Telstra's Line Rental Hike: A Critical Examination

The recent announcement by Telstra of an increase in its line rental charges has sparked widespread criticism, with many calling it a "furore." However, missing from the discussion is the fact that this increase is part of a deliberate government policy aimed at eliminating a "access deficit" of over $1 billion per year. This policy, encouraged by the Australian Competition and Consumer Commission, seeks to rebalance the relationship between line rental charges and call prices, with the goal of increasing competition and consumer benefits.

Key Takeaways:

• The increase in line rental charges is part of a government policy aimed at eliminating a $1 billion-plus per year "access deficit" that distorts Telstra's pricing and incentives for its competitors.
• Call prices are expected to fall at a greater rate than line rental charges increase, benefiting heavy phone users and those making interstate and international calls.
• The correlation between phone usage and socio-economic status is low, meaning that the rebalancing of line rental and call charges does not disproportionately penalize low-income families or favor particular groups within the community.
• Telstra is forced to reduce a basket of local call, STD, international, and fixed-to-mobile costs by CPI minus 4.5 per cent annually, which has led to flat-lining revenues and customer numbers generated by Telstra's core regulated services.
• The rebalancing decision is a difficult one for Telstra, as it knows that higher line rental charges will drive higher churn rates and losses of customers to competitors, while also fueling the substitution of wireless services for its copper wire network.

Statistics:

• The access deficit is estimated to be over $1 billion per year.
• The Australian Competition and Consumer Commission has encouraged the policy aimed at eliminating the access deficit.
• Call prices are expected to fall at a greater rate than line rental charges increase, benefiting heavy phone users and those making interstate and international calls.
• The correlation between phone usage and socio-economic status is low, indicating that the rebalancing of line rental and call charges does not disproportionately penalize low-income families or favor particular groups within the community.
• The revenues and customer numbers generated by Telstra's core regulated services have been flat-lining in recent years.

Sources:

• Bartholomeusz, S. (2004, [date not specified]). "Telstra's Line Rental Hike: A Critical Examination."
• Australian Competition and Consumer Commission.
• Telstra Corporation Limited.