FANOC Special Access Undertaking in relation to the Broadband Access Service

Discussion Paper

June 2007

Table of Contents
Table of Contents................................................................................................................ 2 1. Preface ......................................................................................................................... 4 1.1. Submission deadline ........................................................................................... 4 1.2. Commercial-in-confidence material ................................................................... 4 1.3. Format of submissions ........................................................................................ 5 1.4. Contact and submission lodgement details ......................................................... 5 2. Introduction.................................................................................................................. 6 2.1. Part XIC and Special Access Undertakings........................................................ 6 2.2. FANOC Fibre network and BAS service............................................................ 6 2.2.1. Background on G9 /FANOC........................................................................6 2.2.2. Proposed network deployment .....................................................................7 2.2.3. Proposed organisational and governance structure ......................................9 2.2.4. Proposed access services............................................................................10 Summary of the Undertaking..................................................................................... 11 3.1. The Undertaking ............................................................................................... 11 3.2. Service description............................................................................................ 12 3.2.1. The Broadband Access Service..................................................................12 3.2.2. BAS Products .............................................................................................12 3.2.3. Addition, withdrawal and variation of BAS Products................................15 3.2.4. Service Description ....................................................................................15 3.3. Price-related terms and conditions.................................................................... 16 3.3.1. Pass-through component..........................................................................16 3.3.2. FANOC component charge........................................................................16 3.3.2.1. Initial period prices.....................................................................................19 3.3.3. Addition/withdrawal of BAS products.......................................................20 3.3.4. Prices for basic telephone services.............................................................20 3.4. Non-price terms and conditions ........................................................................ 18 Transitional arrangements and roll-out ......................................................22 Equality of access to information...............................................................23 Additional terms to be negotiated between FANOC and Access Seekers .......................................................................................................23 3.5. Management principles..................................................................................... 24 3.6. Expiry date and the term of the Undertaking.................................................... 26 3.7. FANOCs Submission in support of the Undertaking ...................................... 26 4. The legislative criteria for the assessment of undertakings ....................................... 28 4.1. Publication of undertakings and invitation to make submissions..................... 29 2 3.4.1. 3.4.2. 3.4.3.

3.

Discussion Paper FANOC Special Access Undertaking

4.2. Consistency with standard access obligations .................................................. 29 4.3. Reasonable terms and conditions...................................................................... 30 4.4. Consistency with Ministerial pricing determination......................................... 30 5. The ACCCs process for assessing the Undertaking ................................................. 32 5.1. Process .............................................................................................................. 32 5.2. Confidentiality .................................................................................................. 33 5.3. Time limit for assessment ................................................................................. 34 Appendix 1 - Submission Template.................................................................................. 35

Discussion Paper FANOC Special Access Undertaking

1. Preface
FANOC Pty Limited lodged a special access undertaking pursuant to section 152CBA in Division 5 Part XIC of the Trade Practices Act 1974 with the Australian Competition and Consumer Commission on 30 May 2007. The Undertaking specifies the terms and conditions upon which FANOC undertakes to supply what it terms the Broadband Access Service. Hereafter, FANOC Pty Ltd is referred to as FANOC; the special access undertaking as the Undertaking; the Trade Practices Act 1974 as the Act; the Australian Competition and Consumer Commission as the ACCC; and the Broadband Access Service as the BAS. Under Part XIC of the Act, the ACCC must accept or reject the Undertaking. The process the ACCC will follow to assess the Undertaking will be open and public, allowing parties to express their views and provide relevant information to the ACCC. As well as lodging the Undertaking, FANOC has provided a Submission (the Submission), with five Schedules attached, to the ACCC in support of the Undertaking. Public versions of the Schedules are on the ACCCs website. FANOC has indicated to the ACCC that it intends to establish a confidentiality regime for access to information confidential to FANOC. Interested parties who wish to obtain access to the confidential version of FANOCs Schedules should contact Andrew Sheridan, Company Secretary, FANOC Pty Limited c/o SingTel Optus Pty Limited, 101 Miller St, North Sydney, 2060, telephone: (02) 9342 8437.

1.1.

Submission deadline

Interested parties are invited to make submissions to the ACCC in relation to the Undertaking no later than six weeks from the date of publication of this Discussion Paper. That is, submissions should be made by no later than 5 pm, 7 August 2007. The ACCC will consider these submissions in deciding whether to accept or reject the Undertaking.

1.2.

Commercial-in-confidence material

All submissions will be considered as public submissions and will be posted on the ACCCs website. If parties wish to submit commercial-in-confidence material as part of their submission to the ACCC, parties should submit both a public and a confidential version of their submission. The public version of the submission should clearly identify the confidential material by replacing the confidential material with an appropriate symbol or c-i-c.

Discussion Paper FANOC Special Access Undertaking

The ACCC encourages parties to make their submissions in a way that facilitates the efficient assessment of their various submissions, including the verification of any facts or data upon which those submissions are based. In this regard, parties are encouraged to restrict confidentiality claims to a minimum and to establish appropriate confidentiality regimes for the disclosure of any information that is claimed to be confidential.

1.3.

Format of submissions

To facilitate the efficient assessment of submissions, the ACCC has provided a submission template (Appendix 1) to assist parties in: meeting the ACCCs formatting preferences; and outlining the key issues that should be addressed in their submissions.

The ACCC would prefer that interested parties use this template to make their submissions. Submissions must: be provided electronically (in MS Word or PDF format) that is textsearchable to allow a copy and paste function; use a text font size no smaller than 12 pt, Times New Roman; be single-spaced; and include a copy of the decision or extraneous material attached to the submission, with the relevant referenced sections clearly marked, where quotes from a court or tribunal decision or other extraneous material (such as consultants reports) are relied on.

1.4.

Contact and submission lodgement details

Written submissions from interested stakeholders must be lodged no later than 5pm 7 August 2007. All submissions should be forwarded by email to: General Manager Strategic Analysis and Development Branch Australian Competition and Consumer Commission GPO Box 520 MELBOURNE VIC 3001 Email: richard.home@accc.gov.au Fax: 03 9290 1855 Enquiries may be directed to Anthony Wing, Director, Convergence, on 03 9290 1804 or anthony.wing@accc.gov.au.

Discussion Paper FANOC Special Access Undertaking

2. Introduction
2.1. Part XIC and Special Access Undertakings

Part XIC of the Act establishes a regime for governing access to certain services in the telecommunications industry. The ACCC may declare carriage services and related services to be declared services. Providers of an active declared service (access providers) have an obligation to supply that service. As an alternative to the ACCC declaring a particular service, a party providing that service may give a voluntary undertaking (known as a Special Access Undertaking or SAU) to the ACCC. In giving an SAU to the ACCC, the access provider agrees to the obligations to supply their service (contained in s. 152AR of the Act) as if it was a declared service. The purpose of the SAU provisions in the Act is to provide certainty for potential investors in telecommunications infrastructure and services in relation to access to that infrastructure or service in the future by allowing the ACCC to rule on whether the terms of a proposed undertaking are acceptable prior to the investment being made.1 There are generally many matters that need to be resolved by a carrier or potential carrier before investing, including engineering design, planning, finance and other regulatory approvals (such as obtaining a carrier licence). Seeking regulatory certainty as to the terms of third party access to the proposed network is only one such matter. In assessing a special access undertaking, the ACCC is not considering whether to approve a proposed investment or not. Firms must make their own investment decisions, based on many factors. The ACCC is only considering whether, if the investment did proceed, the terms and conditions of third party access to the network, including the proposed prices, are reasonable under the Act.

