Australia: MTAS: The more things change, the more they stay the same (but lower)

On 8 December 2011, the ACCC issued its final access determination in relation to MTAS pricing, reducing the regulated price further from 6 to 3.6cpm over the period to 30 June 2014.

WHAT IS NEW?

The ACCC has just issued its final access determination on the pricing of the mobile termination access service (MTAS). In its determination, the ACCC has set threshold prices that operators can charge for the service from 2012 to 30 June 2014. As in previous years the ACCC has set a glide path for the cost reductions, namely:

  • 6 cpm for the calendar year 2012
  • 4.8 cpm for the calendar year 2013
  • 3.6 cpm to 1 January to 30 June 2014

The ACCC came to the view that its past pricing models were outdated and therefore adjusted the result produced from the 2007 WIK study to take into consideration international comparative analysis and the emergence of LTE technology.

Performing a meaningful international comparative analysis on MTAS pricing is fraught with difficulties. First, other than New Zealand, no other country uses a similar pricing model. Secondly, most other developed countries have greater take-up of 3G services, both in proportionate and absolute terms. Finally, there is the perennial problem of Australia's vast land mass and low population density.

One of the reasons for the ACCC adjusting the WIK model cost downwards was the development of LTE technology. The ACCC considered that it was reasonable to assume that the hypothetical efficient operator would use LTE, as it is a proven technology in the Australian context now that it has been adopted by NBN Co for the fixed wireless component of the NBN. Given the relatively early stages of the NBN rollout, this is an interesting approach for the ACCC.

WHAT HASN'T CHANGED?

Unlike its new approach to the fixed network, the ACCC has continued to price MTAS using a total service long run incremental cost plus model (TSLRIC+) with an allocation for fixed and common costs. This is a forward looking model that prices by estimating future (efficient) costs; assuming that as technology becomes more efficient, costs decrease due to operational efficiencies and economies of scale. These costs were originally based on the 2007 WIK model, an expert report commissioned on behalf of the ACCC.

An enduring criticism of MTAS regulation is the perceived distortionary effect created by the lack of regulation of fixed to mobile calls.

WHAT DOES THIS MEAN?

The ACCC's decision signals that it is prepared to take an aggressive approach to pricing and regulation and is prepared to regulate prices without undergoing a time consuming and expensive cost modelling process, even where the existing models have arguably been superseded. It will be interesting to see whether the ACCC adopts this approach if it opens a declaration inquiry into the provision of wholesale ADSL. The previous inquiry was abandoned in April this year but the media release issued by the ACCC when the revised Structural Separation Undertaking was received from Telstra last week contains a statement from the Chairman suggesting that it may be reopened:

"However, it has become apparent through this and other processes that there are outstanding regulatory concerns in relation to wholesale ADSL services."1

WHAT IS MTAS?

When you use your mobile to call someone on their mobile, the service of "handing over" the call to the receiving party's mobile network is called MTAS. Generally speaking, the receiving party's mobile network operator charges the calling party's mobile network operator to "hand over" the call. MTAS is set in cpm, or cents per minute.

1 http://www.accc.gov.au/media-release/accc-receives-revised-structural-separation-undertaking-from-telstra

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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