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International Telecommunications Reform in Australia

Industry Commission staff information paper

This paper  was released on 5 June 1997.

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  • Media release
  • Contents

In 1995-96 Telstra and Optus charged consumers on average five times the cost of providing international calls - net of discounts - according to an Industry Commission paper released today.

Limited domestic competition to date has kept prices well above cost but domestic telecommunications reforms to be implemented from 1 July 1997 will be the key to substantial efficiency gains from cheaper international calls.

The Commission estimates that the average international call price from Australia could fall to as low as 47 cents per minute, well under half of the estimated 1995-96 average price of $1.11. These price reductions would produce efficiency gains of around $350 million annually.

The new domestic arrangements will end the legislative restrictions on entry of new carriers and facilitate greater competition with other suppliers of overseas calls. Service providers will no longer have to use relatively expensive international transmission facilities, and improved network access will lower interconnect rates and improve quality of access.

Another reason for high prices for outgoing calls in Australia is the international accounting rate system. Under this system, carriers charge each other inflated fees for terminating incoming international calls. But even with the accounting rate system in place, increased domestic competition should reduce call prices substantially.

According to the Commission, opening our international call market to foreign carriers may increase their scope to behave anti-competitively in Australia. This could limit the benefits to the Australian economy and consumers from domestic reforms. While supporting multilateral reform, Australia should pursue its unilateral telecommunications reforms and use effective domestic competition policy to tackle anti-competitive conduct.

A more informed public debate on such policy matters would, in the Commission's view, contribute to further international telecommunications reform in Australia.

Background information

Leonora Nicol (Media, Publications and Web) 02 6240 3239 / 0417 665 443

Preliminaries
Cover, Copyright, Preface, Contents, Abbreviations, Executive Summary

1 International telecommunications in Australia
1.1 The international network
1.2 Providers of international telecommunications services in Australia
1.3 Australia's major international traffic flows
1.4 Telecommunications reform in Australia
1.5 Summary

2 Australian international call prices
2.1 International telecommunications price comparisons
2.2 The costs of providing international calls
2.3 Efficiency losses associated with pricing international calls above long-run marginal cost
2.4 Summary

3 Moving to a more competitive international call market
3.1 Existing market structure
3.2 Impact of legislative changes
3.3 Summary

4 The international accounting rate system
4.1 Background
4.2 The relationship between settlement rates and the resource cost of termination
4.3 The international accounting rate system and refile
4.4 The international accounting rate system and the current account
4.5 The impact of the accounting rate system on international call prices
4.6 Factors influencing the impact of the accounting rate system on international call prices
4.7 Summary

5 Reforming the international accounting rate system
5.1 Reform of the international settlement system
5.2 Transitional problems for Australia arising from asymmetrical liberalisation
5.3 Summary

Appendix A Data on international traffic, prices and costs

References

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