2.2.

FANOC Fibre network and BAS service

2.2.1. Background on G9 /FANOC Formed in June 2006, the G9 is a consortium of telecommunications companies comprising AAPT, iiNet, Internode, Macquarie Telecom, Optus, PowerTel, Primus, Soul and TransAct. The G9 was formed to develop a proposal for a fibre-to-thenode (FTTN) open access network. The G9 has stated that an essential element of the G9 proposal is the separation of the ownership and operation of the network. FANOC is the company, created by the G9, to own the network. As the future owner of the network and therefore a person who expects to be a carrier or a
1

Explanatory Memorandum to the Telecommunications Competition Bill 2002.

Discussion Paper FANOC Special Access Undertaking

carriage service provider supplying [] a listed carriage service within s. 152CBA of the Act, FANOC has lodged a SAU. FANOC has stated in its Submission that it will apply to the Australian Communications and Media Authority (ACMA) for a carrier licence in respect of the network. The Submission explains that the shareholders and board of FANOC will be reconstituted at the financing stage of the project when a range of third party debt and equity investors are expected to invest in the network as a stand alone financial investment. The structures for that later investment have not yet been finalised. Accordingly, the Undertaking includes a concept of FANOC Ownership Entities to allow flexibility to establish what FANOC considers to be the most efficient investment structures for those investors. 2.2.2. Proposed network deployment Fibre-to-the-node is a means of upgrading the existing telecommunications customer access network (the so-called last mile), so that high-speed broadband services are available throughout the rollout area (the footprint). Currently, the customer access network consists of a series of local exchanges connected back into the core network by fibre. For example, there are several hundred local exchanges servicing the metropolitan areas. Running from these local exchanges are copper lines going, via a series of pillars, to individual homes. These copper lines provide voice services and, (where a carrier has upgraded them by connecting DSLAM equipment to them at the local exchange), broadband services such as ADSL and ADSL2+. The quality and speeds of broadband available to any customer depends on a range of factors including the length of the copper line (ie. the distance from local exchange to home), the quality of the copper line, whether there are any impediments to broadband on the copper line (such as pair gain systems), and congestion in the network. The length of the copper line is one of the key factors. ADSL2+, for example, is cited by FANOC as being capable of providing speeds of up to 12 Mbps over a copper line of no more than 1.5km in length, with higher speeds over shorter distances and speeds decreasing beyond 1.5km.2 VDSL2 is generally cited as being capable of providing even higher speeds, for example up to 50Mbps over a copper line of no more than 800 metres with speeds decreasing beyond that. It has been estimated that only a third of customers in metropolitan areas are currently within 1.5km of a local exchange.

FANOC Submission, p 12. The ACCC notes that achieved speeds vary based on a number of factors, including length and quality of copper wire from the exchange, interference from other users, electrical interference, the site being accessed, and the customers wiring, software, and hardware.

Discussion Paper FANOC Special Access Undertaking

A FTTN upgrade could involve rolling fibre further into the customer access network, so as to reduce copper lengths. Thousands of local street-corner cabinets (nodes) containing DSLAMs are installed in the network at points closer to homes than the current local exchanges. Fibre from the core network is then run all the way to these street-corner nodes. The end-result is that almost all homes within the network footprint have remaining copper lengths from node to home of less than 1.5km, allowing for the near-universal provision to customers within the footprint of high-speed broadband services such as ADSL2+ or VDSL2. FANOC proposes to roll out a Hybrid Fibre Twisted Pair (HFTP) fibre-to-thenode network in a manner similar to that described above, hereafter described as the Network. In its Submission FANOC states that its initial network rollout, which is planned to occur over a three year period, will:
cover approximately 4 million homes in five capital cities, using ADSL2+ technology, for an initial capital cost of approximately $3.6 billion. ADSL2+ is currently capable of achieving speeds of up to 24Mbps under an HFTP FTTN configuration.3

Following the initial rollout the network footprint may be extended to some regional areas. The Submission continues:
The network will be able to be transitioned to a VDSL network over time when there is sufficient consumer demand for very high speed broadband services. VDSL allows speeds of up to 50Mbps within the planned architecture. The interests of users of standard telephone services would be met in the conversion to the Network. The Network will not require any immediate changes to end user equipment or to customer phone numbers. However, over time, the network could be transitioned to a fully IP based network.4

Finally, FANOCs Submission has noted that in order to build this Network, it in turn requires access to Telstras copper tails, ie. the remaining copper connection between the new nodes and customer premises. Telstra would be compensated for providing access to the copper tails via a process that is privately negotiated or, failing agreement, is resolved by arbitration. The G9 has separately argued that this access requires both a variation to the existing Unconditioned Local Loop Service declaration to allow access to the copper at Telstras street-corner pillars (also known as sub-loop unbundling), and a legislative amendment to the Act to allow FANOC to access 100% of the copper sub-loops, described in Appendix 5 to the Submission.

3 4

at page 3 at page 3

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At this point in time, however, the ACCC has not formed a view on whether the declaration should be varied, nor does it know whether the legislation will be amended. As stated in the previous section, there are generally many matters that need to be resolved by a carrier or potential carrier before investing, including engineering design, planning, finance and other regulatory approvals (such as obtaining a carrier licence). In this immediate process of assessing this particular regulatory application a special access undertaking relating to third party access the ACCC is only considering whether, if the investment did proceed, the proposed terms and conditions of that third party access to the network are reasonable and consistent with the standard access obligations under the Act. 2.2.3. Proposed organisational and governance structure An integral component of the Undertaking is the separation of the ownership and operation of the network. FANOC argues that the corporate governance model that it proposes embeds the correct economic incentives for pro-competitive outcomes and that this will ensure that consumers receive the lowest price and greatest quality benefits from open broadband competition.5 FANOC will finance the acquisition and deployment of, and ultimately own, the Network. FANOC will appoint an entity (known as the BAS Manager) to manage aspects of the operation of the Network. The Undertaking guarantees that the owner of the Network (FANOC) will not be controlled by any one access seeker or the related bodies corporate of any one access seeker.6 The Undertaking further provides that FANOC will not be controlled by a group of access seekers, or their related bodies corporate, acting in concert to control the material terms for BAS products set by FANOC.7 Both access seekers and institutional investors will have an opportunity to invest in FANOC, with the proviso that no single access seeker, or group acting in concert, may control FANOC. FANOC must not discriminate against an access seeker that is not an investor in FANOC in setting terms of supply of BAS products.8 FANOC will not provide retail telecommunications services. Instead its objective is to deliver high quality and cost effective wholesale services to access seekers who will then compete in the retail market. The BAS Manager will be owned by access seekers, with the proviso that no individual access seeker, or group of access seekers who have a financial interest in FANOC, will be able to control it.9 Each access seeker that is not a related body
5 6

