What happens when Telstra is an access seeker?

In New Zealand, TelstraClear is the access seeker to the dominant firm, Telecom NZ’s, infrastructure. I don’t want to read too much into this (you know NZ is surely “COMPLETELY DIFFERENT” from Australia and all that) but it makes interesting reading. Here is the link to a key submission on PSTN access (May 2005) and over the fold an interesting extract:

40. the Commission’s draft TSLRIC price for designated interconnection service has been estimated using a bottom-up approach, which seeks, as much as possible, to make calculation of the TSLRIC price in a “scientific” manner. TelstraClear supports this. Inevitably though, there is a significant element of “art” in TSLRIC modelling in that many of the parameter values are based on judgements rather than real world numbers and because the calculation should be forward looking rather than historical. In its judgements on the correct parameter values to apply, the Commission should opt for values that result in a lower, rather than higher, TSLRIC price because this best satisfies s.18. There are several reasons why this is the case, including but not limited to:

a. a lower TSLRIC price will result in lower prices to end-users;

b. a lower TSLRIC price will promote competition by strengthening the ability of Access Seekers to compete;

c. by strengthening competition, a lower TSLRIC price will promote innovation in the telecommunications industry;

d. higher PSTN prices have not had a positive impact on the level of investment in telecommunications. This is demonstrated by work undertaken by Network Strategies, which is further discussed below; and

e. a lower TSLRIC price will reduce incentives for inefficient/duplicative investment in alternative networks. In this regard, there is an asymmetry of risk associated with setting the interconnection price too high versus too low. In particular, if it set too low, investment by Access Seekers may be discouraged because they prefer to rely on Telecom. But this can be reversed subsequently by a correction in price. If the interconnection price is set too high inefficient investment in duplicative network may be encouraged, which cannot be reversed even if the interconnection is subsequently corrected.

It gets even better after this with lower prices promotion innovation including “a higher interconnection price implies greater reliance on the incumbent for innovation.” And the investment bit is classic: “These findings indicate that the Commission should place more weight on the benefits from competition in its decisions on the interconnection price rather than on Telecom’s arguments about the risks to its incentives to invest.” Amen to that.

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