Ourref: Yourref

Level35,TheTower

360ElizabethStreet

MelbourneCentral

MelbourneVic3000

Ourref: Yourref:

Contactofficer:IfaRushdi

Contactphone:0396586401

18December2014

AlisterMontgomery

GroupManager,EconomicAnalysis

TelstraCorporation

Level11,400GeorgeStreet

SYDNEY,NSW,2000

DearMr Montgomery

GPOBox520

MelbourneVic3001

tel:(03)92901800 fax:(03)96633699

Re: ACCC'sfixedlineservicesandDTCSfinalaccessdeterminationinquiries:request forfurtherinformation

Thankyoufor yourresponsetomyletterof 3October2014seekinginformationfromTelstra toassisttheACCCindeterminingpricetermsfortheinternalinterconnectcable(IIC)service tobe includedinthefinalaccessdeterminations(FADs)forthefixedlineservices.

I amnowwritingtorequestinformationrequiredtopricetheIICandalsotoclarifythecost centresusedforcostsofconnectionanddisconnectionactivities.Inaddition,Iamseeking informationtoenabletheACCCto usetheFLSMasa broadcross-checkagainsttheresults ofthedomesticbenchmarkingapproachforpricingthedomestictransmissioncapacity service(DTCS).

Fixedlineservicesrequestforinformation

Iunderstandfromyourletterthatthereis insufficientgranularityinTelstra’sAssetRegisterto

identifycostsandassetsthatare onlyrelevanttotheIICortheTEBArackservices.

TheACCChasnotyetformedaviewregardingtheinclusionof pricetermsfor theTEBArack chargeintheFADsforthefixedlineservices.However,weconsidertheapproach you proposetopricingtheIICandTEBArackservicesis a practicalmethodand weareseeking theinformationthat wouldenableustodothat.

InconsideringTelstra’sproposal,the ACCCseeksfurtherinformationtoinformitselfof the costof supplyingtheIICservices.Inparticular,theACCCrequeststhefollowinginformation:

1. TelstraassetregisterdatathatidentifiesassetsforIICandTEBArackservices- PleaseprovidethefinancialassetregisterforassetsrelevanttotheIICandTEBArack servicesasat30June2009.Theassetregistershouldrecordonlyassetsthathavea remainingvalueasat30June2009,andshouldalsoshowthehistoriccostand accumulateddepreciationbyvintage(i.e.,financial yearinwhichtheassetswere purchased).TheACCCrequeststhatTelstraprovidetheinformationinaformatsimilarto thatprovidedinthespreadsheettitled‘TelstraConfidential– (D)IHCcalculation.xls’sent

totheACCCon22October2010inresponsetotheACCC’sSeptember2010Draft

Report.

2. ProvidecostallocationfactorsforTEBApower,TEBArackandIICservices- PleaseprovidecostallocationfactorsforassetsusedtosupplytheTEBApowerand IIC/TEBArackservicesforeachfinancialyearfrom FY15toFY19,usingTelstra’sfully allocatedCostAllocationFramework(CAF).Pleasealsoprovideanexplanationofthe methodologyandassumptionsfordeterminingthesecostallocationfactorswithin Telstra’sCAF.

3. HistoricalrevenueandcostdataforIICandTEBAracks-Historicalrevenueand costsfortheIICandTEBAracksservicesforeachfinancial yearfortheperiodFY10to FY14.

4. CostforTelstraWholesalebusinessunit -Thetotalcostfor theTelstraWholesale businessunitforthepastfivefinancial years(FY10–FY14)anda breakdownof coststo eachof Telstra’seachofthefixedline,power/IIC/TEBArackandDTCS wholesale services.

5. Connectionanddisconnectioncosts–Towhichcostcentresarecostsofconnection anddisconnectionassigned?Arethesecostsexcludedfrom theoperatingcostforecasts fortheassetclassesoftheFLSM?If so,whatmethodologyhasbeenusedto dothis?

DTCSrequestforinformation

InitsNovember2014positionstatementonusinga domesticbenchmarkingapproachtoprice theDTCS,theACCCnotedthatitseesmeritinusingotherrelevantsourcesofinformationas across-checkonthereliabilityoftheregressionresults.Inregardto theFLSM,theACCC statedthat:

subjecttoappropriatequalification,theFLSMcouldbeusedtoprovidean indication ofwhethertheregressionresults(in aggregate)arebroadlyconsistentwiththe aggregatecostestimatesthatcanbeobtainedfromtheFLSM.Suchacomparison couldhighlighttheneedforfurtherinvestigationiftherewasasubstantialdisparity butwouldnotbedefinitiveinitself.

6. ToenabletheACCCtoestimatearevenuerequirementforDTCSusingtheFLSM,the

ACCCrequeststhatTelstraprovide:

a) forecastsofdemandforTelstraDTCSservicesforeachfinancial year from FY15to

FY19

b) anexplanationofthemethodologyusedindeterminingtheforecasts,includingthe assumptionsused

c) eitherconfirmationthatalloftheassetsusedtosupplyTelstraDTCSservicesare currentlyincludedintheFLSM orforanyadditionalassetsthatarenotcurrently includedin theFLSM:

oa descriptionof thoseassets

ovaluesforthoseassetsthatareinTelstra’sassetregisterandhavea remainingvalueasat30June2009,showingthehistoriccostand accumulateddepreciationbyvintage(i.e.,financial yearinwhichtheassets werepurchased)—theACCCrequeststhatTelstraprovidetheinformationin aformatconsistentwiththatprovidedinthespreadsheettitled‘Telstra Confidential–(D)IHCcalculation.xls’senttotheACCCon22October2010 inresponsetotheACCC’sSeptember2010DraftReport

oactualannualcapitalexpenditureforthoseassetsfortheperiodFY10to

FY14

oanyadditionalforecastoperatingand/orcapitalexpendituresinrelationto thoseassetsthatarenotalreadyincludedintheexpenditureforecasts submittedtotheACCCbyTelstrainOctober2014as partof itsresponseto theACCC’sDiscussionPaper.

d) costallocationfactorsfortheassetsusedtosupplyTelstraDTCSservicesforeach financialyearfrom FY15toFY19,usingTelstra’sfullyallocatedCostAllocation Framework(CAF).

e) anexplanationofthemethodologyandassumptionsfordeterminingthesecost

allocationfactorswithinTelstra’sCAF.

AsnotedintheACCC’sNovemberpositionstatement,theACCCacknowledgesTelstra’s submissiononthelimitationsofusingtheFLSMtoestimateaDTCSrevenuerequirement. TheACCCintendstoconsultwithindustryontheFLSMestimatesandthelimitationson usingthoseestimates.TheACCCwillalsoconsultwithindustryinrelationtoanyfurther investigationthatmayberequiredfollowingacomparisonoftheestimatedrevenue requirementsproducedbytheFLSMandtheestimatedrevenuesfrom implementingthe domesticbenchmarkingapproach.

I lookforwardtoyourresponseby16January2015.PleasecontactIfaRushdi (+61396586401)ifyouhaveanyquestionsregardingthe informationrequestedforthefixedlineservicesinquiryandAnnetteWeier ( +61392906911)regardinginformationrequestedforthe DTCSinquiry.

Yourssincerely

per

RobertWright

GeneralManager

WaterandWirelineMarkets