ࡱ>  bjbj 7xxO{&&i""""""""8"<%#"v/@$:#%9%9%9%&&&-------2X5>-M"&&&&&-""9%9%0/)))&H"9%"9%,)&-))S,,9%D2#"\'k,,F/0v/s,,5,(5,5",L&&)&&&&&--)&&&v/&&&&5&&&&&&&&&& /!: Telstras compliance with the retail price control arrangements 1 July 2011 to 30 June 2012 Report to the Minister for Broadband, Communications and the Digital Economy Australian Competition and Consumer Commission 23 Marcus Clarke Street, Canberra, Australian Capital Territory, 2601 Commonwealth of Australia 2012 This work is copyright. In addition to any use permitted under the Copyright Act 1968, all material contained within this work is provided under a Creative Commons Attribution 3.0 Australia licence, with the exception of: the Commonwealth Coat of Arms the ԭ and AER logos any illustration, diagram, photograph or graphic over which the Australian Competition and Consumer Commission does not hold copyright, but which may be part of or contained within this publication. The details of the relevant license conditions are available on the Creative Commons website, as is the full legal code for the CCBY 3.0 AU licence. Requests and inquiries concerning reproduction and rights should be addressed to the Director, Internal Communication and Publishing Services, ԭ, GPOBox 3131, Canberra ACT 2601, or publishing.unit@accc.gov.au. Important notice The information in this publication is for general guidance only. It does not constitute legal or other professional advice, and should not be relied on as a statement of the law in any jurisdiction. Because it is intended only as a general guide, it may contain generalisations. You should obtain professional advice if you have any specific concern. The ԭ has made every reasonable effort to provide current and accurate information, but it does not make any guarantees regarding the accuracy, currency or completeness of that information. Parties who wish to re-publish or otherwise use the information in this publication must check this information for currency and accuracy prior to publication. This should be done prior to each publication edition, as ԭ guidance and relevant transitional legislation frequently change. Any queries parties have should be addressed to the Director, Internal Communications and Publishing Services, ԭ, GPO Box 3131, Canberra ACT 2601, or publishing.unit@accc.gov.au. ISBN 978 1 921973 26 0 ԭ 11/12_609 www.accc.gov.au 1 Background and executive summary Under s.151CM (1)(b) of the Competition and Consumer Act 2010, the Australian Competition and Consumer Commission (ԭ) must report to the Minister for Broadband, Communications and the Digital Economy on the adequacy of Telstras compliance with the retail price control arrangements that apply to its fixed voice telephony services. These retail price control arrangements are set by the Minister. The arrangements that apply for 2011"12 are contained in the Telstra Carrier Charge Price Control Arrangements, Notification and Disallowance Determination No.1 of 2005 (the Determination). The ACCC considers Telstra adequately complied with these price control arrangements in 2011"12. This view is based on the ACCC s review of an independently audited compliance report that Telstra provided. 1.1 Summary of the price control arrangements The central framework of Telstras retail price control arrangements consists of a series of price caps that apply to specified baskets of fixed voice telephony services. The first basket of services consists of local calls, trunk (national long-distance and fixed-to-mobile) calls, international calls and line rentals. This basket is subject to a price cap of CPI"CPIpercent. This means that Telstra is entitled to change the individual prices of the services within the basket as it wishes, but the aggregate price of all services in the basket must not increase in nominal terms. The second basket consists of Telstra s most basic line rental product offered to residential customers: HomeLine Part. In the current reporting period, this basket was subject to a price cap of CPI"0percent. This means that the price of this service must not increase in real terms. The third basket consists of Telstra s most basic line rental product supplied to business customers and charity customers: BusinessLine Part. This basket is also subject to an annual price cap of CPI"0percent. This means that the price of this service must not increase in real terms. The fourth basket consists of connection services and is subject to an annual price cap of CPI"0percent. This means that the aggregate price of all services in the basket must not increase in real terms. All public switched telephone network (PSTN) services, except those supplied to large business customers on individual contracts, are subject to the price caps. Each price cap is an independent price cap and is not subject to any overall price cap. That is, price movements for each basket will be reported separately and are not required to be averaged to an overall price movement for all services. Telstra is able to claim credits for investing to improve the quality of the services within the baskets, which are offset against actual price movements. Also, if Telstra prices below the maximum level permissible, the difference may be carried forward as a credit into the next price cap period. The Determination also provides