The Australian Parliament has authorized the sale of its remaining
stake in the dominant carrier Telstra7, a development the United States
strongly supports. This effort, however, has stimulated a widespread
domestic debate about Telstra’s willingness and ability to continue its
role as a universal service provider without this governmental stake.
Telstra has been aggressive in attempting to undermine the authority of
Australia’s regulator – the Australian Competition and Consumer
Commission (ACCC) – mainly through direct appeals to the Department of
Communications, Information Technology, and the Arts (DCITA) for
regulatory relief. To date, the DCITA has deferred to the ACCC on
pricing decisions. Telstra has worked actively to minimize the scope of
safeguards designed to ensure that Telstra offers competitors access to
key parts of its networks on terms equivalent to those Telstra offers
itself (operational separation) and to curb reforms concerning the
structure and level of pricing for unbundled local loops – wholesale
inputs that competitors have begun to use to compete against Telstra in
local voice and data markets. Telstra has asserted that it can only
maintain its policy of uniform retail pricing in Australia if wholesale
rates are also set uniformly. Regarding operational separation, the
DCITA recently rejected Telstra’s initial plan to implement operational
safeguards as insufficient. Whether Telstra will improve upon this plan
in a meaningful way remains to be seen. Regarding unbundled loops,
Telstra has refused to lower rates it previously offered on a
de-averaged basis, as ACCC proposed. Telstra has also unilaterally set
a high, nationally averaged rate, arguing that it needs to
cross-subsidize rural services with above-cost urban rates. The likely
effect of this new tariff, if Telstra’s appeal to the DCITA succeeds,
will be to preclude competition based on unbundled loops in the
geographic areas that competitors want to serve. Given the effects on
competition of Telstra’s proposed average rate, Australia should
consider other mechanisms to address rural service issues, such as
expanded use of a competitively-neutral universal service fund. USTR
will monitor the DCITA’s efforts to ensure that Telstra implements an
effective operational separation plan. USTR will also encourage
Australia to adopt reforms concerning the structure and level of
pricing for unbundled local loops that do not foreclose competitive
entry into the Australian market.

Peter Fray

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