Telstra’s exemption application in respect of the Optus HFC network Final decision November 2008 Public version © Commonwealth of Australia 2008 This work is copyright. Apart from any use permitted by the Copyright Act 1968, no part may be reproduced without permission of the Australian Competition and Consumer Commission. Requests and inquiries concerning reproduction and rights should be addressed to the Director Publishing, Australian Competition and Consumer Commission, GPO Box 3131, Canberra ACT 2601. 2 Contents List of shortened forms.................................................................................................. 4 Summary.........................................................................................................................6 1. Background............................................................................................................... 15 1.1 What are the declared services at issue? .................................................................. 15 1.2 Developments relating to the exemption application............................................... 16 Fixed Services Review second position paper......................................................... 16 Audit of competitive infrastructure.......................................................................... 18 Arbitrations .............................................................................................................. 18 1.3 Summary of Telstra’s HFC exemption application ................................................. 18 Promotion of competition ........................................................................................ 20 Economically efficient use of, and investment in, infrastructure ............................ 21 1.4 Telstra’s other exemption applications .................................................................... 21 2. Long Term Interests of End-users (LTIE) test ..................................................... 24 3. Promotion of competition........................................................................................ 26 3.1 Market definition...................................................................................................... 29 3.2 Assessing the state of competition........................................................................... 49 3.2.1 The ACCC’s approach to assessing the state of competition in the relevant markets ..................................................................................................................... 49 3.2.2 The level of competition in the relevant markets............................................ 51 3.3 Will granting the exemption promote competition? ................................................ 97 3.4 ACCC’s view ......................................................................................................... 124 4. Any-to-any connectivity......................................................................................... 125 5. Economically efficient use of, and investment in, infrastructure ...................... 126 5.1 Introduction............................................................................................................ 126 5.2 Parties’ submissions............................................................................................... 128 5.3 ACCC’s view ......................................................................................................... 132 6 Conclusion................................................................................................................ 137 Appendix A: Legislative background....................................................................... 138 A.1 Declaration and the SAOs................................................................................ 138 A.2 Exemptions from SAOs ................................................................................... 139 A.3 Long-term interests of end-users...................................................................... 140 Promotion of competition ...................................................................................... 141 Any-to-any connectivity ........................................................................................ 143 Efficient use of, and investment in, infrastructure ................................................. 143 Appendix B: Submissions.......................................................................................... 146 Appendix C – List of documents examined by the ACCC in the course of making the decision............................................................................................................ 148 3 List of shortened forms ABS Australian Bureau of Statistics ACCC Australian Competition and Consumer Commission ACMA Australian Communications and Media Authority ADSL asymmetric digital subscriber line ARCEP Autorité de régulation des communications électroniques et des postes CAN customer access network CAU customer access unit CBD central business district c-i-c commercial-in-confidence CMTS cable modem termination system CPE customer premises equipment CSA content supply agreement DOCSIS data over cable service interface specification DSL digital subscriber line DSLAM digital subscriber line access multiplexers EBITDA Earnings before interest, tax, depreciation and amortisation ESA exchange service area FSR2 second position paper in Fixed Services Review FTTH Fibre-to-the-home FTTN fibre-to-the-node HFC hybrid fibre-coaxial cable IAD internet access device IIA Internet Industry Association IP internet protocol IPTV internet protocol television ISP internet service provider LCS local carriage service LSS line sharing service LTIE long-term interests of end-users MDF main distribution frame MDU multi dwelling unit 4 MSAN multi-service access node NBN National Broadband Network NGN next generation network NPV net present value OECD Organisation of Economic Cooperation and Development PSTN public switched telephone network PSTN OA public switched telephone network originating access PSTN TA public switched telephone network terminating access POTS plain old telephone service RFP Request for Proposals RKR record keeping rule SAO standard access obligation SDU Single dwelling unit SIO service in operation SME small and medium enterprises SSNIP small but significant non-transitory increase in price TPA Trade Practices Act 1974 (Cth) ULLS unconditioned local loop service USS Upper spectrum sharing VoB Voice over Broadband VoIP Voice over Internet Protocol VPN virtual private network WLR wholesale line rental xDSL Refers to the ‘family of digital subscriber line services (e.g. ADSL, HDSL etc.) 5 Summary On 18 December 2007, the Australian Competition and Consumer Commission (ACCC) received an application (the HFC exemption application) from Telstra Corporation Limited (Telstra) seeking an individual exemption from the standard access obligations (SAOs) under section 152AT of the Trade Practices Act 1974 (TPA). The exemption sought by Telstra relates to the supply of the following declared services to Singtel Optus (Optus) within a defined geographic area: local carriage service (LCS) — a wholesale local call service, involving the carriage of a telephone call from one end user to another end user in the same standard zone. wholesale line rental (WLR) — the provision of a basic line rental service that allows the end user to connect to the access provider’s public switched telephone network (PSTN). It provides the end user with the ability to make and receive standard PSTN voice calls; and a telephone number. public switched telephone network originating access (PSTN OA) — domestic PSTN originating access is the carriage of telephone calls from the calling party (the A-party) to a point of interconnection with an access-seeker’s network. unconditioned local loop service (ULLS) — the unconditioned local loop service is the use of unconditioned communications wire between the end- user’s premises and a point on the telecommunications network that is a point of interconnection located at the customer access module on the end-user side. line sharing service (LSS) — the line-sharing service allows similar functionality to a competitor to that provided by a ULLS, but the voice service is provided by another party. In relation to the supply of LCS, WLR and PSTN OA, Telstra’s application states that the exemption is sought ‘to the extent not covered by another exemption under section 152AT(1) of the TPA’.1 This reflects that, at the time of lodging the HFC exemption application, Telstra had already lodged a number of other exemption applications relating to these three services. Telstra specifies the defined geographic area for the exemption application to be the area including customer premises that lie wholly or partly within 75 metres of the network distribution lines of Optus’ hybrid-fibre-coax (HFC) network in Sydney, Melbourne and Brisbane. The Optus HFC network is an end-to-end network that can provide fixed voice, broadband and pay TV services to end users. Telstra proposes a 12 month transition period for the exemptions to take effect if granted, including a staggered implementation for differently sized end-user premises. 1 Telstra, Application for exemption from standard access obligations in respect of the Singtel Optus HFC network, 17 December 2007, p. 2. 6 Telstra is not seeking in the HFC exemption application that Optus expand its HFC network footprint, but submits