The Australian Competition and Consumer Commission (ACCC) has ruled against Telstra Corporation Ltd (ASX: TLS) in a decision that'll force it to cut fixed line access charges by 9.4%.
Currently, retailers like Optus, M2 Group Ltd (ASX: MTU) and TPG Telecom Ltd (ASX: TPM) pay Telstra an access charge to use its network. M2 Group owns Dodo, Primus and Eftel; TPG Telecom owns the TPG and iiNet brands.
After paying these access charges, the smaller telcos can then market broadband and other products to subscribers.
The latest ruling, which is down from the 9.6% reduction proposed in June, could see broadband internet prices fall or a better service being offered by retailers, according to ACCC Chairman Rod Sims.
"Broadly speaking, on average, the wholesale price is about half of the retail price, it totally depends what service you're using and how the retail company provides the service," he was quoted saying to ABC News Online.
Therefore, a roughly 10% fall in wholesale access prices could see retail prices come down as much as 5%. The retailers may also use the extra funds to reinvest for faster speeds or to ready themselves for the NBN, according to Mr Sims.
The new pricing level comes into effect from 1 November and will apply until 30 June 2019.
Telstra initially wanted price increases, but the ACCC believed, among other things, cost reductions from the transition to the government's NBN would more than offset upward cost pressures.
"Downward pressures largely come from lower expenditures, falling cost of capital, the treatment of the effects of migration to the NBN and updated information on the NBN rollout," Mr Sims said. "These more than offset upward pressures from a shrinking fixed line market due to consumers moving away from fixed line services and to mobile services."
Is this bad news for Telstra shareholders?
The bottom line is Telstra is continuously being rewarded for its ownership of the 100-year-old copper cable network used to connect broadband devices to millions of homes in Australia.
For example, it's believed Telstra stands to receive the equivalent of $11 billion from the NBN Co for the use of its network. Moreover, until every Australian transitions to the NBN, Telstra will go on receiving access charges, albeit at a lower rate than it is currently.
On top of that, I think the ACCC's decision probably won't make that much difference to Telstra shareholders at all because its newest mobile wireless technology – which is far more convenient than a cable network – is up to 6x faster than the government's NBN. Known as Wi-Fi 4GX Advanced III, this new technology has already started being rolled out across the country.
Therefore, with growth overseas, mobile market dominance and lucrative NBN payments from the government set to start rolling in; I don't think Telstra shareholders have much to worry about.
