REVIEW OF TELSTRA RETAIL PRICE CONTROLS

23 April 2004
51/04

I have today directed the Australian Competition and Consumer Commission (ACCC) to review the operation of one of the Australian Government's key consumer protection mechanisms, Telstra's retail price controls.

Price controls are a key telecommunications consumer safeguard.

They are applied to Telstra to make sure efficiency improvements are passed through to consumers in the form of lower prices for telecommunications services in markets where competition is not yet fully developed.

The current price controls expire on 30 June 2005. The ACCC review will inform the Government's consideration of the nature of price control arrangements that should apply from June 2005.

The current price controls require Telstra to reduce average call prices for certain types of calls, restrain Telstra's ability to charge the full cost for line rentals and provide protection measures for low income consumers.

The ACCC will assess the efficiency of the current price controls, examining a wide range of issues and taking into consideration the effects across different customer groups.

The terms of reference for the review specifically require the ACCC to examine the distributional impacts of price controls across different groups, such as metropolitan and regional consumers and residential and business consumers

An important issue for future price control regulation and for this review will be the effect of new technologies, such as Voice Over Internet Protocol (VOIP), on pricing structures and the impact of the price controls on those technologies.

In conducting the review, the ACCC is required to consult relevant stakeholders including, but not limited to, the telecommunications industry, business, small business and residential consumer organisations and rural and regional organisations.

Background information and a copy of the Direction are attached.


Media Contact: Carina Tan-Van Baren (02) 6277 7480 or 0439 425 373

BACKGROUND

Current price controls

Period of the current controls

The current price controls will be valid to 30 June 2005.

Price caps

The arrangements comprise:

• a cap of CPI-4.5 per cent on a basket of local, trunk and international calls;

• a cap of CPI+4.0 per cent on a basket of business and residential line rentals; and

• a cap of CPI on a basket of connection services.

Low-income consumer protection

Telstra is required, as a condition of its carrier licence, to have in place a low-income package. This package was originally endorsed by low-income consumer advocacy groups through the Low-income Measures Assessment Committee (LIMAC). Representatives on the committee include the Australian Council of Social Services, The Smith Family, the Salvation Army, Jobs Australia, the Australian Federation of Homelessness Organisations, Anglicare Australia and Council on the Ageing. Telstra has been required to consult LIMAC on subsequent changes to the package.

Telstra is also required to have an approved marketing plan for the package, which has been approved by LIMAC.

Telstra's low-income package addresses a wide range of low-income consumer needs. The package contains measures specially targeted at holders of Pensioner Concession Cards, Health Care Cards, and Low-income Health Care Cards. The package also allows consumers to select products or arrangements of particular benefit to them individually.

The LIMAC is funded by Telstra. LIMAC reports to the Australian Government about the effectiveness of the package for low-income users.

Consent for residential line rental increases

Telstra must obtain the ACCC's consent to a proposed line rental increase affecting low-income consumers, with consent being contingent on compliance with the licence conditions set out above.

Untimed local call caps

There is a cap of 22 cents on standard untimed local call prices. However, Telstra is allowed to offer a higher local call charge as an option in combination with a corresponding lower than standard line rental charge.

There is a cap of 40 cents on the price of an untimed local call from a public payphone.

The local call pricing parity scheme requires average untimed local call prices in non-metropolitan areas to be broadly comparable to those in metropolitan areas.

Consent for increases in directory assistance charges

Telstra must notify the Minister of a proposed increase in directory assistance charges, with consent being subject to an assessment of whether the increase is in the public interest.