Fixed Services Review – Declaration Inquiry Public inquiry into the fixed line services declarations Draft Report December 2013
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- PSTN TA and PSTN OA (special numbers) services
- Will continued declaration promote competition
- Wholesale and retail markets for fixed voice services
- Retail market for bundled fixed voice and fixed broadband services
- Will continued declaration achieve any-to-any connectivity
- Will continued declaration encourage the economically efficient use of, and investment in, infrastructure
- IP-based interconnection
ACCC’s draft viewsThe ACCC’s view is that extending the declaration for the PSTN TA and PSTN OA (the special numbers component) services will promote the long-term interests of end-users LTIE The ACCC is proposing to change the names of the PSTN OA and PSTN TA services to Fixed Originating Access Service (FOAS) and Fixed Terminating Access Service (FTAS) to clarify that the scope of the declared service is not confined to the PSTN network. The ACCC is also proposing to amend the service descriptions to remove provisions that are terms and conditions of supply that the ACCC would normally include in Final Access Determinations (FADs). The ACCC is not proposing, at this stage, to amend the PSTN OTA service description to regulate interconnection provided using an IP-based interconnection protocol. The ACCC intends to monitor industry developments in regard to the development and implementation of any IP-based interconnection standard and may consider whether to amend the service description in the future. The reasons for the ACCC’s draft views are set out below. PSTN TA and PSTN OA (special numbers) servicesThe PSTN TA service facilitates the carriage of telephone calls originated on an access seeker’s network from a point of interconnect (POI) to the B-party (called party) on the access provider’s network. The A-party’s (calling party’s) network provider purchases PSTN TA from the B-party’s network provider. The B-party, in turn, ensures that the call from the A-party is connected to the B-party.223 The special numbers functionality of PSTN OA facilitates the origination of calls to telephone numbers beginning with 13/1300 and 1800. That is, an A-party can call a B-party without incurring a charge, or only incurring a limited charge, from their service provider. Instead, the B-party’s service provider purchases PSTN OA and pays for the cost of originating the call. This origination charge and other costs, relating to the provision of special numbers services by the B-party’s network, are then billed to the B-party. The ACCC notes that the special numbers functionality of PSTN OA is similar to those of the PSTN TA, in that the party incurring a charge for termination or special numbers origination does not have control over the other network, on which the call originates.
As discussed in chapter 3, the ACCC considers that the relevant markets for the PSTN TA and PSTN OA (special numbers) services are the retail and wholesale supply of fixed voice services and the retail supply of bundled fixed voice service and fixed broadband services. The ACCC has defined these markets as national for the purposes of this draft report. Wholesale and retail markets for fixed voice servicesThe ACCC considers that, absent regulation, a network owner with a large number of fixed voice SIOs has an incentive and the ability to raise the price of termination for telephone calls on its network to any network owner that has a smaller number of fixed voice customers. A caller (the A-party) on a small network cannot select which network the called party (B party) is on. If the A-party wants to call the B-party, the call must terminate on the network operated by the B-party’s retail service provider; there is no scope to substitute to an alternative provider of termination. This gives the larger network owner market power. The larger network owner will therefore have the ability and incentive to impose an above-cost termination charge, which would likely be passed onto the A-party by its retail service provider through higher charges for calls terminating on the larger network. Consequently the A-party may decide to switch to the larger network, where there are a larger number of parties who can be called ‘on-net’ (that is, on the same network) where termination charges are cheaper. Thus the larger network’s market power is increased by network externalities from its larger subscriber base. Accordingly, the ACCC considers that without declaration of PSTN TA, end-users are likely to face increased prices and a reduction in competition in the supply of retail voice services. The ACCC notes that any exercise of market power in the provision of PSTN TA in markets for fixed line voice services also have the ability to affect competition in the market for mobile voice and broadband services. This is because several owners of fixed line voice networks also own mobile networks. Any market power in the provision of fixed line PSTN TA can also be used to increase the price of termination for mobile telephone calls that terminate on its fixed network. A provider of PSTN TA with market power is likely to have an incentive to raise prices for termination from mobile networks that compete with its own mobile network, which has the potential to harm competition in the market for mobile voice services. The ACCC is of the view that similar considerations apply to the special numbers component of the PSTN OA service (where the called party pays all or most of the cost of the call). That is, absent regulation, a network owner with a greater number of fixed voice SIOs has an incentive and the ability to raise the price of origination for calls on its network to special numbers that terminate on a network with fewer fixed voice customers. For these reasons, the ACCC considers that the ongoing declaration of the PSTN TA and the PSTN OA (special numbers) services will promote competition in the market for fixed voice services.
A fixed voice service is an essential component of the bundle of fixed telecommunications services. Therefore, the analysis conducted above for the wholesale and retail markets for fixed voice services also applies to bundled fixed voice and fixed broadband services. Will continued declaration achieve any-to-any connectivity?The ACCC must consider whether continued declaration is likely to achieve the objective of any-to-any connectivity. The ACCC considers that the ongoing declaration of the PSTN TA and the PSTN OA (special numbers) services will promote the achievement of any-to-any connectivity.224 As discussed above, network operators have market power in respect of calls terminating on their network and calls to special numbers that originate on their network. Network operators have the ability and incentive to use their market power to either deny interconnection or to impose above-cost charges for these interconnection services. Doing so would either prevent or discourage any-to-any connectivity. As such, the ACCC considers that regulated access to the PSTN TA and the PSTN OA (special numbers) services is likely to ensure that network operators will not have the ability to exercise market power over termination and special numbers origination. Consequently, end-users will be able to call other end-users, regardless of the network they are calling from and the network the called end-user is on, thereby achieving any-to-any connectivity.
The ACCC must consider a number of issues relating to the use of, and investment in, infrastructure when deciding whether declaration of a service is in the LTIE.The ACCC considers that the ongoing declaration of PSTN TA and PSTN OA (special numbers) will encourage the economically efficient use of, and investment in, infrastructure used to supply listed services. As discussed above, in the absence of regulated access to interconnection services, larger network owners would have the ability and incentive to exercise market power arising from network externalities to encourage end-users to switch to their network from smaller networks and discourage their own end-users from switching to another network. The ACCC considers that this is likely to deter efficient investments in new networks (or new network capacity). In addition, existing networks or network capacity may not be used efficiently for the same reason. The ACCC considers that the achievement of any-to-any connectivity allows all network owners the opportunity obtain the positive network externalities required to invest in and use infrastructure efficiently.
However, the PSTN OA and PSTN TA service descriptions specify a particular method of interconnection using CCS#7 signalling and 2.048 Mbit/s switchports. The ACCC notes that interconnection between major carriers currently occurs using this method, including carriers that have IP core voice networks. However, the ACCC considers that growth in VoIP, be it through plain old telephone service (POTS) emulation, carrier grade VoIP or over the top VoIP, is likely to lead to an alternative method of interconnection being developed and agreed upon by industry in the future. The ACCC notes that Optus submitted [c-i-c] [c-i-c]225 The ACCC notes that no industry standard for an alternative voice interconnection service has been developed and agreed upon at this time. Until an agreed industry standard exists, the ACCC considers it would be premature to specify a particular IP-based interconnection protocol in the PSTN OA and PSTN TA service descriptions. However, the ACCC notes Optus’ submission that particular carriers may have the incentive to delay the implementation of an alternative fixed voice interconnection standard.226 The ACCC considers it appropriate that it monitors industry developments in this area and may consider whether to commence an inquiry into varying the service descriptions when an agreed industry standard for IP-based interconnection exists.
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