increasingly rely into the next decade.

"Such services include: access to the Internet, 'tele-working', distance learning, video-on-demand and other multi-media and data applications at speeds many times faster than that possible by today's analogue modems, and at prices lower than if these were provided or controlled by a single supplier.

"In the ACCC's view, without this decision, it is unlikely that such services would have been made available on a reasonable commercial basis. Competitors would be overly dependent on Telstra's choice of technologies, platforms, service processes and timing". In other words, it is vital that new technologies and services are not driven by monopoly control of the local network since competition by a wide range of players provides a superior way of meeting the new telecommunications needs of consumers and businesses.

Today's decision will also enable competitors to have direct access to carriers' local exchanges. The decision also guarantees the availability of local calls wholesale (resale) services to other carriers. This will encourage lower prices for local and long-distance services and enable Telstra's competitors to provide these services to customers on a single bill.

The decision confirms the ACCC's draft declaration decision of December 1998.

"The declaration of local call wholesale services will ensure service providers will continue to obtain discounts that are likely to increase over time, thus reducing local call prices," Professor Fels said.

"While the extent of price declines cannot be predicted exactly, the ACCC expects that based on todays' decision, local call prices will begin falling over the course of the next year. Within two years it is expected local call prices will generally be below 20 cents.

"As competitors deploy new technology in conjunction with new services to provide local calls, the continued need for the separate declaration of this wholesale service should diminish.

"As a result of this decision, the benefits of new high speed services will occur more quickly and across a broader customer and geographic base, particularly for residential and small business users outside of CBD areas" Professor Fels said. "While competitors will need to invest in new network facilities and technologies, they can use the existing customer access lines rather than having to roll out their own cables before being able to compete for local and new advanced services.

"Whilst the decision about local call resale has immediate effects, today's decision to open up the local network is only the beginning. It will be necessary to establish appropriate standards, procedures and rules about how services are to be provided and how access and interconnection is to occur.

"This requires dealing with a number of technical and operational issues which are currently being progressed through various industry processes, being managed by the Australian Communications Industry Forum and the Telecommunications Access Forum. This means access to the copper lines cannot occur until these processes are complete.

"The ACCC strongly supports this work and proposes to maintain an on-going role in these processes. The ability of the industry to complete this work in a timely and satisfactory manner will be an important test of the effectiveness of self-regulation.

"It will be challenging for those involved. However, the ACCC would encourage the industry to work through these issues in a mature and pragmatic manner.

"Significant work must be done to progress relevant issues. The timing of its completion will have a major bearing on how long end users must wait to enjoy the new services' benefits. The ability and timing of the industry to address the relevant issues will also be relevant to next year's review of the regulatory scheme.

"The ACCC has significant powers to ensure that declared services are supplied effectively and on a timely basis to ensure that consumers gain the full benefits of competition".

The ACCC's Final report to its local access inquiry on whether to declare certain local telecommunications services will be available on its web-site (www.accc.gov.au). The report details the ACCC's findings of why declaration of the specified services would be in the long-term interests of end users and includes service descriptions of each of the services that are being declared. After the report's publication, the ACCC will gazette relevant instruments of declaration specifying the four services being declared as a result of its inquiry.

An attachment to this release provides further background information on the ACCC Inquiry and a summary of the ACCC's findings.

Further information

Professor Allan Fels, Chairman, (03) 9290 1812 or pager (016) 373 536

Mr Michael Cosgrave, General Manager, Telecommunications, (03) 9290 1914 or (0416) 043 160

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

MR 130/98

22 July 1998

Background Note

On 19 March 1998, the Australian Competition and Consumer Commission began a public inquiry into whether to declare, under Part XIC of the Trade Practices Act 1974, particular services initially described as 'local call' and 'local interconnection' services. These services are essentially inputs used in the supply of communications services to end-users.

