Table 1.1 Real price changes for components of the telecommunications services index

2 Introduction

Each financial year, the ACCC is required to report to the Minister for Communications on prices paid by Australian consumers for telecommunications services.¹¹⁹

As in the past, the ACCC has chosen to fulfil this requirement by reporting how real prices for fixed-line voice, mobile and internet services have changed for Australian consumers. This report sets out the ACCC’s findings for 2013−14.

2.2 Structure of the report

The structure of this report is based on the ACCC’s telecommunications services index which has three components—the fixed-line voice services index, the mobile services index and the internet services index.

Chapter four presents the annual real price changes in the fixed-line voice services index. This index has two sub-indices—PSTN and VoIP. The PSTN sub-index is further divided into PSTN residential and PSTN business components. The PSTN business component includes real price changes for ‘small businesses’ and ‘other businesses’.

Chapter five presents the annual real price changes in the mobile services index. This index has two sub-indices—post-paid mobile and prepaid mobile.

Chapter six presents the annual real price changes in the internet services index. The internet services index has four sub-indices—wireless services, digital subscriber line (DSL) services, cable services and NBN broadband services.

These chapters show trends in the indices as well as how the sub-indices contribute to the overall index. The point-contributions figures presented in these chapters provide an indication as to how relevant a sub-index may be to the overall index. These chapters also provide year-on-year (YoY) real price changes over the last decade for the indices.

This report is prepared based on information collected from carriers using a combination of the Division 12 Record-Keeping and Reporting Rule (Division 12 RKR) (July 2013 version) and information informally requested from carriers by the ACCC.

Table 2.1 shows which companies are currently required to report on fixed-line voice (PSTN and VoIP), mobile and internet services under the Division 12 RKR.

Table 2.1 List of companies required to report under the Division 12 RKR¹²⁰

Category name	Reporting carriers and carriage service providers
Fixed-line voice services information	Telstra, Singtel Optus, iiNet, TPG
Mobile services information	Telstra, Singtel Optus, VHA
Internet services information (including wireless, DSL, cable and NBN)	Telstra, Singtel Optus, iiNet, VHA, TPG

Revised Division 12 RKR for the 2013−14 reporting period

On 16 July 2013, the ACCC revised the Division 12 RKR following consultation with industry. The revision reflects changes in the telecommunications industry both in terms of services—for example, the decline in 2G mobile services and dial-up internet services—and market structure—a number of acquisitions have taken place in recent years.

The main changes require carriers to report:

• 
  mobile services information on an aggregated level instead of by mobile technology (GSM, 3G and 4G)
  
• 
  VoIP services with comparable functionality and quality to PSTN voice services
  
• 
  internet services provided over the NBN.
  

Measuring price changes in telecommunications services is complex due to rapid changes in the industry driven by technological innovations. As a result of these changes and innovations, new strategies are adopted by carriers to differentiate their services, which results in continued changes to product offerings, dimensions and pricing structures.

Change in quality of service or increases in plan inclusions (e.g. in terms of data and call minutes) are not captured in this report. Therefore the effective change in real values that the end-users benefit from may differ from the price declines reported (see appendix B1 for more details). For example, increases in broadband data allowances have resulted in the effective price per gigabyte (GB) decreasing significantly from approximately $30/GB in 2007 to less than $1/GB today.¹²¹

For the purpose of this report, the ACCC uses two different methodologies to calculate price changes in real terms.

For fixed-line voice services, price changes are estimated using a yield approach. The yield for each particular fixed-line voice service component is calculated from available revenue and usage data. Changes in these yields are then weighted by revenue shares of relevant service components and aggregated into the fixed-line voice services price index to derive price movements.

For mobile and internet services, the ACCC estimates prices using a plan approach. Under this approach, price changes are estimated by determining the average spend of five types of consumers¹²² and monitoring the change in price of the most appropriate plan from each carrier for each group. Bill samples¹²³ are used to construct average spend bundles consumed by each consumer group. Price changes are then estimated by comparing the prices of the chosen plans across the reporting period.