FANOC Submission, p3-4 clause 4.1(b)(i) 7 clause 4.1(b)(ii) 8 clause 4.1(c) 9 clause 4.1(e)

Discussion Paper FANOC Special Access Undertaking

corporate of another BAS Manager member will be entitled to membership of the BAS Manager.10 Clause 4.1(d) sets out the principles for voting rights for each BAS Manager member and limits the maximum percentage of the total voting rights of all BAS Manager members such that no two BAS Manager members in aggregate hold more than 40% of the aggregate voting rights. The BAS Manager will be comprised of independent directors as well as directors nominated by members of the BAS Manager.11 The BAS Manager will be responsible for: (i) consulting with FANOC regarding the introduction, variation or withdrawal of BAS Products;

(ii) reviewing, participating in the preparation and consulting on all budgets including the business plan for construction, ownership, operation and management of FANOC and the Network; (iii) consulting with FANOC on the appointment of an independent reviewer; (iv) keeping, full and accurate records, supporting all costs and revenue included in the Pricing Model; and (v) preparing and submitting to FANOC non-price terms for each BAS Product including: forecasting, ordering, provisioning, billing and associated procedures; and technical and quality of service specifications.

2.2.4. Proposed access services The central objective of the Undertaking is for the provision of Broadband Access Services, as well as a basic telephone access service, to access seekers over a HFTP fibre-to-the-node network. FANOC proposes that these access services will be made available to all parties, including the members of the G9 consortium, Telstra and any other access seekers at a standard set of rates. These access services and the prices, terms and conditions on which FANOC proposes they be offered are summarised in the next chapter.

10 11

clause 4.1(d) clause 4.1(f)

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3. Summary of the Undertaking

The Undertaking specifies the terms and conditions on which FANOC undertakes to supply the BAS to access seekers, and meet its standard access obligations under s.152AR of the Act to the extent that those obligations would apply to FANOC if the BAS was treated as an active declared service. Specifically, the Undertaking outlines the pricing that FANOC proposes to charge access seekers for the supply of BAS. In addition to the body of the Undertaking, there are three schedules attached: 1. Schedule 1 provides a description of the Network (or HFTP Network); 2. Schedule 2 comprises a description of the BAS, including specifying the initial BAS products to be offered; and 3. Schedule 3 comprises the pricing methodology by which, in conjunction with part 7, FANOC will calculate monthly access charges payable by access seekers. FANOCs application also includes the submission in support of the Undertaking. The Submission includes five schedules containing supplementary material and an expert report these are listed in section 5.1.

3.1.

The Undertaking

The Undertaking includes sections relating to: commencement and duration; general undertaking terms and conditions; third party access services, including prices, terms and conditions the management principles; budgets; record keeping and review; equality of access to information; appointment of an independent reviewer and matters submitted to the commission or an independent reviewer for a decision; and variation, replacement, withdrawal or extension of the Undertaking.

The ACCC seeks views of interested parties on the reasonableness of all the terms contained in the body of the Undertaking with reference to the matters outlined in Appendix 1 to this Discussion Paper.

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3.2.

Service description

3.2.1. The Broadband Access Service The Broadband Access Service is the proposed access service and is defined in Schedule 2 of the Undertaking as: Any Carriage Service provided by a FANOC Ownership Entity: (a) Over the HFTP Network; and (b) Between an End User POI and an Access Seeker POI. The Undertaking illustrates the HFTP Network in Schedule 1 as:

3.2.2. BAS Products The Broadband Access Service is to be provided in the form of specific BAS Products. Initially five BAS Products are to be provided and these are defined in Schedule 2 of the Undertaking as: (a) a basic telephone access service implemented using voice over IP (VOIP); and Four standard broadband services which are bitstream services delivered over ADSL2+: (b) 1.5 Mbps broadband service

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(c) 6 Mbps broadband service (d) 12 Mbps broadband service (e) Unlimited broadband service 3.2.2.1. Basic Telephone Access Service The Basic Telephone Access Service is defined in the Undertaking as an access service to allow the provision by an access seeker of an IP telephony based standard telephone service or equivalent service to a residential end-user. It is provided using an analogue service from the end-user premises to the node (allowing customers to continue to use existing telephone handsets), and using an IP-based service over the service aggregation network. It does not include resale services or an end-to-end carriage service between two end user's premises. It is an access service for the carriage to a relevant point of interconnection with the access seeker's own network. Switching capability and other service functionality will be differentiated by the access seeker in accordance with its voice switches. The Submission states that other legacy voiceband services (such as alarms) are accommodated using Special Access Service cards and a program to migrate customer premise equipment to IP solutions. 3.2.2.2. Standard Broadband Services The standard broadband services are described in the Undertaking as an IP-based Layer 2 point-to-point transmission service. All standard broadband services also include the Basic Telephone Access Service to allow access seekers to provide voice calls. Initially the broadband services will be offered over ADSL2+ but the Submission notes that the network will be able to be transitioned to a VDSL network over time when there is sufficient consumer demand for such services. The BAS specifications for the standard broadband services (set out in annexures B to E of Schedule 2 of the Undertaking) incorporate compliance with various ITU standards, ANSI standards, DSL Forum standards and Communications Alliance codes. Access seeker points of interconnections (POIs) are illustrated in the diagram in Schedule 1 of the Undertaking. The BAS specifications for the standard broadband services note that The node provides VLAN handling, Ethernet/VLAN aggregation, Security, QoS, Multicast/IGMP and OAM capability and similarly for the Local and Transit Access Points.
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The Submission notes that Access seekers will have Network Management access to all elements of the HFTP (including the DSLAM and Backhaul network) for Provisioning, Capacity Management, Service Assurance, etc.12 Access seekers will have network visibility at the DSLAM level. In each of the proposed BAS specifications for the standard broadband services the Service Performance Objectives include The targeted minimum downstream bandwidth is 1.5 Mbps. The Undertaking and Submission do not specifically comment on all potential details of terms and conditions of access to the BAS. For example, matters which are not covered in detail in the Undertaking itself include IP network interconnection in relation to maintaining network integrity between the networks of the various access seekers (for example, in controlling malicious traffic); or detailed rules as to how congestion is to be managed (ie. how the backhaul capacity from a node and through the Service Aggregation Network is to be shared equitably between Access Seekers and end-customers and also between different types of applications). The Undertaking provides that where terms are not specifically addressed by the Undertaking, these will be subject to commercial negotiation between the parties and failing agreement to arbitration by the ACCC. Alternatively, Communications Alliance codes or Australian Communications and Media Authority (ACMA) standards could be appropriate.