Once a service is 'declared', a carrier or carriage service provider supplying the service to itself or another person must supply the service, upon request, to other service providers. Service providers are thus guaranteed access to the inputs they need to supply competitive communications services to end-users. Terms and conditions of supply can be set through commercial negotiation or, alternatively, by reference to the other regulatory processes. These include an access undertaking submitted by the access provider and accepted by the ACCC, or through arbitration by the ACCC when it is notified of an access dispute.

The decision to hold the Inquiry followed earlier consideration of similar matters at industry level in the Telecommunications Access Forum. TAF members could not reach consensus on whether services described as 'Local Call Service' and 'Unconditioned Local Loop' should be declared and, accordingly, the matter went to the ACCC.

The ACCC can make a declaration where satisfied that declaration will promote the long-term interests of end-users. When considering this, it must have regard to the likely impact of declaration on:

promoting competition in markets for carriage services and services supplied by means of carriage services; achieving any-to-any connectivity; and encouraging the economically efficient use of, and investment in, telecommunications infrastructure.

The ACCC issued a discussion paper in April 1998 outlining the main issues. During the inquiry, it held a public hearing, undertook market inquiries and also issued separate papers on technical feasibility and pricing issues. It issued a draft report in December 1998 setting out its preliminary views.

During this time the Australian Communications Industry Forum began separate work on examining how particular services, involving the use of physical copper lines, could be supplied without giving rise to various technical interference issues. This and related work (also involving the TAF) is continuing and is noted below.

Following the consultations, the ACCC is satisfied that declaration of the following services will promote the long-term interests of end-users of carriage services, or of services provided by means of carriage services:

an unconditioned local loop service, which involves the use of unconditioned copper wires between the network boundary (on the customer's side) and a point at which the wire terminates; local PSTN originating and terminating services, which involve the carriage of communications between customer premises equipment and a point on the trunk side of the local switch; and a local carriage service, which involves the supply of an end-to-end telecommunications service between two points within a standard zone.

Liberalising the supply of these services to service providers through declaration should significantly influence the development of competition for local telephony services and high speed data carriage services, and enhance competition for long distance telephony services.

Declaration of the unconditioned local service, and the local PSTN originating and terminating services, enables service providers to connect their own networks to existing infrastructure in order to deliver new and innovative services to end-users more efficiently. This reduces the need for full duplication of communications networks while encouraging service providers to roll out their own infrastructure where this is efficient.

The ACCC expects that declaration of local carriage services will promote retail service competition and provide end-users with the choice between local call suppliers. Also, declaration is expected to help roll out of new infrastructure through lowering entry barriers and reducing investment risks.

Declaration Process

The ACCC's analytical approach is to consider the likely result of declaration of each proposed service in terms of each of the long-term interest of end user objectives of promoting competition, achieving any-to-any connectivity and encouraging efficient use of an investment in infrastructure.

This requires defining the scope of the eligible services that are proposed for declaration. This involves looking at each element of the services and how they are being provided. It is important that there is a clear understanding of what services are being proposed as the ACCC's declaration decision must be framed in terms of one or more specified eligible services, thereby assisting access providers in relation to their obligations. It also informs the ACCC's broader competition and infrastructure analysis under its long-term interest of end users test.

It is then necessary to establish an analytical framework that will be used to assess how declaration of particular eligible services will satisfy the end-user test of promoting competition in markets for particular services. This requires identifying the markets for carriage services, and services supplied by means of carriage services, and typically will involve an analysis of relevant upstream and downstream markets that are likely to be affected by declaration. After identifying the relevant markets, the ACCC then assesses the competitive state of play or the effectiveness of competition in these markets now and in the foreseeable future without declaration. This is to assess whether declaration is appropriate. For example, if competition is already effective, then declaration of the eligible service is not likely to have much impact on promoting further competition.

Once it has considered these threshold service and competition/market issues, the ACCC makes an assessment of whether declaration of each of the proposed services will be in the long-term interest of end users in terms of its effect on each of the end user objectives of promoting competition, achieving any to any connectivity and efficient use and investment of infrastructure.

