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NBN Co goes back to the drawing board on pricing plan

The ACCC has concerns over NBN Co’s wholesale pricing plans.

Yesterday, the Australian Competition and Consumer Commission (ACCC) recommended that NBN Co revise its wholesale agreement — including proposals on pricing and access — as outlined in its special access undertaking (SAU).

This undertaking, which defines the terms of NBN Co’s wholesale agreement over a 27-year period, will form part of the regulatory framework for retail service providers (RSP) and wholesale service providers (WSP) to gain access to the National Broadband Network (NBN).

ACCC chairman Rod Sims provided an insight yesterday into the ACCC’s position on the revised SAU when he said “it [the ACCC] is not satisfied that the SAU meets the relevant criteria for acceptance”. Sims indicated that he had concerns over the impact of introducing new products, telling the ABC that “we need to be there to look at withdrawal and introduction of new products and their pricing to make sure that nothing can undermine that price cap regime”.

Before we look at what the ACCC’s concerns were with the special access undertaking, let us first explore what it is and why it is important for consumers.

Voluntary undertaking

The ACCC defines the SAU to be “a voluntary undertaking given to the ACCC by a supplier of a telecommunications service specifying the terms and conditions upon which it agrees to supply a listed carriage service or a service which facilitates the supply of a listed carriage service”.

The statutory requirement for a telecommunication service supplier to provide the ACCC with a special access undertaking can be found in the Competition and Consumer Act 2010. Upon receipt of a SAU from a telecommunication service supplier, the ACCC considers it using the criteria set out in section 152CBD of the Competition and Consumer Act 2010.

The ACCC must make a decision to accept or reject the SAU within six months of receipt. If the ACCC does not believe it meets the criteria in section 152CBD, then under Section 152CBDA of the Competition and Consumer Act 2010 the ACCC may issue a notice to vary the SAU to the telecommunication service supplier.

The Competition and Consumer Act 2010 permits the ACCC to release draft decisions and to call for submissions on proposed changes to a SAU before issuing a notice to vary to the telecommunications service provider.

Following this process, the ACCC has released a draft decision on the NBN Co SAU and called for submissions on proposed changes to the SAU. Submissions are required by May 2 2013.

NBN Co may opt to submit a revised SAU or make a submission and this would be considered by the ACCC along with any other submissions received.

By late June 2013, the ACCC will either accept a revised SAU or reject the SAU and issue a notice to vary to NBN Co to ensure the SAU meets the statutory criteria under section 152CBD.

Effect on consumers

NBN Co does not provide products and services directly to retail consumers. Retail consumers access the NBN by purchasing products and services from access-seekers (retail service providers and wholesale service providers) who have contracts with NBN Co.

After consultation with the telecommunications industry, NBN Co developed NBN Access Service agreements for access-seekers.

The NBN Co SAU provides commitments about the NBN Access Service for the life of the 27-year business case set out in the NBN Co Corporate Plan. The NBN Access Service provides uniform national wholesale prices and covers all wholesale Layer 2 services provided over NBN Co’s fibre, wireless and satellite networks.

What this means is the NBN Co SAU, when accepted by the ACCC, provides information on key aspects of NBN Co contracts with access seekers. Because the SAU is publicly available, access seekers are able to make a judgement as to whether their contract with NBN Co is in accordance with the prices and conditions outlined in the SAU.

For retail consumers, the SAU provides a guide as to the costs being paid by their internet service providers to NBN Co for retail consumer connections to the NBN, how these costs will rise each year and what the terms and conditions are.

ACCC concerns

The changes that are being proposed by the ACCC include:

“Specific drafting amendments to provide certainty about how NBN Co will comply with its obligations under the telecommunications access regime, specifically any ACCC regulatory rulings.

Allowing for periodic price re-balancing through review by the ACCC. 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 ACCC 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.

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.”

What the ACCC hopes to achieve

The ACCC believes that if the proposed changes are made to NBN Co’s SAU, the result should be 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.

Provides a suitable balance, between certainty on key principles and flexibility over detailed terms of access, over the SAU’s proposed 27 year term.”

The future success of the NBN will be heavily dependent on whether access-seekers are able to compete on a level playing field and offer retail consumers with a wide range of competitively priced products and services.

It is vital that the final NBN Co SAU be a forward-looking document that provides a balance between underlying principles and flexibility that promotes competition with the result being certainty for NBN Co and the hundreds of companies that will become NBN access-seekers or resellers of NBN access-seeker wholesale services.

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