The ACCC seeks views of interested parties as to whether the Undertaking reasonably provides for parties to interconnect and use the service, in a manner consistent with the Standard Access Obligations. The ACCC seeks views on whether the Undertaking reasonably and in accordance with the Standard Access Obligations deals with: 1. Standards 2. Points of interconnection 3. Congestion 4. Managing network interconnection and network integrity 5. Co-ordinating multiple parties with network management access 6. Ensuring access is sufficient to meet access seekers quality of service requirements, including those under the customer service guarantee 7. Transition of other voiceband services or their migration to IP.

12

FANOC Submission, p10

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3.2.3. Addition, withdrawal and variation of BAS Products The Undertaking provides for the introduction of additional BAS Products as well as the variation and withdrawal of existing BAS Products (part 6). However the ACCCs approval is required before FANOC can withdraw or alter the basic telephone access service, or alter or withdraw any of the other initial BAS Products within the first 3 years of the operation of the Network. After the initial 3 year period FANOC may vary or withdraw any BAS Product after consultation with the BAS Manager and after providing reasonable notice13 to access seekers. Pricing of new BAS Products is discussed below.14 In its Submission15 FANOC argues that as it will only be supplying carriage services to access seekers it will not have any incentive not to provide an access seeker with a service of any particular technical parameter or operational quality for which there is demand - provided that any incremental costs involved in the provision of that product (including lost sales on other products) are likely to be met by higher revenue. The ACCC seeks views of interested parties as to whether the proposed means of adding, varying or withdrawing BAS products is reasonable and consistent with the Standard Access Obligations; and whether the proposed FANOC structure affects this view. 3.2.4. Service Description FANOC submits16 that the BAS description is wide enough to capture all potential access services that may be able to be provided over the HFTP Network throughout the term of the Undertaking. Therefore if the Undertaking is accepted: (a) any service that FANOC provides to an access seeker that involves carriage over the HFTP Network as described in the Undertaking, will be deemed to be a declared service by subsection 152AL(7) of the Act; (b) the standard access obligations, including the obligation to supply an active declared service to an access seeker will apply to any such service. Therefore, all access seekers will be entitled to any service supplied to any other access seeker; (c) any service that FANOC provides that involves carriage of the HFTP Network will be accounted for in the pricing model described in Schedule 3 of the Undertaking. In effect this will mean that all services provided over the HFTP Network will be subject to the same cost control and efficient pricing incentives as the initial BAS services; and (d) if an access seeker is unable to reach agreement with FANOC in respect of the terms and conditions on which any such service is supplied, the terms of
13 14

See paragraph 3.4.2 below. See paragraph 3.3.3 below. 15 At p15 16 FANOC Submission, p13

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the Undertaking will apply and the ACCC can arbitrate a dispute in relation to terms and conditions of supply that are not covered by the Undertaking, under Division 8 of the TPA. The ACCC seeks views of interested parties as to the reasonableness of FANOCs proposed service description.

3.3.

Price-related terms and conditions

The Undertaking specifies the price terms and conditions under which FANOC will provide access to the BAS. It specifies that FANOC will offer the same prices to all parties on a non-discriminatory basis. The total price that an access seeker will pay for access to the Network will comprise two elements: 1. A Pass-through Component incorporating ULLS, or equivalent, access charges for access to the sub-loop; and 2. A FANOC Component Charge which is a charge for access to the FANOC SAN network plus the node to pillar interconnect, calculated according to a specific pricing model. A single BAS product may include a number of FANOC component charges. 3.3.1. Pass-through component The HFTP network requires access to the Telstra sub-loop from the pillar to enduser premises in order to provide BAS services. Access from the pillar will require a charge be paid from FANOC to Telstra for the use of that sub-loop. The Undertaking provides for these charges to be passed-through to access seekers at cost. The Undertaking does not discuss in any detail how the value of this passthrough component will be determined. Two standard options to determine this value are by commercial negotiation with Telstra or, if the ULLS sub-loop is declared, by an ACCC determination following an access dispute. It is important to note, therefore, that the maximum FANOC component prices referred to in the Undertaking do not include this pass-through component. For the purpose of providing indicative all-inclusive prices for the first period, FANOC has assumed this component will fall between $5 and $15 per month. 3.3.2. FANOC component charge The Undertaking sets initial prices for the FANOC component charge of the BAS services for the initial three year period, and then provides a formula for re-setting those prices for successive four year access periods. The pricing methodology by which FANOC will calculate component charges payable by access seekers is

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described in detail in Part 7 and Schedule 3 of the Undertaking. Additional information is provided in Schedule 4 in the NERA report. FANOC explains its pricing model as having two steps: Target Revenue required to recoup costs. At the beginning of each period, a calculation will be made of costs (capex and opex). Then the Target Revenue required for FANOC to recoup its costs is calculated. The Target Revenue includes a return on capital (at the regulated WACC), a return of capital (depreciation), and operating and capital expenditures. Resultant overall price cap on prices. On the basis of demand forecasts that have been developed (and which will be approved by the BAS Manager, the Commission or the independent reviewer), an overall price cap is then determined. The overall price cap is set at the level that provides the percentage change in prices needed across all products, so that FANOC will earns its Target Revenue if it meets the forecasts.17

The ACCC notes, after the initial three year period, FANOC proposes a weighted average price cap approach to pricing. Such an approach is widely used in other regulated industries such as gas and electricity, though it has not been used previously in telecommunications access pricing. In general terms, under a weighted average price cap approach a firm is given the discretion to set individual prices for its regulated services, subject to the restriction that changes to regulated prices are, in combination, not greater than a change in a weighted average price. This weighted average price is set such that a firm can recover an amount which satisfies a predetermined specific revenue requirement. To ensure that this predetermined revenue requirement is met, the weighted average price can increase, or decrease, over time according to a CPI-X formula. An important element of the weighted average price cap approach is that the revenue a firm earns depends on the individual prices its sets for different services and the volume of each service sold at those prices. This is seen to create important incentives for the development of efficient pricing structures. However, it has also been argued that, in some settings this approach can reduce incentives for ensuring quality is maintained. Given the nature of the FANOC investment which involves the development of a new network the price cap involves a return on the actual costs of construction (rather than modelled costs). The rate of return (or WACC) uses the actual cost of debt and the actual cost of equity capital (rather than a modelled cost) arising from the initial investor bookbuild (capital auction), with an upper limit on the equity beta of 1.0. This means of calculating the actual equity beta has not previously been used by the ACCC.
17