for a number of other price controls. The price for untimed local calls is not to increase above 22 cents (GST inclusive) for each call (other than a local call made from a public payphone, or a local call made using a calling card), except in the case of discount plans when a customer may be required to pay more than 22 cents per local call. " Local calls, and Telstra s most basic line rental product, supplied in non metropolitan areas, must be offered at the same or a lower price and on the same price-related terms as in metropolitan areas. " Telstra must offer a line rental to schools at a price at or below the standard line rental offered to residential customers. Increases in residential line rentals must be notified to the ԭ, and are subject to the ԭ being satisfied that Telstra has in place a low-income package, and that Telstra consulted with the Low Income Measures Assessment Committee before making any changes to that package. The price of each call to an internet service provider using a data network access service number starting with the numerals 0198 is not to exceed 22cents (GST inclusive). Telstra must notify the Minister in advance if it intends to alter charges for directory assistance services, with the Minister able to disallow the proposed changes if they are considered not to be in the public interest. Telstra is required to report to the ԭ on its compliance with the price control arrangements, within three months of the end of a price cap period. 2 Methodology for determining revenue-weighted price movements Under clause 13(5) of the Determination, the value of a price movement for a basket of services may be determined in accordance with a methodology developed by the ԭ in writing. The ԭ has established the Methodology for administration of the Telstra carrier charges price control arrangements (the methodology). The ԭ commenced a process to amend the methodology to reflect the recent amendments to the Determination in June 2012. The changes will be applied in 2012"13 and 2013"14. The methodology defines the price movement for a component service within a basket of services as a percentage change in the average price for that service in the relevant period as compared to the average price for that service in the previous period. The average price is calculated by dividing the net revenue for a service by the volume of sales (demand) for that service. The price movement for a basket of services is calculated by weighting the price movement for each component service and summing the weighted price movements. The price movement for each service is weighted by the services proportion of total revenue for that basket. 3 Auditing of Telstras price control report 3.1 Audit process and requirements The methodology requires Telstra to provide a final, independently audited report to the ԭ, providing full details of its compliance with the price cap requirements, within three months of the end of the price cap period. The aim of the audit is to determine whether: Telstra has complied with the price cap requirements as specified in the Determination and the methodology Telstra has complied with the procedural requirements that are specified in the Determination and the methodology Telstra has exercised consistency in applying the methodology specifications to its data capture systems, and Telstra has in place internal procedures and information management systems to efficiently monitor and report on its compliance with its obligations under the Determination and the methodology, including any change to these procedures or systems that may have a material effect on its monitoring and reporting. In consultation with Telstra, Ernst & Young was appointed as auditor for the 1 July 2011 to 30June 2012 price control compliance report. 3.2 Audit opinion The auditor has expressed the opinion that Telstra has presented fairly, in all material respects, its compliance report to the ԭ in complying with the Determination and the methodology as it relates to the aims of the audit as described above. 4 Telstras compliance with the price control arrangements1July 2011 to 30June 2012 4.1 An overview of the revenue-weighted price movements for Telstras services Figure 1 shows the revenue-weighted nominal price movements for each of the Telstra services subject to the price control arrangements during 2011"12. Figure 1: Telstra s revenue-weighted price movements for 2011"12  4.2 Deemed price reduction for quality improvement To calculate Telstra s compliance with the price control arrangements, the Determination states that Telstra can be credited with deemed price reductions where it increases the quality of its services. During the current reporting period, no quality improvement related credits were claimed. 