A summary of the ACCC's views on whether declaration of each of the proposed services will promote the long-term interests of end users follows.

Declaration of unconditioned local loop service

With the high bandwidth carriage services market forecast to experience significant growth, the ACCC expects significant demand by both residential and business end-users for high bandwidth carriage services. By gaining access to the unconditioned local loop service, service providers can provide an alternative source of supply for these high bandwidth services. Thus end-users are no longer reliant solely on Telstra's choices in terms of service range and timing of deployment. With the unconditioned local loop service, service providers can also supply telephony services independently of, or bundled with, high bandwidth carriage services.

The unconditioned local loop service is unlikely to be supplied to access seekers in the absence of declaration. Declaration would ensure that those carriers and carriage service providers supplying the unconditioned local loop service to themselves are required to supply the service to other service providers upon request.

This will enable end-users in central business districts, inner city and suburban areas, and in regional (country town) locations to gain access to an increased range and choice of high bandwidth carriage services, thus removing obstacles to them gaining access to those services. These services can be used for Internet access, video on demand, remote LAN access and interactive multimedia. It would also provide them with an increased choice of telephony service providers, with an increased range of service providers expected to lead to greater price competition for local telephony services.

Accordingly, declaration of the unconditioned local loop service is likely to promote competition in the market for high bandwidth carriage services and the market for local telephony services to a significant extent, with consequent benefits to end-users.

Declaration would also enable service providers to make efficient investment decisions and allows the access provider to earn normal commercial returns. Declaration is also expected to encourage investment in xDSL technology and data networks. The ACCC believes that the costs involved in supplying and charging for this service are likely to be reasonable and that industry self-regulatory processes can address interference and related issues which may impact upon the operation of telecommunications networks.

Consequently, declaration is also likely to encourage the economically efficient use of, and economically efficient investment in, telecommunications infrastructure.

As a result, the ACCC is satisfied that declaration of the unconditioned local loop service will promote the long-term interests of end-users of carriage services and of services provided by means of carriage services.

There are likely to be some end-users for whom declaration will have no impact, particularly those served by multiple customer access networks. They are likely to be located in central business districts. At this stage, the ACCC considers that the declaration obligations should apply to all geographic areas. At a future point in time, it may be appropriate to adjust the geographic scope of the declaration instrument. The ACCC suggests reconsideration of these matters in approximately five years time.

Declaration of local PSTN originating and terminating services

Supply of the local PSTN originating and terminating services would allow service providers to interconnect at the local switch, thus unbundling inter-exchange switching and transmission from the other components of the Domestic PSTN Originating and Terminating Access Services. By interconnecting at the local switch level, service providers can reduce their reliance on Telstra. This would enable service providers to reduce the quantum of inputs purchased from Telstra. This is likely to improve the cost structure of service providers by giving them greater control over input costs and consequently, improves conditions for effective competition in the long distance telephony services market.

There is a level of ambiguity regarding whether the descriptions of Domestic PSTN Originating and Terminating Access Services provide for interconnection at the local exchange level. Declaration provides a mechanism that can facilitate interconnection at the local switch where to do so would enable service providers to lower their input costs. The extent of the cost savings will depend on the particular circumstances of each case.

Long distance services are currently widely available, with a number of competitors in the market. As such, declaration is not expected to enable end-users to gain access to an increased range or choice of services. Rather, the benefits from declaration are likely to be in the form of lower prices.

Declaration of the local PSTN originating and terminating services is likely to improve the contestability of infrastructure for the carriage of calls between switches and reduces the level of switching required when calls are handed over to an access seeker. Improving the contestability of infrastructure for carriage of calls between switches increases the competitive pressure on suppliers of these carriage services to supply them in the most efficient manner.

In some instances, interconnection already occurs at the local switch level and accordingly, it appears that it is technically feasible to supply and charge for local PSTN originating and terminating services. Any negative effects in terms of the operation or performance of telecommunications networks can be dealt with, on a case by case basis.

