Optus Submission to. Australian Competition and Consumer Commission. Proposed Changes to the Regulatory Accounting Framework Record-Keeping Rules

Transcription

1 Optus Submission to Australian Competition and Consumer Commission on Proposed Changes to the Regulatory Accounting Framework Record-Keeping Rules November 2008 Public Version Page 1

2 Table of Contents 1. Introduction The Compliance Burden Primary Changes to the RAF... 6 Separate reporting for the declared MTAS...6 Specific 2G and 3G reporting Secondary changes to the RAF New reporting requirements for international mobile roaming services...11 New reporting requirements for mobile data...12 Allocation method for customer support, billing and bad debt expenses...13 Marketing and sales expenses for external wholesale services...14 Consolidated RAF reports...15 Definition of terms in Service Usage Reports Minor changes to the RAF Page 2

3 1. Introduction 1.1 The ACCC has proposed a number of changes to the regulatory accounting framework (RAF) record keeping rules (RKRs) in a discussion paper issued in September Optus welcomes the opportunity to comment on the proposed amendments. 1.2 Optus has reviewed its ability to comply with the proposed changes to the RKRs and assessed the extent of changes required to comply. The ACCC s proposals raise a number of significant concerns. Not least amongst these is that the proposed changes to the RKRs would impose a substantial financial burden upon Optus, estimated at CiC begins CiC ends. Further, it will not be possible for Optus to report on the new metrics for the financial year, since at least 12 months lead time will be required before Optus is able to begin complying with the proposed new rules. General comments on the extent of changes required to comply with the proposed changes to the RKRs and the resulting financial burden are set out in section Specific comments on each of the proposed changes to the RKRs are set out in sections 3 to 5. In summary, Optus will submit that there are serious concerns around the ACCC s proposal for separate reporting for the declared MTAS and also the proposal for separate reporting of 2G and 3G services. 1.4 Optus considers that the MTAS proposal raises issues which go beyond the matters of practicality and cost which are usually considered in the context of the RAF RKRs. Further clarity is required around the relationship between the RAF RKRs and the MTAS pricing principles, and the ACCC should provide further details of the process it intends to follow. 1.5 The proposal for separate reporting of 2G and 3G services is unlikely to be feasible for a number of reasons and appears likely to cause very substantial compliance costs. Optus submits that the ACCC should review its proposal and consider whether the benefits are likely to be outweighed. Page 3

4 2. The Compliance Burden 2.1 Optus current reporting systems and procedures are designed for the purpose of measuring company performance. They are used to capture and report on key drivers that Optus believes are important for good management of its business as a whole. Optus preliminary investigation shows that not all the new requested service usage statistics are currently captured in Optus reporting systems. Requiring Optus to comply with these new requirements will mean that Optus will be required to change its processes and systems, which could raise significant challenges in ensuring the data remains robust and accurate. 2.2 In order to respond to the ACCC s proposals, a high level gap analysis has been completed to identify the degree of alignment between Optus existing RAF processes and the new requirements. This has enabled Optus to identify a number of concerns. All estimates contained in this section are subject to further detailed investigation and validation. This will require further involvement from our auditors and representatives from the ACCC to clarify and confirm specific requirements. 2.3 The ACCC s proposals will require changes to underlying product profitability models to separate out new product categories and new allocation methodologies, and changes to Optus systems to capture the new service usage statistics. In order to achieve these changes Optus anticipates it will need to undertake the following steps: investigate the availability and quality (auditability) of new allocation percentages and new service usage statistics; investigate the actions required to source new allocation percentages and new service usage statistics not currently captured, in terms of individual effort and IT system changes; undertake a review of the above with Optus auditors; prepare correspondence to the ACCC seeking exemption from specific new requirements where the cost of collecting that data is excessive, or the risk in doing is too great; and implement the agreed changes into RAF reporting models. 2.4 In addition, Optus will be required to update the Regulatory Procedures Manual and seek its auditor to review and agreed upon them. 2.5 The cost of compliance is uncertain at present, however it will clearly be substantial. As a first approximation, it is estimated that compliance would impose additional costs of at least CiC begins CiC ends (in a best case scenario). This is based upon CiC begins CiC ends Consultation with Optus auditors indicates that the likely Page 4