FANOC Submission, p25

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The key elements of the proposed pricing methodology for the FANOC component charge are: (1) On the basis of long-term estimates of costs and demand, in the first access period, maximum prices for the FANOC component charge will be set at: $10 for a basic telephone access service $14.23 for a 1.5 Mbps broadband service (including basic telephone access for voice) $18.46 for a 6 Mbps broadband service (including basic telephone access for voice) $26.92 for a 12 Mbps broadband service (including basic telephone access for voice) $35.38 for an unlimited broadband service (including basic telephone access for voice). (2) In the second and subsequent access periods, the maximum prices for the FANOC component charge will be determined according to a Weighted Average Price Cap formula. Specifically, the maximum prices for the FANOC component charge must not, in combination, result in a level of revenue which exceeds a predetermined revenue requirement. This predetermined revenue is calculated according to a CPI-X approach. (3) The value of X in the pricing model will be determined in each access period, such that the present value of forecast revenues in that access period equates to the present value of the target revenue requirements over that access period. (4) The target revenue requirement for each year of each access period will be determined in such a way so as to include a target level of expenditure, a target return on assets, and a target return of capital. The terms target expenditure, target return of capital and target return on assets all have a specific technical meaning in the Undertaking. (5) The term target expenditure includes Target Capital Expenditure plus the forecast operating expenditure for that year based on the agreed budget. (6) The target return of capital includes an amount for depreciation on the Opening Capital Asset value. The Undertaking requires that the amount of depreciation allowed in the different access periods should be consistent with the straight line depreciation of the Capital Asset Value over 12 years.

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(7) The target return on assets is determined by the Opening Capital Asset value in an access period multiplied by the real post tax weighted average cost of capital (WACC). The Opening Capital Asset value in any access period refers to the amount of the Capital Asset value at the beginning of that access period. (8) In the initial access period, the Opening Capital Access value is equal to the Initial Capital Asset value. The Initial Capital Asset value is simply the difference between the capitalised actual expenditure less the capitalised actual revenue in the first access period. (9) In subsequent access periods, the Opening Capital Asset value will be determined according to a formula which takes the Opening Capital Asset value of the previous period and adds to it the actual expenditure in the previous period. It then deducts the target level of revenue in the previous period, as well as any revenue earned from capital disposals or from excluded products in the previous period. In addition, any difference between actual and estimated expenditure in the access period two periods before the current one is added to the Opening Capital Asset value. Finally, any difference between actual and estimated revenue in the first access period is also added to the Opening Capital Asset value. (10) It is proposed that the real post-tax WACC to be applied to the Opening Capital Asset value be determined according to a methodology which provides for a return on debt and a return on equity. (11) A unique feature of the WACC methodology outlined in the Undertaking is that it proposes that in estimating the return on equity, the value of the equity beta be set at the lower of either 1.0, or, a value derived through a capital raising auction. (12) In respect of a number of parameters in the pricing methodology such as estimated or quantities for existing and new products the Undertaking outlines a process for determining their values. This involves an initial process of negotiation between FANOC and the BAS manager, and failing that, allows for either the ACCC or an independent reviewer to determine the values of these parameters in specific circumstances. 3.3.2.1. Initial period prices Adding the FANOC estimated pass-through component charge of $5 to $15 to the FANOC component charge for first period, the estimated maximum all-inclusive prices in the first access period are: $15 - 25 per month for a basic telephone access service $19.23 - 29.23 per month for a 1.5 Mbps broadband service (including basic telephone access for voice)

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$23.46 33.46 per month for a 6 Mbps broadband service (including basic telephone access for voice) $31.92 - 41.92 per month for a 12 Mbps broadband service (including basic telephone access for voice) $40.38 - 50.38 per month for an unlimited broadband service (including basic telephone access for voice).

3.3.3. Addition/withdrawal of BAS products The pricing method includes a provision which allows for the addition of new BAS products in an access period. Specifically, at the beginning of each access period if a new product is likely to be introduced during that period, then the allowed revenue will include the expected revenue from that product, plus an adjustment which accounts for the impact of the introduction of the new BAS product on the demand for existing BAS services. In these circumstances, the BAS Manager will assess this volume sold of the new product - and the expected impact on existing products - on the basis of its understanding of what might have happened to volumes had the new product existed in the period just past. Should any disagreement arise on this issue between FANOC and the BAS manager then the issue will be put to the Independent Reviewer or the ACCC. In addition, where BAS products are introduced or withdrawn during an access period this will impact on the assumed weighted average of forecast sales used in determining the appropriate target revenue requirement for that access period. In such circumstances, the weighted average of forecast sales will need to be agreed by FANOC and the BAS Manager. Again should a dispute arise, then it is proposed that this value be determined by an independent reviewer or the ACCC. 3.3.4. Prices for basic telephone services The Undertaking notes that because certain basic telephony services are subject to social obligations (such as the retail price controls on basic line rental), that the Basic telephone access service will be required to be provided throughout the term of the Undertaking at the price specified for the first three years, subject only to CPI increases. 3.3.5 Queries on price-related terms and conditions

The Commission seeks the views of interested parties as to the proposed price terms and conditions with reference to the matters outlined in Appendix 1 to this Discussion paper. In particular, the Commission seeks views in relation to the following issues: 1. Do sufficient incentives, and safeguards, exist within the pricing model for the accurate forecasting of demand and costs? In particular, do such

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incentives and safeguards exist in the second, and subsequent, access periods? 2. Do sufficient mechanisms exist in the Undertaking to ensure the quality of the BAS products, and the incentives for innovation, are maintained? 3. Is the proposed approach to account for differences between actual and estimated expenditures and actual and estimated revenues in the pricing method reasonable? 4. The Undertaking proposes that for the purposes of the estimation of the WACC the value of the equity beta be set at the lower of either 1.0, or a value as set by a capital raising auction. This raises a number of specific issues: i. Is an either/or approach to the estimation of the equity beta appropriate in these circumstances? ii. Is a capital raising auction as proposed considered an appropriate approach for estimating the cost of equity? iii. Does a predetermined maximum equity beta of 1.0 appear reasonable for such an Undertaking? iv. How should the proposed capital raising auction be structured? Are there any specific elements that are considered necessary to be incorporated into the auction design? (auction floor, limit on number of bidders, allowance for multiple bids, defined size of increments etc.) v. Are there relevant examples of such an auction process being used to determine the return on equity? 5. What should the terms of reference be for the independent reviewer or the ACCC in arbitrating disputes between FANOC and the BAS manager? What factors should be considered by the independent reviewer or the ACCC in making a determination? How should the process involving such a determination be conducted?

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3.4.

