Telstra’s High Court challenge against the ACCC no doubt dominates water cooler conversations this morning—I can already imagine the disapproving and censorious views in the common rooms of some of our larger access seekers.

But it’s important to remember that this challenge differs from the US incumbent assault, via the Supreme Court, on that country’s unbundled network element platform regime, which saw the Bells claim ultimate victory.

This challenge isn’t about the validity of unbundling per se, more about how it is priced. The relevant clause of the Constitution concerns “just compensation” for government-appropriated assets. First, Telstra will have to prove that ULL and LSS conforms to the “appropriation” definition, then it has to establish a case for what constitutes “just compensation.”

If it can be established that such a definition should be based on market value then Telstra probably has a case. To use a simple example, one phone line might be able to support a voice line generating say $60 of revenues a month and a DSL line generating say $40 of revenues per month. Why should only around 10% of the costs—represented by the $3.20 LSS charge—be recovered from the DSL usage and around 90% from the voice customer? In terms of the economic value of the shared parts of the line to the access seeker versus the owner, $3.20 is clearly priced too low.

This is where it gets interesting. The Constitution treats foreign treaty commitments very seriously and Australia is party to at least two treaties that mandate cost-oriented interconnection and equivalency on telecom networks.

Telstra will make great play of the fact that the ACCC has used vastly different methodologies across its various areas of price regulation to establish “cost-based interconnection” rates: TSLRIC in some cases, retail benchmarking or retail minus in others, and, in the case of mobile termination, a gentle glide-path towards some arbitrary level above cost. The ACCC thus can’t claim some form of sanctity for the way it calculates the $3.20 price.

Telstra will also likely highlight that it is subject to a price constraint in the form of its requirement to provide a consistent national price for basic telecom service, when the ACCC then chops up its unbundled network prices it on a de-averaged basis, thus removing the internal cross-subsidy. Telstra can and will simply ask the court: how can this be “just”?

RIPOSTE: For its part, the ACCC also has some strong comebacks. It can point to the fact that Telstra has embraced its preferred methodologies at various times in the recent past, particularly given that the “band” approach to regional pricing is actually a Telstra invention.

It can also point to the fact that its preferred methodology on ULL and LSS is actually the less severe option: it could have decided to spread the specific costs of ULL and LSS across all Telstra retail lines, further reducing the payable charges by access seekers. And perhaps most significantly, it can point out that Telstra possesses other forms of cost recovery from access seekers, including connection and disconnection charges.

The ACCC might also point to the fact that its unbundling methodologies are fairly unremarkable by international standards, especially in Europe. Telstra might respond that its views on ULL and LSS have been endorsed by recent regulatory actions in then United States, Germany and Hong Kong aimed at pulling back restrictions on incumbents.

All up it will make for an interesting fight.

Telstra policy chief Phil Burgess made an oddly prescient speech in Melbourne last month where he described a conversation about Australian culture with ACCC chairman Graeme Samuel.

Burgess said he told Samuel his favourite Australian film was The Castle, the comedy in which the main character, Darryl Kerrigan, successfully uses a High Court challenge to prevent his house being acquired for an airport expansion.

According to Burgess, Samuel’s response to this was to say “but in Australia that only happens in the movies.” We shall see!

Hear Jason Ashton, CEO of BigAir, make the case for why wireless broadband is superior to fixed solutions, what he thinks of the wireless technology roadmap and why he thinks much of the Australian telecom policy debate is misplaced


MP3 File

UPDATE: Not everybody agrees with the pro-wireless take. Paul Budde argues here that wireless has already been found wanting when it goes head-to-head with fixed solutions and that it might be blown out of the water when Telstra launches ADSL2+. Read his take

Here my latest podcast on a fascinating idea from Canada's CANARIE to let customers own the last mile


MP3 File

by Geoff Long

I’ve been attending the annual CommunicAsia trade event in Singapore for longer than I’d care to remember, and each year there seems to be a certain technology or trend, usually upbeat, in focus. The likes of 3G and VoIP would be recent examples. Whether the focus has been achieved by marketing muscle or because there really is interesting stuff happening it doesn’t really matter, at least it gives attendees something to agree or disagree with and discuss.

This year, however, seemed different and if I had to put my finger on what it was that the industry was discussing I’d say it was “change.” Finally, everyone seems to have realised that telecoms is an industry in transition and as such the talk is what the future telco will look like and what it will make money on.

Nokia inadvertently provided a perfect introduction to the week. The Finnish mobile phone giant usually manages to steal a bit of the CommunicAsia thunder by holding its Nokia Connections event a day earlier and cornering many of the region’s IT journalists at the same time. But with a nice karmic touch it was Nokia having its thunder stolen this year with the news that it was merging its networks business with Siemens.

I have it on good authority that most of the Nokia staff were as taken aback by the news as much as the journalists were, and it certainly provided a much more interesting story than consumer segmentation for mobile phones. It also perfectly highlights that this is an industry in transition and mergers among the big name vendors will be one of many consequences.

Another firm indicator of the change came from Matt Bross, BT’s chief technology officer, who pointed out that revenue from residential switched voice minutes now only accounts for 10 percent of its business. “Voice is just another application and we’re busy turning off the public switched network,” he said. “If you defend the traditional model too hard you will miss out on opportunities,” he warned.

That last remark was aimed at carriers that still want protection through the regulators. They believe that too much liberalisation will mean investments don’t get made, and many argue that developing countries can’t afford to completely open up their networks to competitors and other deregulatory measures. Bross, on the other hand, argues that they can’t afford not to.

“You need to open up the network to unleash creativity and innovation. To be competitive in this converged future you’ve got to embrace the globalization that’s taking place,” he said.

Bross was speaking at a roundtable at the CommunicAsia Summit alongside Robert Healey, hardware products group manager Asia Pacific, Juniper Networks, who noted that many of the drivers for the next wave of services were coming from users rather than operators. “It’s all about the content and the personalization and that’s driving innovation. It’s not coming from the service provider community, it’s coming from elsewhere and we have to anticipate that,” he said.

And that seems to scare service providers as much as hearten them. It seems many are still clinging to the idea that the only decent services are the ones they themselves offer at a premium, rather than happily sitting back and watching the traffic grow across the network. I heard one thinly-veiled crack at Microsoft from a regional carrier, who suggested that they come out and admit they’re in the service provider business. On the flip side, I’d suggest telcos need to decide if they’re in the media business, which many want to try their hand at.

Needless to say, IP-TV was one of the hot topics this year. I caught a keynote address by Ofer Weintraub, CTO of IP-TV middleware provider Orca Interactive, who suggested that one of the key selling points for IP-TV operators in future will be integration with existing communication services such as SMS, presence and location. Now that’s something that will no doubt get the telco blood rushing. He also suggested that user generated content, such as video ratings and recommendations, would be part of the innovation that will hit IP-TV. Let’s see how many operators allow their users to call the shots.

And just to cap things off, I heard a related comment from the COO of Malaysian satellite cable provider Astro. He said that trials of communication services such as email with his subscribers had shown that exactly zero percent want comms services on their TV. Apparently they’re just not interested – just don’t tell the IP-TV guys.

It does show that no one really knows what the telco of the future will look like, but at least it will make for some interesting discussions at future industry events.