5 effort associated with implementing these proposed changes in a best case scenario is an additional CiC beginscic ends 2.6 However it is possible that costs could range up to CiC begins CiC ends, in which case Optus anticipates it would need to seek exemption. Consultation with Optus auditors indicates that the additional audit fees associated with implementing these proposed changes would range up to approximately CiC begins CiC ends in a worst case scenario in which the materiality threshold is required to be lowered to the individual product level. Changes to the materiality threshold are mainly relevant to the proposal for separate reporting of the MTAS and are discussed further in the next section. 2.7 Further, Optus will require a substantial period of time before it is able to begin complying with the proposed new rules. If the ACCC implements the proposed amendment, Optus will need to carry out detailed investigations into feasibility and have ongoing discussions with the ACCC as well as with its external auditors to clarify the scope of the required changes, seek guidance and discuss the acceptability of the methods used and the data produced. Optus anticipates that this would be an iterative process carried out over many months, before the new systems and procedures had reached a reasonable standard and all parties were satisfied of their robustness. Time will also need to be allowed for scoping and implementation of required changes to systems. 2.8 It is essential that adequate time be allowed for all these activities to ensure that Optus reporting will be robust and accurate. Optus estimates that the time required for these activities before we can begin to capture the necessary information for reporting is at least 12 months. Accordingly, it will not be possible for Optus to report on the new metrics for the financial year (the year beginning April 2009 and ending March 2010). Optus submits that the ACCC should allow a phase in period at least 12 months before implementation of the amended RAF begins, to allow time for carriers to prepare and implement the changes. Page 5

6 3. Primary Changes to the RAF Separate reporting for the declared MTAS 3.1 Optus has a number of concerns with regard to the ACCC s proposal for separate reporting of the declared MTAS First, this proposal raises issues which go beyond the matters of practicality and cost which are usually considered in the context of the RAF RKRs. Optus has given extensive consideration to the categories of costs that should most appropriately be recovered through the mobile termination charge in order to promote efficiency and competition. However, it is not clear whether the ACCC wishes to canvas these issues in this context or if it would prefer these issues be raised only in the context of the MTAS pricing principles consultation. The relationship between the RAF RKRs and the MTAS pricing principles intended by the ACCC has not been made clear. Optus submits that the ACCC should make clear the relationship and the process it intends to follow with regard to consulting on MTAS-related costs and seeking information on such costs from MNOs. 3.3 The conventions and methodologies for RAF reporting are distinct from those typically used in the context of costing the declared MTAS service (for example, the ACCC s TSLRIC+ cost modelling). Consequently, there is a risk that the metrics obtained from RAF reporting will be inconsistent with the ACCC s TSLRIC+ methodology. For example, in the absence of further guidance the allocation of organisational-level costs is likely to be carried out by Optus and its external auditors according to a different methodology from that used by the ACCC s mobile cost modellers, WIK-Consult. Significant adjustments would then need to be made to the RAF output to bring the costs into alignment with the ACCC s Pricing Principles. Optus considers that further consultation is required to ensure consistency and to ensure that information on declared MTAS obtained from the RAF will assist the ACCC in its regulatory proceedings. Otherwise the information requested would be of limited value. 3.4 Second, the inclusion of MTAS in the RAF will result in a substantial increase in Optus compliance costs. This will result from the significant changes to Optus reporting systems and procedures, as well as a significant resulting increase in auditing costs. Optus anticipates that it would need to carry out a number of steps before it can comply with the proposed reporting requirement, including: 1 The relevant sections of the RAF that the ACCC proposes to amend include: Schedule 4(c) External Wholesale Service Descriptions item 8 2G Mobiles Termination (declared) -Declared voice termination on 2G networks and Schedule 4(c) External Wholesale Service Descriptions item 16 Non-2G Mobiles Termination (declared) Declared voice termination on mobile networks other than 2G networks Page 6

