CEG in Telstra & Optus "battle of the economists"
Battle of the economists: Telstra & Optus wheel out volumes of cost model analysis
Telstra and Optus have wheeled out the big guns in the fight over how the Australian Competition and Consumer Commission will cost and model declared fixed line services over the next three years. Both Telstra and Optus are critical of the ACCC’s proposals—Optus says the ACCC is pricing ULL too high, while Telstra says the ACCC is pricing ULL and other fixed network services too low.
In submissions to the ACCC draft consultation process, Telstra has filed three CD ROMs of material with the regulator supporting its case, while Optus has also sourced reams of external supporting material.
Telstra has turned to NASDAQ listed global experts firm LECG, Synergies Economic Consulting, consultant Craig Lordan and NERA Economic Consulting, while Optus employed the Competition Economics Group, Milner Consulting and Network Strategies to buttress its case.
LECG critiques the Analysys Mason global benchmarking report prepared for the ACCC as too biased towards low cost European countries and having ignored obvious benchmark comparisons such as Canada, New Zealand and the US. The LECG report says that the Analysys Mason findings cannot be used to validate a fixed network cost model.
Synergies Economic Consulting was also brought in to compare international PSTN originating and terminating access prices and concludes that the ACCC’s proposed 0.80c per minute rate would be the lowest in the world after making adjustments for population density and cost of capital. It said with the exception of the UK, all benchmarked countries are between 23% and 546% more expensive than the ACCC proposed rate.
A former Telstra executive and now independent consultant, Craig Lordan, also undertakes analysis of the Analysys cost model used by the ACCC. He says it does not follow good engineering practice in its modelling and disputes some of its assumptions about the robustness of wireless solutions. NERA also weighs in with a report that validates some of the assumptions made in the Telstra TEA costing model.
Optus in turn uses a report from CEG to support the contention that the current pricing methodologies used by the ACCC create too much uncertainty and that the modelling of a replacement copper network in calculating Telstra prices is clearly inappropriate given that the government plans a national fibre network and that this would be cheaper.
The CEG report, interestingly, estimates the cost of a national FTTP network at A$32.9 billion, $3 billion cheaper than a copper network, and apparently, creating $10-15 billion more value than a copper network.
This caused a minor flurry amongst NBN critics yesterday who seized on it as more evidence than the proposed NBN would fail a cost-benefit analysis. But the CEG report says that its survey analysis shows there would be a willingness on behalf of consumers to pay nearly an extra $1 billion per annum for high speed services only possible on fibre.
A Milner Consulting report commissioned by Optus also weighs in on the alleged deficiencies of the ACCC cost model in estimating passive fibre network costs when calculating “replacement network” ULL prices, while an extensive Network Strategies analysis of the same model says it estimates ULL prices by a factor of 20%.
The ACCC is considering the amassed evidence ahead of a final decision.
By Grahame Lynch, published in COMMUNICATIONS DAY, 16 OCTOBER 2009, ISSUE 3621