Non-price terms and conditions

The Undertaking includes provision relating to non-price terms and conditions under which FANOC will provide access to the BAS. Specifically: Transitional arrangements and roll-out; Equality of access to information; and Additional terms to be negotiated between FANOC and Access Seekers. 3.4.1. Transitional arrangements and roll-out The ACCC notes that the construction of a fibre-to-the-node network is likely to render existing DSLAM investments obsolete, noting that access seekers will no longer be able to access the local loop from an exchange. Resellers of existing wholesale products and users of other declared services may also in some cases find their current services affected. It is also important that Australias residential and business end-users receive as seamless a transition to the new network as is reasonably possible. Thus, the Undertaking proposes that for each customer, or group of customers linked to a node, there is a one-off transition from the old network to the new upgraded Network, although that one-off transition may occur node by node over a period of years during rollout. Accordingly, appropriate transitional arrangements are essential, including advance information and notification periods to other carriers and carriage service providers affected by the cut over from existing network to the new Network. The Australian Competition Tribunal has recently stated in Telstra Corporation Limited (No 3) [2007] ACompT 3:
Some of the network upgrades, such as removal or replacement of the ULLS with fibre optic cable, or its decommissioning, would require access seekers to plan major infrastructure works, or acquire and install new equipment and, in the case of the decommissioning of the ULLS, the need to market new services to end users. These activities may well take longer to plan, implement and install than the minimum notice period of 15 weeks proposed by [the carrier]. That notice period is also likely to place access seekers at a significant competitive disadvantage with [the carrier] because some of 18 [the carriers] network upgrades will require more than 15 weeks to plan and carry out.

Such information and notification arrangements may be dealt with through an undertaking or may be dealt with through Communications Alliance codes and/or ACMA standards.

18

Telstra Corporation Limited (No 3) [2007] ACompT 3 at para 304

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The Submission acknowledges the importance of transitional arrangements. The Undertaking does not make any specific provisions for these arrangements. The Submission states:
The Undertaking includes an acknowledgement that nothing in this Undertaking detracts from any power of the Commission in relation to determining appropriate processes and procedures to be followed to ensure that the roll-out of the HFTP Network occurs in an appropriate manner that balances the interests of FANOC and end users in an efficient deployment of the HFTP Network and the provision of BAS Products with the needs and interests of access seekers and their end users in minimising any disruption or inconvenience to their existing telecommunications networks and telecommunications services.19

3.4.2. Equality of access to information Following rollout and the initial transition, the issue of ongoing equality of access to information by all parties using the Network arises. Clause 9.1 of the Undertaking provides that: FANOC will provide all Access Seekers with such information as, in FANOCs reasonable opinion, may be required in order for Access Seekers to make informed decisions in relation to the usage of BAS Products. FANOC will provide all Access Seekers that seek such information with equivalent information in relation to:20 (a) The technical and operation parameters of the [] Network; (b) The Deployment Schedule for the [] Network; (c) The BAS Products that are being provided and the current maximum Total Charges for each of those BAS Products; and (d) Any new BAS Products that have been requested by an Access Seeker. 3.4.3. Additional terms to be negotiated between FANOC and Access Seekers Clause 3.2 of the Undertaking notes that the Undertaking does not specify all the terms and conditions on which FANOC will comply with the standard access obligations. The Undertaking notes that other terms and conditions are to be proposed by FANOC (in consultation with the BAS Manager). Should an access seeker object to any of these terms and conditions, it can seek a determination from the ACCC acting as arbitrator, under Division 8 of Part XIC of the TPA. The Act requires that a party giving an SAU agrees to be bound by the standard access obligations (the SAOs) to the extent that those obligations would apply if the service was treated as a declared service21. FANOC makes this commitment in clause 3.1 of the Undertaking.
19 20

at page 33 Clause 9.1 (a) (d) 21 ss. 152CBA(3)(a)

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Undertakings do not have to be exhaustive to be reasonable and consistent with the SAOs. However, it is open to the ACCC to take the absence of terms and conditions into account in conducting its assessment under ss. 152BV(2). Typically, other contractual terms are not included in many of the undertakings that the ACCC receives, and are left to be determined by commercial negotiation or arbitration. However, the ACCC has published non-price model terms and conditions for access to core services under s. 152AQB of the Act. These model terms and conditions include provisions relating to billing and notification, liability, confidentiality and service migration and may provide guidance to the ACCC in conducting arbitrations of non-price terms. The ACCC seeks views of interested parties on the reasonableness, and consistency with the SAOs, of the non-price related terms and conditions contained within the Undertaking with reference to the matters outlined in Appendix 1 to this Discussion Paper.

3.5.

Management principles

FANOC claims that the separation of the ownership and operation of the Network will promote competition and remove any incentives to anti-competitive conduct inherent in vertically integrated control. The Undertaking contains a number of management principles which FANOC claim will maintain the separation of control and promote competition. These management principles are set out in part 4 of the Undertaking and may be summarised as: FANOC will only serve wholesale customers No carrier (or group of carriers acting in concert) can be in a position to control FANOC. No discrimination by FANOC against an access seeker on the basis of whether the access seeker is an investor in FANOC. No carrier control of the BAS Manager. All access seekers will be entitled to be members of the BAS Manager. The BAS Manager Board will include both representatives of carriers and independent directors. FANOC and the BAS Manager will enter into a Management Agreement under which the BAS Manager is allocated key operational functions in respect of the FTTN Network.

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FANOC argues that as FANOC will only provide wholesale services and is prohibited from discriminating between access seekers on the basis of their financial interest in FANOC, it will be motivated to maximise the utilisation of the Network. The Submission states that the primary purpose of the BAS Manager is: to facilitate a degree of separation between the funding and ownership of the Network and its day to day operations; and to provide access seekers with a degree of oversight of the costs incurred by the access provider (since any inefficient costs would be borne by access seekers in the form of higher charges).

The ACCC seeks views of interested parties on the impact of the management principles on whether the Undertaking is reasonable with reference to the matters outlined in Appendix 1 to this Discussion Paper. Normally, specific undertaking provisions can be directly enforced in the Federal Court. The management principles set out in the Undertaking are general principles which may be less amenable to direct Court enforcement. The Undertaking states that FANOC recognises that compliance with the management principles is material to the ACCCs consideration of whether the Undertaking is reasonable, which might on the face of it, suggest that if the management principles are not followed the Undertaking could be revoked. However, the ACCC is normally unable of its own initiative to vary or revoke a special access undertaking once accepted, even if it considers that due to a change in circumstances the undertaking is no longer reasonable.22 Such a mechanism ensures regulatory certainty for investors. To provide assurances for access seekers that the principles set out in the Undertaking will be followed, the Undertaking itself provides that the ACCC can issue FANOC with a rectification notice and that FANOC can be required to withdraw or vary the Undertaking, if this governance structure is not implemented and maintained to the satisfaction of the ACCC after the date FANOC first supplies a BAS within Australia. Clauses 4.3 to 4.6 of the Undertaking outline a mechanism for ensuring that FANOC and the BAS Manager comply with the management principles in the Undertaking. These mechanisms include a process of variance and rectification
Sections 152CBI & 152CBG of the Act provide an explicit power for the person who has given a special access undertaking to withdraw it, or propose a variation to it. There is no corresponding power in the Act for the ACCC to decide to revoke a special access undertaking or require a variation. Section 33 of the Acts Interpretation Act 1901 allows a decision-maker making an Instrument to subsequently revoke or vary that Instrument, but as a decision to accept a special access undertaking is not the making of an Instrument, that rule does not apply here.
22

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notices with the effect that if the management principles are contravened FANOC must: rectify its compliance; give additional undertakings to the ACCC to satisfy the ACCC of the continued reasonableness of the Undertaking; or withdraw the Undertaking.