4.3 Telstras compliance with the price caps Table 1 below assesses the weighted price movements against the price cap for each of the four baskets of services during the current reporting period. For instance, Table 1 shows that the first basket of services consists of local calls, trunk calls (national long-distance calls and fixed-to-mobile calls), international calls and line rentals. For each component service the table sets out the: reported price movement revenue weight, and weighted price movement. The table then lists the: overall price movement CPI value used cap (in this case CPI"CPI), and " carry-in credit from 2010"11. The table then records the reported surplus (in this case 7.5percent). Accordingly, Telstra could have charged an average price for the first basket that was 7.5percent greater than it actually charged and still met this price cap. This is also the  carry-in credit that Telstra will be entitled to claim for 2012"13. The reported surplus of 7.5percent partly reflects the carry-in (6.7percent) from the previous reporting period. The remainder is due to the fact that Telstra reported a 0.8percent decrease in the weighted average price of services in the first basket during the reporting period. Table 1: Telstras weighted price movements in relation to all four baskets of services during 1 July 2011 to 30 June 2012 ServicePrice movement (%)Revenue weightsWeighted price movement (%) Basket 1Local calls6.80.0680.5Trunk calls6.30.3242.0International calls"12.30.032 0.4Line rentals3.70.577+2.1(a)Overall 1.000 0.8CPI+3.1(b)Cap (CPI"CPI)+0.0(c)Carry-in from 2010"11+6.71Surplus (%) = (b) + (c)"(a)+7.5Basket 2(a)Basic residential line rentals+2.21.000+2.2CPI+3.1(b)Cap (CPI"0)+3.1(c)Carry-in from 2010"11+2.2Surplus (%) = (b) + (c)"(a)+3.1Basket 3(a)Basic business and charity line rentals+1.81.000+1.8CPI+3.1(b)Cap (CPI"0)+3.1(c)Carry-in from 2010"11+1.9Surplus (%) = (b) + (c)"(a)+3.3Basket 4New connections 6.40.498 3.2In-place connections"10.80.502 5.4(a)Overall1.000 8.6CPI+3.1(b)Cap (CPI"0)+3.1(c)Carry-in from 2010"11+5.1Surplus (%) = (b) + (c)"(a)+16.8 The specified CPI measure represents the aggregate price movement in the all groups basket for the weighted average of the eight Australian capital cities, as published by the Australian Bureau of Statistics, for the financial year immediately preceding the financial year in which the relevant price control is to apply. From 1 July 2011 to 30 June 2012 the relevant CPI figure was 3.1percent. 4.4 Telstras compliance with maximum prices for untimed local calls and calls for extended zones The Determination requires that Telstra charge a price of not more than 22 cents (GST inclusive) for each untimed local call, other than an untimed local call made from a public payphone which is capped at not more than 50 cents each (GST inclusive). It also requires that Telstra charge for calls between customers within an extended zone and between a customer in an extended zone and a customer in an adjacent extended zone at an untimed local call rate. Moreover, Telstra must not charge for preferential calls at a rate of more than the untimed local call rate specified in clause 16 of the Determination. The maximum prices charged for each of these calls as reported by Telstra are set out in table 2. Table 2: Maximum prices for untimed local calls and calls for extended zones Call typeMaximum charge ($ including GST)Extended zone call$0.22Preferential calluntimed local call rateCall to Telstras Big Pond internet service$0.22Local call from payphone$0.50Local call$0.22Dial-up internet call (0198)$0.22 The ACCC therefore considers that Telstra complied with this requirement in respect of the period 1July 2011 to 30 June 2012. 4.5 Telstra s compliance with the metropolitan/non metropolitan  pricing parity requirement The Determination requires Telstra to offer untimed local calls, extended zone calls and dial-up internet calls in metropolitan areas at the same or lower price per call and on the same price-related terms as those charged to its customers in non-metropolitan areas. Telstra certified that there were no instances where it did not comply with the pricing parity requirement during the period 1 July 2011 to 30 June 2012. Telstra reported that its standard offers do not differ between customers in metropolitan areas and non-metropolitan areas. Telstra also reported that it may negotiate non-standard contracts with some customers, meaning that certain offers are not available in all areas. Telstra stated however that its preparedness to negotiate non-standard contracts with customers does not vary between metropolitan and non-metropolitan areas. Based on Telstras advice, the ԭ considers that Telstra complied with this requirement in respect of the period 1July 2011 to 30 June 2012. 4.6 Telstras compliance with requirements to offer standard line rental for residential/charity customers and schools Under clauses 18 and 19A of the Determination, Telstra is required to offer a standard line rental for residential/charity customers. The standard line rental is the most popular line rental charged at residential rates. During the price cap period, the standard line rental was HomeLine Plus and the price was increased from $30.95 to $31.95 (GST inclusive) per month, effective from 1October 2011. Should Telstra supply a residential/charity customer with line rental at a price below that charged for a standard line rental, Telstra is allowed to charge that customer for untimed local calls in excess of the maximum untimed local call price set out in the Determinationi.e. greater than $0.22 per call. During the reporting period, Telstra offered no such arrangements to residential customers. Under clause 19 of the Determination, Telstra is required to offer to schools a line rental that is at, or below, the standard line rental it offers to residential and charity customers. Telstra reports that it has satisfied this obligation by noting within its standard customer terms that schools are eligible to receive the line rental prices that Telstra offers to non-profit organisations, namely, BusinessLine Complete (non-profit organisation)on which Telstra charges a line rental of $17.73 (GSTexclusive) per month. The ԭ therefore considers that Telstra complied with the requirements in clauses 18 and 19A of the Determination in respect of the period 1July 2011 to 30 June 2012. 