Both approaches have some limitations. Prices calculated under the yield approach are influenced by how revenue is allocated across services, which is particularly relevant with respect to plans with included call credits and bundled products. In relation to the plan approach, as a plan has a number of variables such as included call minutes, texts and data, the real value of the plan can vary from period to period independently of the nominal monthly price. It has become common for carriers to maintain the nominal prices of their plans at certain price points (e.g. $29, $49, $69) and instead change the inclusions of those plans. Such changes to inclusions are not directly reflected in indices calculated using the plan approach.

Further details on the methodologies are discussed in appendix B.

The ACCC uses price indices to measure how telecommunications prices move over time when compared to movements in the general level of consumer prices. Changes in the indices are a simple way to observe how prices for a ‘basket’ of services change over time.

The indices do not show the actual level of prices. Each index starts at 100 in the first year (the base year). Prices then move above or below this index. Falling prices are shown by movements below 100, as the index changes remove the effect of inflation over time. The indices also capture the cumulative effect of annual price changes since the base year, i.e. if an index fell to an index number of 60 in 2013−14 then real prices have fallen by 40 per cent since the base year.

The ACCC measures prices for three ‘baskets’ of telecommunications services: fixed-line voice services delivered to households and businesses, mobile services and internet services.

This report sets out price changes in telecommunications services in real terms. That is, the effect of changes in the Consumer Price Index (CPI) for the eight capital cities is used to adjust nominal prices. A fall in the indices shows that prices for telecommunications services are falling relative to average prices for each ‘basket’ of products and services covered by the CPI.

Changes to the indices

The ACCC has made some changes to the indices in this report as a result of the revised Division 12 RKR. The main changes include:

• 
  removal of the index for dial-up internet service
  
• 
  inclusion of indices for VoIP and NBN internet services
  
• 
  inclusion of a fixed voice services index that captures price movements for PSTN services (from 1997−98 onwards) and VoIP services (from 2013−14 onwards).
  

Given the inflation rate of 3.0 per cent, the relationship between annual changes in the indices and nominal prices is as follows:

• 
  a decline of less than 3.0 per cent equates to an increase in the nominal price
  
• 
  a decline of 3.0 per cent equates to no movement in the nominal price
  
• 
  a decline of more than 3.0 per cent equates to a decrease in nominal prices.
  

3 Telecommunications services index

The telecommunications services index shows how average real prices for fixed-line voice services, mobile services and internet services have changed over time. The index is derived by aggregating revenue-weighted real price changes for the specified services.

3.1 Main changes

Nominal prices rose slightly during the reporting period which led to a 2.7 per cent decrease in the real prices of telecommunications services. This was the largest decrease since 2010−11. This may be attributed to a number of factors such as strong competition in the mobile market and more competition in fixed-line markets.¹²⁴ Table A2 shows the price decreases for overall telecommunications services each year since 2000−01.

The telecommunications service index includes a number of components and each component includes a number of services. During 2013−14, prices fell for all services with the exception of NBN internet services which increased by 4.6 per cent. This is mainly due to a number of retail service providers increasing the price of some of their NBN internet plans. However, end-users of these NBN plans were not necessarily worse off, as many of the plan price increases were also accompanied by increases in the data inclusions for the relevant plans.

4 Fixed-line voice services index

The fixed-line voice services index measures average real price changes for a range of PSTN and VoIP services across business¹²⁶ and residential consumer groups. The fixed-line voice services index includes the following service components: basic access (i.e. line rental), local calls, national long-distance calls, international calls and fixed-to-mobile calls.

The PSTN sub-index is derived from the PSTN business services index and the PSTN residential services index; a similar approach is used for the VoIP sub-index.

The average real prices of fixed-line voice services fell by 5.2 per cent in 2013−14, implying that prices fell in nominal terms in the reporting period. The indices for both PSTN services and VoIP services users fell in 2013−14, with the real price decline for PSTN services and VoIP services at 5.1 per cent and 6.6 per cent respectively.