As withdrawal of the Undertaking requires the giving of 12 months notice, clause 4.6 provides for FANOC to comply with any additional undertakings that the ACCC requires to satisfy itself of the continued reasonableness of the Undertaking during the period once withdrawal has been notified. The ACCC seeks views of interested parties on whether the proposed mechanisms for enforcing compliance with the corporate governance and management principles are effective?

3.6.

Expiry date and the term of the Undertaking

If the ACCC accepts the Undertaking, it will commence operation from the date of acceptance by the ACCC and will continue until the earlier of: 17 years from the acceptance date; 15 years from the date FANOC first supplies a Broadband Access Service within Australia; or termination, withdrawal or replacement of the Undertaking in accordance with the Act.

The ACCC seeks views of interested parties on whether the term of the Undertaking is reasonable.

3.7.

FANOCs Submission in support of the Undertaking

As noted above FANOC has provided a Submission in support of the Undertaking to the ACCC. The Submission outlines the main provisions of the Undertaking as well as detailing the reasons why FANOC considers the Undertaking satisfies the relevant statutory criteria.23 In this regard, FANOC claims that the prices and nonprice terms and conditions of the Undertaking are consistent with FANOCs SAOs under the Act and reasonable. FANOC submits that the Undertaking: promotes competition in retail service markets because FANOC will not provide retail services and will provide non-discriminatory access to downstream suppliers of retail services;

23

Refer to section 7 of the Submission

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is in the long-term interests of end users; allows FANOC to recover the costs of its efficient investment in the Network(but no more) and earn a normal return on its investment; promotes efficient use of infrastructure; balances FANOCs legitimate business interests with the interests of access seekers; and the pricing model enables FANOC to maintain the safety and reliability of the Network and encourages the economically efficient operation of services.

The ACCC seeks views of interested parties on any of the arguments presented in the Submission and related schedules in support of FANOCs claim that the price and non-price terms and conditions in the Undertaking are reasonable and consistent with the SAOs.

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4. The legislative criteria for the assessment of undertakings

Division 5 of Part XIC of the Act enables access providers to voluntarily lodge written access undertakings with the ACCC specifying the terms and conditions upon which they agree to supply a specified service. Under s.152CBA of the Act a special access undertaking can be lodged by a person who is, or expects to be, a carrier or a carriage service provider, so long as the service is not an active declared service. Section 152CBD of the Act specifies that the ACCC must not accept the special access undertaking unless: the ACCC is satisfied that the terms and conditions set out in the undertaking are consistent with the standard access obligations ( the SAOs) under s.152AR; the ACCC is satisfied that the terms and conditions set out in the undertaking are reasonable; the ACCC is satisfied that the undertaking is consistent with any Ministerial pricing determination; and the ACCC has:

published the undertaking and invited people to make submissions to the ACCC on the undertaking; and considered any submissions that were received within the time limit specified by the ACCC when it published the undertaking.

A service supplied by a person who has given the ACCC a special access undertaking and which the ACCC has accepted, is a declared service under s.152AL(7) of the Act.24 However, the ACCC may still declare a service under s.152AL(3) even if the service is covered by a special access undertaking.

Under Part XIC of the Act, the ACCC may declare carriage services and related services to be declared services. Carriers and carriage service providers who provide declared services are required to comply with standard access obligations (SAOs) in relation to those services. The SAOs facilitate the supply of declared services by access providers to access seekers, in order that access seekers can provide carriage services and/or content services.

24

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4.1.

Publication of undertakings and invitation to make submissions

The ACCC published the Undertaking and accompanying cover letter on its website at www.accc.gov.au, on 30 May, and 31 May 2007 respectively, and invites submissions to be made within six weeks from the date of publication of this Discussion Paper (that is, by 5pm, 7 August 2007).

4.2.

Consistency with standard access obligations

The SAOs are set out in s.152AR of the Act. Subject to class or individual exemptions made by the ACCC, a carrier or carriage service provider must comply with the SAOs in regard to declared services it supplies either to itself or to other persons.25 In particular, s.152AR requires access providers to, among other things: supply an active declared service if requested to do so by a service provider (subject to certain limitations) and to take all reasonable steps to ensure that the technical and operational quality of the active declared service supplied to the service provider is equivalent to that which the access provider provides to itself; take all reasonable steps to ensure that the service provider receives, in relation to the active declared service supplied to the service provider, fault detection, handling and rectification of a technical and operational quality and timing that is equivalent to that which the access provider provides to itself; if an access provider supplies an active declared service by means of conditional-access customer equipment, the access provider must, if requested to do so by a service provider, supply to the service provider any service that is necessary to enable the service provider to supply carriage services and/or content services by means of the active declared service and using the equipment; permit the interconnection of the facilities an access provider either owns, controls or is responsible for, with the facilities of a service provider for the purpose of enabling the service provider to be supplied with active declared services; and provide billing information (if requested by the service provider) at certain intervals and in a certain manner and form.

The ACCC will assess whether the Undertaking is consistent with the SAOs.

25

Refer to ss.152AS and 152AT of the Act.

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4.3.

Reasonable terms and conditions

Under Part XIC of the Act, the ACCC cannot accept an undertaking unless it is satisfied that the terms and conditions specified are reasonable. In determining whether terms and conditions are reasonable, the ACCC must have regard to the following matters: whether the terms and conditions promote the long-term interests of endusers (the LTIE); the legitimate business interests of the carrier or carriage service provider concerned, and the carriers or carriage service providers investment in facilities used to supply the declared service concerned; the interests of persons who have rights to use the declared service concerned; the direct costs of providing access to the declared service concerned; the operational and technical requirements necessary for the safe and reliable operation of a carriage service, a telecommunications network or a facility; and the economically efficient operation of a carriage service, a telecommunications network or a facility.26

This does not, by implication, limit the matters to which regard may be had.27 In considering whether the terms of an access undertaking promote the LTIE, the ACCC must consider the achievement of the following objectives: promoting competition in markets for telecommunications services; achieving any-to-any connectivity in relation to carriage services that involve communication between end-users; and the objective of encouraging the economically efficient use of, and economically efficient investment in: the infrastructure by which listed carriage services are supplied; and any other infrastructure by which listed services are, or are likely to become, capable of being supplied.28

4.4.

Consistency with Ministerial pricing determination

Division 6 of Part XIC of the Act provides that the Minister can make a written determination setting out principles dealing with price or a method of ascertaining
26 27 28

Refer to sub-section 152AH(1) of the Act. Section 152AH(2) of the Act. Section 152AB(2) of the Act.

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price relating to the SAOs. Subsection 152CI(1) of the Act provides that if a provision of an access undertaking is inconsistent with any Ministerial pricing determination, the provision will have no effect to the extent of the inconsistency. The Minister has not made a pricing determination in relation to the BAS.