4.7 Telstras compliance with the requirement to notify the ԭ of increases in line rental charged at residential rates Under the Determination, line rentals charged at residential rates must not be increased unless Telstra has notified the price increase to the ԭ and the ԭ is satisfied that Telstra has complied with clause 22 of the Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 45@A]d j t(>@DrJrt,.2  $$)|tj|t]h|OJPJQJ^Jo(jh|0J/Uh|0J.@ h|@h/` h|0J- h|0J, h|0J+h|#h+7(B*CJOJQJ^JaJphh#hqB*CJ OJQJ^JaJ phh#h|B*CJ OJQJ^JaJ phh#h|B*CJ"OJQJ^JaJ"phh#hqB*CJ"OJQJ^JaJ"phh hqNHhq$@A]! 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The ԭ cannot refuse to consent to a proposed line rental increase on any other basis. Clause 22 of the declaration requires Telstra to have measures in place to ensure that low-income customers have access to basic telephony services. Specifically, clause 22 of the declaration requires that Telstra must: have a low-income package in place that has been endorsed by low-income consumer advocacy groups and specified in writing to the Australian Communications and Media Authority (ACMA) have a marketing plan in place for the package, approved by the Low Income Measures Assessment Committee (LIMAC), and obtain and consider the LIMACs views on proposed changes to the package. Telstra notified the ԭ on 6 July 2011 of increases in residential line rental charges for five HomeLine products to take effect from 1 October 2011. Telstra proposed an increase of $2.00 per month (including GST) for Homeline Budget (from $20.95 to $22.95) and HomeLine Advanced (fron $39.95 to $41.95) products. Telstra proposed an increase of $1.00 per month (including GST) for HomeLine Complete (from $28.95 to $29.95), HomeLine Plus (from $30.95 to $31.95) and HomeLine Part (from $34.95 to $35.95) products. The ԭ considers that Telstra adequately complied with the above requirements in respect of these price increases in residential line rental in the period 1July 2011 to 30 June 2012. ԭ contacts Infocentre: 1300 302 502 Website: HYPERLINK "http://www.accc.gov.au"www.accc.gov.au Callers who are deaf or have a hearing or speech impairment can contact the ԭ through the National Relay Service HYPERLINK "http://www.relayservice.com.au"www.relayservice.com.au. Voice-only (speak and listen) usersphone 1300 555 727 and ask for 1300 302 502. For other business information, go to HYPERLINK "http://www.business.gov.au"www.business.gov.au Addresses National office 23 Marcus Clarke Street Canberra ACT 2601 GPO Box 3131 Canberra ACT 2601 Tel: (02) 6243 1111 Fax: (02) 6243 1199 New South Wales Level 20, 175 Pitt Street Sydney NSW 2000 GPO Box 3648 Sydney NSW 2001 Tel: (02) 9230 9133 Fax: (02) 9223 1092 Victoria Level 35, The Tower 360 Elizabeth Street Melbourne Central Melbourne Vic 3000 GPO Box 520 Melbourne Vic 3001 Tel: (03) 9290 1800 Fax: (03) 9663 3699 Queensland Brisbane Level 24 400 George Street Brisbane Qld 4000 PO Box 12241 George Street Post Office Brisbane Qld 4003 Tel: (07) 3835 4666 Fax: (07) 3835 4653 Townsville Level 6, Central Plaza Building 370 Flinders Mall Townsville Qld 4810 PO Box 2016 Townsville Qld 4810 Tel: (07) 4729 2666 Fax: (07) 4721 1538 Western Australia 3rd floor, East Point Plaza 233 Adelaide Terrace Perth WA 6000 PO Box 6381 East Perth WA 6892 Tel: (08) 9325 0600 Fax: (08) 9325 5976 South Australia Level 2 19 Grenfell Street Adelaide SA 5000 GPO Box 922 Adelaide SA 5001 Tel: (08) 8213 3444 Fax: (08) 8410 4155 Northern Territory Level 8, National Mutual Centre 9"11 Cavenagh Street Darwin NT 0800 GPO Box 3056 Darwin NT 0801 Tel: (08) 8946 9666 Fax: (08) 8946 9600 Tasmania Level 2, 70 Collins Street (Cnr Collins and Argyle streets) Hobart Tas 7000 GPO Box 1210 Hobart Tas 7001 Tel: (03) 6215 9333 Fax: (03) 6234 7796.  On 26 June 2012, following the Department of Broadband Communications and Digital Economys review of the retail price control arrangements in 2011, the Minister extended the operation of the Determination with some amendments. The amendments to the arrangements are to be applied in 2012"13 and 2013"14.  Figures may not add due to rounding.  The ACCC reported a surplus of 7.3percent for the 2010"11 report. Subsequently, Telstra reported an error in its figures for services included in basket 1 due to an error in the allocation of subGZ[$&rt~ȺȸȰȬhqmHnHujh0mUh&/h0mjhxZUhxZhoQmH sH U hoQ@hoQ0J.@hoQjhoQH*Uh|0J.@CJaJh|0J.@CJaJ h|0J+jh|Uh|6!>foF@R1YlF#$F~"$r~53d%gd}4W%#$scription revenue and the inclusion of non-basket 1 revenue in basket 1. Telstra has corrected these errors. This report is produced using the revised Telstra figures.  In general terms, extended zones are areas that fall outside Telstras standard local call charging zones. 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