The Australian Competition and Consumer Commission has issued a discussion paper on access undertakings for digital radio transmission as the paper work continues towards the implementation of digital radio in Australia next year. The discussion paper makes public the draft contracts that will come into place to regulate the actions of the multiplex transmission operation companies.
Only after an undertaking has been accepted by the ACCC that the Australian Communications and Media Authority, can digital radio services begin. Submissions have now been received and are open to a period of consultation.
The legislative framework provides for the allocation of digital radio multiplex licences to joint venture companies representing commercial and community broadcasters. The joint venture companies will be responsible for multiplexing together the separate streams of content from individual broadcasters and transmitting a combined stream to end users in each licence area.
The eight identical undertakings propose the terms and conditions on which the multiplex licensees will provide access to the digital radio multiplex transmission service to broadcasters. The ACCC must determine whether to accept or reject the undertakings using the decision-making criteria it made under section 118NJ of the Radiocommunications Act 1992.
Most of the information in the submissions is as foreshadowed in public statements as the process towards digital radio has taken place. But for the first time, the pricing principles for charging for access have been put in writing. On pricing the document says it is not possible to name an exact price at this time, but guiding principles for pricing are now in place:
Schedule 2 of the access agreement sets out the pricing principles that are to apply in
relation to the Multiplex Transmission Service.
As digital radio services have yet to commence and EJVCs are still in the process of
finalising their downstream supply arrangements, it is not possible at this point in time for
EJVCs to know their costs or for the access undertaking to set out specific prices for
access to the Multiplex Transmission Service. Nor is it possible for EJVCs to propose
indicative prices.
However, the pricing principles set out in the access agreement provide a sound
methodology that ensures that the EJVCs are capable of recovering their costs in
supplying the Multiplex Transmission Service and to obtain a reasonable return on their
investment.
The ACCC has acknowledged that it is permissible for EJVCs to include a pricing
methodology within an access undertaking where actual access costs are not available:
“…if the licensee does not know the actual access costs at the time of lodging an
undertaking, it may instead provide a fair and reasonable pricing methodology. This
might be the case, for example, if agreement with infrastructure owners/operators
has not yet concluded”.
The methodology proposed in the pricing principles identifies the following cost
categories, which are recoverable by the Multiplex Licensee from access seekers:
capital expenditure;
operating expenditure; and
expenditure on corporate overheads.
The pricing principles provide for the annualisation of the EJVC’s costs to derive recurrent
charges. Capital expenditure will be recovered by annualising these costs over the economic life of the assets, as determined in accordance with the accounting treatment
applicable to those assets.
The pricing principles in the access agreement provide that the annualised capital
expenditure will be determined by aggregating the return on capital of the depreciated
value of the assets and the return on capital, whereby the return on capital is the
weighted average cost of capital (WACC) of the depreciated value of the assets and the
return on capital is calculated using a straight-line depreciation schedule.
The pricing principles provide that the WACC of the Multiplex Licensee:
is the nominal post-tax return on capital;
is calculated by reference to the cost of equity and cost of capital to the Multiplex
Licensee; and
will be commensurate with the WACC of similar enterprises conducting similar
businesses, with a similar risk profile and at a similar phase of their business cycle.
The WACC is considered in more detail in section 3.5 of this supporting submission.
The pricing principles provide for fair, reasonable and transparent pricing. In particular,
the pricing principles provide for pricing on a non-discriminatory basis, with all access
seekers being subject to the same prices for an equivalent amount of capacity.
Accordingly, it is expected that all access seekers will pay the same level of access
charges for the same amount of multiplex capacity.
The pricing principles are also sufficiently flexible to cater for a scenario where an access
seeker chooses to acquire a lower bit rate service, in which case that access seeker will
pay a proportionally lower access charge relative to an access seeker that chooses to
acquire a higher bit rate service.
However, because the provision of the Multiplex Transmission Service at a lower bit rate
results in the use of an additional line card for each separate service offered (regardless
of the bit rate), the pricing principles provide for these additional costs to be recovered
directly from the access seeker that seeks to acquire the lower bit rate service. This is
consistent with the principle of cost causality and represents an efficient approach to
pricing.
The documents are available for view at the link below. Responses due by 21 November.