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5. The ACCCs process for assessing the Undertaking

The process the ACCC will follow to assess the Undertaking will be as open and public as practicable allowing parties to express their views on the Undertaking, provide relevant information to assist the ACCC and allow comment on preliminary views formed by the ACCC and its analysis of the Undertaking.

5.1.

Process

The ACCC intends to adopt the following process in assessing FANOCs Undertaking. Stage 1: Lodgement of Undertaking The application given to the ACCC by FANOC on 30 May 2007 consists of: covering letter from Clayton Utz, on behalf of FANOC, dated 30 May 2007; FANOCs Undertaking; and FANOCs Submission. The Submission includes the following Schedules:

Schedule 1 Regulatory Framework; Schedule 2 Example BAS Product Specifications; Schedule 3 Initial BAS Pricing Calculation; Schedule 4 NERA Paper; and Schedule 5 Request to Government for legislative change to facilitate the connection of FANOC nodes to Telstra pillars

On 30 May 2007, the ACCC placed the Undertaking on its website. The covering letter and Submission were placed on the ACCC website on 31 May 2007. Stage 2: Publish the Undertaking and seek submissions As stated in section 5.1 above, the Undertaking was published by the ACCC on 30 May 2007. This Discussion Paper was released on 21 June 2007. The Discussion Paper aims to inform parties of the matters the ACCC must take into consideration in assessing the Undertaking, and the issues which the ACCC would particularly like addressed in submissions. This Discussion Paper is available on the ACCCs web site at www.accc.gov.au. Submissions are due by 5pm, 7 August 2007. While the ACCC will, as required, have regard to all submissions that are made to it on or before the closing date for submissions, the ACCC strongly encourages all interested parties to make their submissions as soon as they are in a position to do so. In particular, the ACCC requests that should a party intend to make a submission on any matter not

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addressed in this Discussion Paper, it notify the ACCC of its intentions as soon as possible. As noted, the ACCC also encourages parties to make their submissions in a way that facilitates the efficient assessment of its various contentions, including the verification of any facts or data upon which those contentions are based. In this regard, parties are encouraged to restrict confidentiality claims to a minimum and to establish appropriate confidentiality regimes for the disclosure of any information that is claimed to be confidential to interested parties or to others to allow their critical assessment. Accordingly, the ACCC would recommend that should a party intend to provide confidential material in support of a submission, that it now put in place pro forma documentation (a confidentiality undertaking and procedure for responding to requests) to facilitate the prompt disclosure of that information to appropriate third parties. Should the ACCC not be in a position to efficiently assess a partys contentions, including by receiving the results of independent critical assessments of them, it will be necessarily constrained in the weight to which it will be able to attach to those contentions. This will particularly be the case where conflicting material is before the ACCC that has been critically assessed. Stage 3: Publish draft assessment and seek further submissions Following its analysis of the Undertaking and the submissions of interested parties, the ACCC intends to publish the findings of its initial analysis and its draft decision within a reasonable period after submissions close. The ACCC will invite further submissions on its draft decision. The ACCC would expect that these submissions would be responsive to the draft decision, and would not expect a party to raise any further issues that were not addressed in the submissions that the party made during Stage 2 as discussed above. Stage 4: Publish final assessment Taking into account the submissions, the ACCC will form a view on whether to accept or reject the Undertaking, and publish the reasons for its decision. The date by which this decision must be made will be notified on the ACCCs website.

5.2.

Confidentiality

In general, the ACCC is of a view that all information and submissions it proposes to take into account in assessing the Undertaking should be publicly disclosed. This enables persons with an interest in the Undertaking to comment on matters affecting their interests, and enables the ACCC to test the veracity of the information. As

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noted above, parties are encouraged to restrict confidentiality claims to a minimum and to establish appropriate confidentiality regimes where necessary. However, the ACCC is aware of the need to protect certain of FANOCs information where disclosure of such information may harm FANOCs legitimate commercial interests. Therefore, in order to balance the possible harm from disclosure and the harm that interested persons may suffer if they are unable to comment on matters affecting their interests, the ACCC considers that a more limited form of disclosure may be appropriate. For example, FANOC may require that parties who wish to have access to confidential information sign confidentiality undertakings. In this regard, the ACCC believes that such confidentiality undertakings should enable the relevant party to view all information supplied by FANOC to the ACCC in these proceedings. Should FANOC choose not to supply any confidential information to parties who wish to have access to it, the ACCC may decide to give lesser weight to such information if it is not available to parties who have an interest in it, and the veracity of it can not be tested by the ACCC to its satisfaction.

5.3.

Time limit for assessment

The Act imposes a time limit for the ACCCs assessment of undertakings. While the ACCC intends to make its decision as soon as it is practicable to do so, the ACCC must in any event make a decision within six months of lodgement of an undertaking with the ACCC. If the ACCC does not do so, it is deemed to have accepted the undertaking. The ACCC may also extend the decision-making period by an additional three months but must provide a written notice to the carrier or service provider which includes a statement explaining why the ACCC has been unable to make a decision on the undertaking within the six-month period. In addition, if the ACCC requests further information in relation to the undertaking, the time taken for the ACCC to receive the information is excluded from the six-month period. Similarly, any consultation period specified by the ACCC is excluded from this timeframe.29

29

See subsections 152BU (5), (6) & (7)

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Appendix 1 - Submission Template Assessment of FANOCs special access undertaking in relation to Broadband Access Service (BAS)
Lodged under Division 5 Part XIC of the Trade Practices Act 1974 (the Act) on 30 May 2007 SUBMISSIONS LODGED BY THE [Insert Name of party making the submissions] pursuant to the Discussion Paper released by the ACCC on 21 June 2007.

Matters to be specifically addressed by party

1. Submission on the consistency with standard access obligations - section 152BV(2)(b) of the Act [Parties should address whether the Undertaking is consistent with applicable standard access obligations] 2. Submission on reasonableness of the terms and conditions contained the Undertaking - section 152BV(2)(d) and section 152AH(1) of the Act [Matters which the ACCC must take into account in considering the reasonableness of the terms and conditions contained in the Undertaking.] (a) Whether the terms and conditions promote the long-term interests of endusers (LTIE)

[Insert submission] (b) Legitimate business interests of the access provider

[Insert submission] (c) The interests of the persons who have rights to use the declared service

[Insert submission] (d) The direct costs of providing access to the declared service

[Insert submission]

Submission in relation to FANOC Special Access Undertaking

(e)

The operational and technical requirements necessary for the safe and reliable operation of a carriage service, a telecommunications network or facility

[Insert submission] (f) The economically efficient operation of a carriage service, a telecommunications network or a facility

[Insert submission]

Other Relevant Matters section 152AH(2)

[At its discretion, the ACCC may take into account any other matters relevant in assessing the reasonableness of the Undertaking]

Submission in relation to FANOC Special Access Undertaking