Telstra wins exemptions on metro wholesale

David Kennedy/Ovum
30 Apr 2008

The Australian Competition and Consumer Commission (ACCC) has released a draft decision that would exempt Telstra from the requirement to offer two wholesale PSTN services in parts of metropolitan Australia.

The exemption would apply to wholesale line rental (WLR) and local call service (LCS), but only in areas where ULL-based competition is already established.

Telstra applied to the ACCC in July 2007 for an exemption to cover 387 metropolitan exchange service areas (ESAs), where other operators were using ULL-based DSLAMs to provide competition for Telstra's own services. This would amount to 4 million copper lines, approaching half of Telstra's copper network.

Although Telstra seems to have won the argument on principle, the ACCC's draft exemption is hedged with qualifications that will substantially reduce the impact of this announcement.

The sub-set of ESAs proposed by the ACCC are those in which there are 14,000 or more addressable services in operation or four or more ULLS-based competitors (including Telstra). These conditions only apply in large.

Unfortunately for Telstra, this ACCC's qualifications will substantially reduce the area where it achieves an exemption, though we don't know precisely how much because at the time of writing Telstra had not commented.

The exemption map could end up looking like Swiss cheese, which could be difficult for wholesale buyers if Telstra plays hardball.

ESAs that become capped during the duration of the exemption will lose their exemption. This also applies to currency-capped ESAs, which will not be included in the exemption.

The ACCC's reasoning here seems to be that the exemption should cease when new competitors no longer have the option of installing their own exchange equipment as an alternative to Telstra wholesale services.

The ACCC seems to have discounted the possibility that competition between ULL-based competitors could lead to a wholesale market, probably because some capped exchanges may have fewer than four providers.

Naturally, we expect these issues to be hotly-contested in comments on the draft ruling. But what this announcement really demonstrates is how hard it is for an incumbent to achieve regulatory roll-back, even when infrastructure-based competitors seem established in the market.

Regulators err on the side of caution when it comes to change, and Telstra's victory may end up a hollow one.

David Kennedy, Research Director

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