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The Australian Competition and Consumer Commission has released its draft decision on the revised Special Access Undertaking (SAU) lodged by NBN Co. If accepted, the SAU would be a key part of the framework that governs the price and other terms upon which NBN Co will supply services over its fibre, wireless and satellite networks to telecommunications companies.

“Having given this matter detailed consideration, and after considerable consultation with relevant parties, the ����ԭ�� is providing its views on the SAU submitted by NBN Co. We are today proposing a number of changes, and consulting on the precise form of those changes,” ����ԭ�� Chairman Rod Sims said.

Notwithstanding the proposed variations, the draft decision notes that many features of the SAU have merit. For example:

• The ‘modular’ design of the SAU allows for different matters to be ‘locked in’ for different periods of time. This means a balance can be struck between providing certainty about long term cost recovery and allowing for flexibility to respond to changing circumstances; 
• The initial prices set out in the SAU are generally likely to allow for a smooth transition from existing telecommunications networks;
• The revenue constraint provides NBN Co with the opportunity to recover its prudent costs over the term of the SAU;
• Long term commitments not to raise prices above the CPI-1.5% price control provide significant price certainty, and have the potential to create incentives for NBN Co to efficiently operate and invest in the National Broadband Network; and
• Commitments to consult with customers on various matters have the potential to reduce information asymmetries between NBN Co and its customers.

“Despite these features, however, the ����ԭ��'s preliminary view is that it is not satisfied that the SAU meets the relevant criteria for acceptance,” Mr Sims said.

“The SAU is a complex undertaking that NBN Co proposes will operate until 2040. It is therefore important that the rights or obligations the SAU imposes on NBN Co, access seekers and the ����ԭ�� are reasonable, in the long-term interests of end-users and clearly expressed so that they are well understood by all parties.”

The ����ԭ�� is proposing to issue a notice to NBN Co suggesting variations to the SAU. The ����ԭ�� has released a consultation paper about the changes that it is proposing. The key amendments proposed are:

• Specific drafting amendments to provide certainty about how NBN Co will comply with its obligations under the telecommunications access regime; specifically any ����ԭ�� regulatory rulings;
• Allowing for periodic price re-balancing through review by the ����ԭ�� – the outcomes of these reviews would be constrained on the basis that any changes to price structures or relative prices must be revenue neutral in their effect;
• Amendments to clarify that the ����ԭ�� could have a role in overseeing the withdrawal of products and the introduction of new products and their prices, should the need arise, mainly to support an effective price cap regime;
• Amendments which allow a greater degree of flexibility in the approach that will be adopted at various points in time throughout the SAU, to mirror usual regulatory practice and so encourage efficient investment in and operation of the network; and
• The removal of a number of proposed non-price terms from the SAU, including those relating to service levels, in order to facilitate effective commercial negotiation.

A number of these proposals are directed towards ensuring that, for matters not directly dealt with in the SAU, the access regime would continue to operate in the ordinary way. They would also preserve the primacy of commercially negotiated access agreements in the regime.

“An SAU varied in line with the ����ԭ��’s proposals would provide considerable certainty to NBN Co that it will be able to recover the prudent costs of its investment, subject, of course, to demand for its services meeting expectations. NBN Co’s assets would not be subject to re-valuation once the NBN is built, and any changes to price structures would be revenue neutral,” Mr Sims said.

If the ����ԭ��’s proposed changes are made, the SAU should deliver a framework for the regulation of NBN Co’s services which:

• Ensures consumers and businesses get services of broadly the quality they get today for broadly the price they get today. Consumers and businesses would only pay more for services and/or usage beyond what they get today;
• Allows for vigorous retail competition;
• Provides NBN Co with the opportunity, subject to efficient investment and adequate demand for its services, to earn a reasonable return on its investment (but no more);
• Provides NBN Co with incentives to not be wasteful, but to also innovate and invest to offer improved services/capacity over time in response to customer demand;
• Ensures that NBN Co and access seekers have incentives to commercially negotiate and agree non-price terms and conditions of access to NBN Co’s services; and
• Provides a suitable balance, between certainty on key principles and flexibility over detailed terms of access, over the SAU’s proposed 27 year term.

Following feedback on the proposed changes, the ����ԭ�� expects that the next step it would take in the process is to issue to NBN Co a formal notice to vary the SAU. If the ����ԭ�� proceeds to formally issue such a notice, NBN Co may make changes to the original SAU within the time period set by the ����ԭ�� without having to lodge a new SAU. However, there is no obligation on NBN Co to vary the SAU.

The ����ԭ�� will aim to issue the notice to vary to NBN Co around May 2013. If NBN Co submits a varied SAU in response to the ����ԭ��’s notice to vary, the ����ԭ�� will consult on the varied SAU. That said, if the varied SAU closely reflects the provisions of the notice to vary, subsequent consultations should be relatively brief given the extensive consultation that will have already occurred by that time.

The ����ԭ��’s draft decision is available at NBN Co - special access undertaking 2012 - Draft decision. Interested parties have until 2 May to make submissions to the ����ԭ�� on the draft decision and the consultation paper on the notice to vary.