Accounting Separation
What is accounting separation?
The Government requires Telstra to make information available showing whether Telstra:
- prices competitor access to its network fairly
- sets its retail and wholesale prices at levels sufficient for competitors to generate satisfactory returns
- does not favour its retail customers compared to its wholesale end-users.
The information can be classified into three limbs:
- Limb 1 is the requirement for Telstra to update its regulatory accounting records from historic to current costs – being the costs that would be incurred if the network were to be built using today’s up-to-date technology. The ACCC is required to publish these accounts for the core wholesale services (PSTN origination and termination, unbundled local loop and local call resale). Telstra has now produced fixed asset statements for the core services on both an historic and current cost basis, a profit and loss statement on a current cost basis and a capital employed statement on a current cost basis. Whilst there is further work to be done on this limb, which is a significant and complex exercise to undertake, the accounts produced to date indicate that regulated access prices underestimate the cost of providing the core services.
- Limb 2 requires that Telstra provide data to the ACCC to show the margins available between Telstra’s average retail prices for access/local, STD, IDD and fixed to mobile services and the costs that a competitor would incur in supplying these services if it were relying solely on Telstra’s wholesale products for network inputs. The average available margin across the full set of these retail services (the margin of relevance to full service carriers) is also published. The data proves that our competitors, who purchase from Telstra at wholesale prices and resell their range of services in retail markets, are able to make satisfactory returns across the suite of the most popular telephony services. Margins across these most popular services vary. It is no different to other industries in which multiple products/services are offered. For example, petrol stations would offer petrol at a lower margin than other products they offer for sale.
- Limb 3 requires Telstra to publish a series of measurements that compare its performance in terms of new service connections and fault rectification for both wholesale and retail customers. The data shows there is no pattern of favouring retail customers over wholesale customers. Telstra is essentially treating wholesale and retail customers equally.
What does the accounting separation data show?
The Accounting Separation data counters claims by Telstra’s competitors that Telstra has been discriminating against them. The data shows that service providers who purchase from Telstra at wholesale prices and resell in retail markets are able to make satisfactory returns. It demonstrates that there is no pattern of favouring retail customers over wholesale in relation to service provision. Telstra believes this data shows it gives competitors a fair go.
Telstra is required to provide the ACCC with annual audit opinions for each limb which confirm that the data complies with the relevant record keeping rules.
Telstra's accounting separation results are available at the ACCC website.
A further requirement relating to the Accounting Separation obligations is for the ACCC to provide the Minister with a report about the state of competition in relation to services for corporate customers. The latest ACCC Discussion Paper on how this report could be implemented was released in December 2004 and is on the ACCC website.
In addition, a new obligation called Operational Separation has been imposed on Telstra. Operational Separation is also to ensure Telstra's wholesale customers gain access to equivalent services and treatment.
