Friday, December 18, 2009

It's not me - it's you

That heading summarises my entire relationship with the ACCC. Much as I would like to love the ACCC as a regulator as much as my (non-Telstra) industry colleagues do I just can't manage it. But I don' think I'm the one at fault here.

The latest in the ongoing saga of ACCC pricing decisions has been to issue a new discussion paper on access pricing principles. A key element of he paper is a consideration of whether telecommunications access pricing should move from a TSLRIC+ approach to a Regulated Asset Base (RAB) approach.

This depiction of the distinction is quite artificial, as both seek to set a price that is "cost-based" that is recovers only the "cost" of supplying the srvice. The real difference between the two is not about determining the price but about choosing the costs on which to determn price from. TSLRIC+ is usually implemented based on a "forward looking efficient cost" basis while a RAB is based on actual historic costs.

In the particular case of the ACCC imlementation they have chosen to re-estimate the forward looking cos at each regulatory decision point, but there is techncally no absolute requirement to do so in using the approach. The apparent attractiveness of using an RAB is the ability to move on from repeated estimations.

I will need to write a complete submission but it will be necessary to remind the ACCC why an RAB was rejected for telco originally. The first and simplest was the fact there was not a reliable historic cost base to use as a starting point.

But the second issue was that there was great concern that a model based on historic cost would reward the incumbent for inefficiency. Indeed there is a name for this the Averch-Johnson effect. Anyone who wants to see it in peration should look at the draft IPART decision on electricity prices.

In short if you want telco prices to go up by 60% over 4 years - just move to RBA.

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