7 Investigate the availability and quality (auditability) of the new allocation percentages and all the relevant new service usage statistics; Redesign reporting procedures; Liaise with auditors to ensure robustness of new systems; Redesign of IT systems to capture information; and Liaise with ACCC to clarify requirements and ensure acceptability of new data produced. 3.5 Further, Optus anticipates that the materiality threshold of the audited RAF report will need to be lowered as a result of including an MTAS specific category, which will have significant implications for audit costs. 3.6 Optus and its external auditors have determined for the purposes of audit a materiality threshold for RAF based upon the materiality guidelines contained within the Auditing Standard AUS 306 and Accounting Standard AASB 1031 as follows: An amount which is equal to or less than 5 per cent of the consolidated net profit/loss of the SingTel Optus group for the year is presumed not to be material unless there is evidence, or convincing argument, to the contrary, An amount which is equal to or greater than 10 per cent of the consolidated net profit/loss of the SingTel Optus group for the year is presumed to be material, unless there is evidence or convincing argument to the contrary. The nature of any identified misstatement over an established threshold will also be considered. 3.7 Optus current audit materiality threshold (CiC begins CiC ends) is based on group results for SingTel. Under this definition, a misstatement, or group of misstatements of (for example) $25 million on the face of the MTAS product Profit and Loss (P&L) would be considered immaterial and would not warrant audit qualification. Optus auditors are not currently required to raise an issue of this magnitude for further discussion with Optus during the audit process. 3.8 However, the ACCC is now proposing to use the information gathered from the RAF to support MTAS determinations. Given this intended use, a misstatement of this magnitude would be likely to lead to erroneous conclusions. As a result, Optus auditors would be likely to recommend a significant lowering of the materiality threshold to the individual product level. 3.9 Optus has previously investigated the impact of lowering the level of audit materiality placed on the RAF. It is anticipated that this would have very large consequences for the time and resources Page 7

8 required to prepare the RAF. Optus external auditors have advised that lowering materiality to the individual product level would result in an additional audit cost of CiC begins CiC ends Finally, the definition of the declared MTAS service is not completely clear. Consider the Optus Fixed Wireless service, which is a fixed-equivalent service provided over Optus mobile networks. Termination charges for this service are set at fixed line rates. It is not clear to Optus whether terminating and originating minutes for the Optus Fixed Wireless service would be considered by the ACCC to fall within the definition of the declared MTAS service. Specific 2G and 3G reporting 3.11 Optus has a number of concerns with regard to the ACCC s proposal to implement separate 2G and 3G reporting First, there may be an inconsistency in the definitions of 2G and 3G services used by the ACCC and Optus. The ACCC s definitions are based on network usage, 3 whilst the Optus 3G definition is based on those who own a 3G device and are provisioned with a 3G data services access, i.e. with a 3G sim card. 4 Given this inconsistency a 2 The ACCC sought parties views on: implementing separate 2G and 3G reporting as outlined in Table 1 of the Discussion Paper; and implementing separate 2G and 3G reporting by any alternative means. The sections of the RAF that the ACCC proposes to amend include: Schedule 4(a) item 11 2G Mobiles Provision of services, including access, originating 2G networks and provision of handsets or other customer equipments Schedule 4(a) item 12 Non 2G Mobiles Provision of services, including access, originating 2G networks and provision of handsets or other customer equipments Schedule 4(b) item 13 Wholesale 2G Mobiles Non retail specific costs for providing services, including access, originating on 2G networks Schedule 4(b) item 14 Wholesale Non-2G Mobile Non retail specific costs for providing services, including access, originating on mobile networks other than 2G networks Schedule 4(c) item 17 Other External 2G Mobile Wholesale Services Non-declared wholesale mobile services provided on 2G networks to parties that do not meet the definition of a subsidiary or a related party for the purposes of the RKR Schedule 4(c) item 18 Other External Non-2G Mobile Wholesale Services Non-declared wholesale mobiles services provided on all mobile networks other than 2G networks to parties that do not meet the definition of a subsidiary or a related party for the purpose of the RKR. Schedule 8(a) Service Usage Report -Retail item 9 2G Mobiles Number of services in operation (customers), Number of call attempts, Number of connected calls, Number of call minutes Schedule 8(a) Service Usage Report- Retail item 10 Non 2G Mobiles Number of services in operation (customers), Number of call attempts, Number of connected calls, Number of call minutes Schedule 8(b) Service Usage Report-External Wholesale item 5 2G originating Number of call attempts, number of connected calls, number of call minutes Schedule 8(b) Service Usage Report-External Wholesale item 6 2G terminating Number of call attempts, number of connected calls, number of call minutes Schedule 8(b) Service Usage Report-External Wholesale item 7 Non-2G originating Number of call attempts, number of connected calls, number of call minutes Schedule 8(b) Service Usage Report-External Wholesale item 8 Non-2G terminating Number of call attempts, number of connected calls, number of call minutes 3 The ACCC definition of 2G and non 2G are as follows: 2G Refers to second generation mobile phone services including GSM services provided by 900/1800 Mhz mobile networks 3G Refers to third generation mobile phone services including WCDMA services provided by 850/900/2100 Mhz mobile networks 3.5G Refers to third generation mobile phone services incorporating a High Speed downlink (also known as HSDPA); and 3.75G Refers to third generation mobile phone services incorporating a High Speed downlink (also known as HSUPA). 4 Optus MD&A Page 8

