Push button - Watch them go - That must be what the Australian Competition and Consumer Commission is thinking today, after it published an amazingly stern letter to Telstra over what appear to be relatively small errors in its TEA model and saw its access seeker constituents react with front page claims of “rubbish models,” “competitor disruption,” and “dishonest conduct.”

Afternoon commentary picked up on the obvious and immediate theme this week, with ITWire’s Stuart Corner venturing the view that the ACCC had found “serious” errors and was “losing patience.” Of course, the intense time pressures of day-old journalism are such that there was no room for skepticism or even a Telstra response in the said piece.

How easy. TEA is discredited in the public eye before it even reaches version 1.1 (Clue to critics: the version numbering scheme provides a hint that it is intended for upgrades).

And how interesting. The ACCC has criticised Telstra’s cost models for years now. Perhaps correctly, perhaps incorrectly—I am not qualified to comment on the merits of economic models. After all the ACCC has previously torn up Optus’ and Vodafone’s cost models too!

But one thing is clear. At no time has the ACCC either developed its own robust fixed cost model or successfully facilitated an industry effort to make one. Given that this would appear be a prima facie act of negligence by a price regulator, shouldn’t it be a touch more circumspect in attacking what appears to be a considerable effort on Telstra’s behalf in filling that void?

And how convenient. As somebody in the news theme game, it’s easy to predict how this one will evolve. After a few days the general tone of the commentary will be, “yes, it’s very hard to establish true network cost prices, and thus, the only way to resolve this impasse is to structurally separate the network provider.” Indeed.

As I write, the “National Broadband Network” thread on Whirlpool is already pushing this train of thought: one of its legion of anonymous and mysteriously motivated posters under the title of “Oracle Man” writes of TEA: “They can’t be trusted and with the NBN, won’t be trusted – it is becoming obvious that Telstra are over-inflating costs to support their NBN bid, a tactic which is starting to be exposed.”

Actually, it seems to me that the biggest problem here is that the regulator is quite content to punch holes in the cost models of its target of regulation, instead of specifically defining and creating its own cost model—despite having regulated that same target for a decade! There’s been talk from the ACCC of developing a cost model but we’re yet to see it in action—its last serious attempt seems to have been a N/E/R/A model it commissioned last century! Early last year there was talk of a new Analysys model but its delivery seems to be overdue—the ACCC has yet to reference it in any of its consultation commentaries including those issued this week, and let’s face it, the regulator has managed to conduct a fixed line regulation review in the interim!

Telstra, meanwhile, developed a network costing model which claims to incorporate its actual line lengths and has calculated a nominal cost per line of $49 a month. This is clearly well in excess of the general $12-$15 Band 2 price points the ACCC has arbitrated in the past couple of years and even the $17.70/$22 prices recommended for the same services mid-decade.

PROBLEM: Nonetheless, the problem for the ACCC is that its separate accounting separation process throws up a similar bunch of figures to the TEA ones: it indicates that line rental and basic DSL services run at a tremendous loss, and that the differential is made up mostly with timed voice services and, presumably, various value-added charges (unmeasured, as it so happens, by the current process).To accept the output of the TEA model as even being faintly connected to the truth has enormous ramifications for the access regime—indeed the veracity of all regulated prices.

It’s worth remembering, bizarrely, that both the ACCC and Telstra have had very limited success in the various legal cases they have brought against each other. Telstra has a decidedly mediocre record in its various appeals against the competition regime while the ACCC has also been decidedly limp in enforcing the three major competition notices it has brought against Telstra. (Remember that billion dollar “potential” fine that never happened?”)

If Telstra can establish legitimacy for its new cost model, the game potentially changes. What seems like an inevitable ACCC decision to reject the $30 undertaking can be appealed on evidence and Telstra believes that its cost model might well, for the first time, provide that evidence.

So what we saw this week was a deliberately very large hoop put in Telstra’s way, fuelled by the press release machine of the access seekers and a compliant media. Fun and games, and let’s face it, it keeps more than a few regulatory managers in jobs.

But with the Federal government actively encouraging an NBN build that may inject $10-$20 billion of cost into the fixed network, isn’t it time that its regulatory agency made the development and market-testing of a legitimate and transparent cost model—one all stakeholders can all agree on—an ABSOLUTE priority? Especially if it wants to retain its own legitimacy in the face of its persistent skeptics and if it wants to promote the long-term security of access seekers and thus, end-users?

Oh, and to counter the inevitable cat calls that this just represents a pro-Telstra argument, let’s remember that not so many moons ago, Optus made exactly the same complaints about the ACCC’s lack of robust modeling when appealing its mobile termination dictates to the highest forum of recourse.

Grahame Lynch