ACCC gives draft approval for NBN revenue, pricing, cost recovery

The Australian Competition and Consumer Commission (ACCC) has approved the National Broadband Network (NBN) company's revenue control alteration proposal, and deemed the company to have been compliant with pricing controls during 2014-15 in a draft decision.

Under the special access undertaking (SAU) submitted to the ACCC in 2013, NBN must provide yearly information on its revenue, operating expenditure, capital expenditure, and services pricing.

As such, at the end of June each year, NBN is required to provide its forecasts on capex, opex, asset disposals, and capex that has yet to be placed in service for the financial year ahead.

On October 30, it is then required to submit its Long Term Revenue Constraint Methodology (LTRCM) proposal, which consists of its actual financial information, proposed financial information, an expenditure compliance report, a procurement compliance report, a price compliance report, and several independent limited assurance reviews conducted by PricewaterhouseCoopers.

The ACCC thus regulates the amount of revenue NBN may earn each financial year, the pricing caps for its services, the net value of its assets, and the accumulation of its unrecovered costs. According to the price controls, NBN is permitted the opportunity to recover shortfalls in predicted revenue once take-up of NBN services grows.

In this year's NBN Co Special Access Undertaking Long Term Revenue Constraint Methodology 2014-15: Draft Determination and Price compliance reporting 2014-15 [PDF], the ACCC found NBN's pricing, expenditure, and revenue to have been compliant.

"The revenue control provisions in the SAU set out the method for determining the amount of revenue NBN Co is allowed to earn each financial year to recover its costs of providing services," ACCC Commissioner Cristina Cifuentes said.

"The ACCC is satisfied that NBN Co's prices did not exceed the applicable maximum regulated prices in 2014-15."

The ACCC must each year also consider whether NBN has adequate rules for procurement, whether there are controls and processes for compliance with the SAU's prudency conditions, and whether those controls and processes operate well.

NBN had last year requested that its 2013-14 LTRCM be altered in order to account for an error it made in omitting the value for "working inventory". The broadband company also suggested that the ACCC change the categorisation of working inventory, making it distinct from "spares inventory".

"NBN Co proposes that working inventory should form part of the construction in progress allowance. NBN Co has further clarified that working inventory is distinct from 'spares inventory', which consists of equipment held for network maintenance purposes and is reflected in capital expenditure," the ACCC report says.

Such a change would allow NBN to recover a further AU$6.4 million in future.

"The cumulative effect of including working inventory in construction in progress is that the closing value of the ICRA as at 30 June 2014 increases by AU$6.4 million," the ACCC noted.

"This effectively means that NBN Co will be able to recover additional revenue in later stages of the project lifecycle."

The ACCC's draft decision expressed the intent to amend the LTRCM determination and accept the re-categorisation of "working inventory".

"Having assessed NBN Co's proposal against the methodology in the SAU, the ACCC has made the draft decision to accept the values proposed by NBN Co for determining allowable revenues for 2014-15," Cifuentes said.

The ACCC is accepting submissions from interested parties on both of these draft decisions until April 15, and will consider all submissions prior to releasing its final determination on June 30.

The ACCC is currently also involved in a court stoush with Telstra over its regulatory decision to slash the prices that Telstra can charge wholesale customers for the use of its legacy copper network during the transition to the NBN by 9.4 percent.

Appearing in the Australian Federal Court earlier this month alongside telecommunications providers TPG and Optus, the ACCC argued against Telstra's submission that the price cut will prevent it from recovering "substantial" depreciation and maintenance costs associated with the copper network.