Consequently, the ACCC believes that declaration of the local PSTN originating and terminating services will promote the long-term interests of end-users of carriage services.

Declaration of local carriage service

The ability of service providers to compete effectively in the local telephony market through resupplying local telephony services is largely influenced by the terms and conditions on which local carriage services are supplied to them. Declaration of the local carriage service would constrain the ability of suppliers of these services to influence competition in the local telephony services market. This should promote competition in that market and in the long distance telephony services market where local telephony services are bundled with long distance calls for customers who prefer to acquire those services from a single provider.

The extent to which declaration will promote competition is likely to depend on the prices paid by access seekers for the local carriage service. The ACCC considered the pricing approach it would be likely to adopt if it was called upon to assess an access undertaking dealing with the local carriage service, or arbitrate an access dispute about the local carriage service. It considers that it would be likely to adopt an avoidable cost approach to determination of the access price in the event of an access dispute about the local carriage service.

To the extent that this encourages entry of efficient providers of retail services and improves the ability of service providers to use re-supply as a stepping stone to the roll out of their own infrastructure, then declaration will also encourage economic efficiency.

It appears to be technically feasible to supply and charge for the local carriage service. Moreover, declaration is likely to encourage efficient investment in infrastructure used to supply local telephony (and possibly other) services. It would be likely to facilitate market entry and enable service providers to obtain information about demand characteristics and the likely responses of competitors, thus reducing the risks associated with infrastructure deployment. This should enable service providers to make efficient decisions about when to deploy customer access infrastructure.

Once the unconditioned local loop service is available to service providers and/or the local PSTN originating and terminating services can be used to supply local calls, the competitive significance of the local carriage service is likely to diminish. At that time, it may be appropriate to revoke or modify the scope of the declaration of the local carriage service.

Provision of declared services

After publication of its report, the ACCC will execute relevant declaration instruments and publish them in the Commonwealth Gazette, which formally declares the services and requires such services to be provided. While these obligations apply from the time at which the relevant declaration instruments are gazetted, the ACCC envisages some time will be necessary for access providers and access seekers to negotiate the terms and conditions upon which access providers will comply with the standard access obligations. The relevant period of time will depend on the service. For instance, with the local carriage service, the ACCC envisages that it would be relatively short. With the unconditioned local service more complex issues are involved and these are likely to require a longer period of time to be addressed in order to enable supply of the service.

Provision of unconditioned local loop service

To allow the unconditioned local loop service to be used by service providers to supply high bandwidth carriage services using xDSL technology, there is a range of technical issues to be resolved. In addition, to optimise the benefits from declaration of the unconditioned local loop service, a number of operational issues need to be resolved.

It is important that once declaration has been made, there is a concerted effort by industry to ensure suitable arrangements are developed as quickly as possible to facilitate the efficient, timely and effective supply of the service.

The ACCC notes that some access seekers may wish to use the unconditioned local loop service to supply basic telephone services, or services using ISDN technology. Where possible, the ACCC would encourage the resolution of relevant issues in a manner which allows these services to be deployed ahead of the resolutions of issues specifically related to xDSL services which are likely to take a longer time to be settled.

The key areas of work that are required to be progressed in order to ensure unconditioned or unbundled local loops are made available are:

development of technical and network rules dealing with spectral compatibility and the deployment of services using xDSL technology on the local loop;

development of operational procedures relating to the pre-ordering, ordering and provisioning of the unconditioned local loop service as well as the handling and rectification of faults;

revisions to technical standards and codes for customer equipment and cabling to ensure they are compatible with xDSL equipment; and

development of principles or rules dealing with service migration as a result of changes to the customer access network architecture.

Work at the industry level has already commenced in relation to these matters. The ACIF, through particular reference panels, is undertaking work on all but the last. Service migration issues are being progressed through the TAF.

The ACCC's final Report contains full details of all aspects of the inquiry, the ACCC's process and on other matters raised in submissions, such as the nature of the services that should be declared together with a discussion of whether other services or service elements should be subject to declaration.

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