Telecommunications economics and policy issues
Industry Commission staff information paper
This paper was released in March 1997.
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Telecommunications Economics and Policy Issues (PDF 752.9 KB)Efficiency gains and cheaper phone calls are possible from telecommunications price restructuring, according to an Industry Commission staff information paper released today.
The new regulatory framework that takes effect from 1 July is designed to increase competition in the telecommunications industry. The paper looks at whether this framework will allow price restructuring and more benefits from greater competition.
The paper estimates that with modest price restructuring, economy-wide efficiency gains of $300 million a year are possible with no change in Telstra's operating profit. However, the paper notes that the regulatory price caps on a range of Telstra charges limit the scope for achieving this outcome.
Under the paper's proposals, STD and international call prices would fall and subscriber access charges would rise to better reflect costs. The paper notes that a minor reduction in Telstra's costs would be sufficient to fund compensation for households adversely affected by the increase in the residential subscriber access charge.
The new regulatory framework will also establish the terms and conditions on which new competitors will be given access to existing networks. The paper finds that a price of 2.5 cents per minute for local network access would be consistent with lower call prices, without undermining the viability of existing carriers. The paper argues that the access price should not include customer access network costs, overhead costs or contributions to universal or community service obligations. To do so 'would distract attention from more efficient ways of recovering those costs and merely perpetuate current inefficiencies', the paper notes.
The paper identifies problems with Telstra providing access to its rivals as well as to itself - inefficient and inconsistent use of the local exchange network, and the potential for anti-competitive conduct and retail product market collusion. The paper suggests that while regulation may have a role, splitting off the local network under independent ownership would be the best approach to all three problems.
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