9 discrepancy is likely to arise (for example) when minutes are reported for a subscriber using a 3G handset with a 2G sim card Second, handover of calls may create difficulties, given that some handsets are capable of operating on either the 2G or the 3G network. If the user is moving during a call, such handsets can shift from one network to another depending on the relative strength of signal emanating from nearby cell sites. During a voice call, the call can move seamlessly from 2G spectrum on one base station to 3G spectrum on another base station Third, different types of information are collected by different types of switches on Optus network. Networks generate data at Optus telephone switches. CiC begins. CiC ends 3.15 Fourth, Optus billing systems are not configured to capture the distinction between 2G and 3G minutes. Optus network switches are connected to its data collection system (DCS). The DCS is used to collect and send call record data to the billing system. The billing system then collects the data from the DCS and generates monthly/quarterly records (depending on the billing cycle) by assigning the rate to the number of outbound local calls, the number of SMS etc. It is important to note that some data that are captured in the switches are filtered out as they are not relevant for billing purposes. Since Optus does not make any distinction between 2G and 3G minutes in billing terms, the required data is not currently reported. As a result of these issues, Optus current records list a high proportion of minutes that are classified as unknown rather than 2G or 3G Optus would have serious concerns if it was asked to make changes to its switches, data collection system and/or billing systems as a result of the ACCC s proposed changes to the RAF reporting requirements. Such changes can entail major business risks since they may risk undermining the accuracy of the current billing system and have unanticipated impacts such as billing delays, incorrect billings and/or lost minutes. In this event Optus considers that it would need to give serious consideration to seeking exemption from the proposed changes to the RAF RKRs A further issue is that it is likely to be difficult to allocate common costs (such as the attribution of sales and marketing costs, customer service costs and shared network elements) between 2G and 3G. If allocation was made arbitrarily, this would undermine the ACCC s rationale in proposing separate reporting and might be misleading Considering the complexity involved in separate reporting of 2G and 3G minutes, Optus anticipates it may need to take a number of steps to implement the proposed changes including: Detailed investigation on the availability and quality (auditability) of the new allocation method and the new usage statistics; Page 9

10 Redesign the reporting procedures; Liaise with auditors to ensure robustness of new systems; Redesign IT systems to capture information; Liaise with ACCC to ensure acceptability of new data produced; Recruit additional headcount to project manage new IT system installation; Purchase IT systems to capture information; Install equipment at mobile switches; Recruitment of additional headcount to manage additional reporting processes; and Testing of new systems and procedures This process would be both lengthy and costly. Optus has sought preliminary advice from its external auditors on the proposed new reporting changes on 2G and 3G. Their advice is that the proposed changes would result in significant additional audit work particularly if it results in a data set that is different to Optus current usage. Depending on the extent of the changes, Optus external auditors would need to audit the allocation method or changes to the reporting structure. Optus external auditors further advise that with respect to the relevant new changes to the service usage statistics in Schedule 8(a) and Schedule 8(b), additional time would be required for auditing the calculation and sourcing the information. The preliminary estimate of Optus external auditors is that additional audit costs involved would be approximately CiC begins CiC ends each year, should the ACCC change the 2G and 3G reporting requirement as proposed Optus anticipates that the introduction of specific 2G and 3G reporting would require Optus to carry out ongoing discussions with the ACCC, as well as with our auditors, to seek guidance and to discuss the acceptability of the methods used and the data produced. This would be an iterative process carried out over many months, before the new systems and procedures had reached a reasonable standard and all parties were satisfied of their robustness. Optus submits that the ACCC should reconsider its proposed change and consider whether the benefits (which appear to be negligible) are likely to be outweighed by the substantial compliance costs. Page 10

11 4. Secondary changes to the RAF New reporting requirements for international mobile roaming services 4.1 It appears from Optus preliminary investigation that its current reporting systems capture most of the data requested by the ACCC in this area, with one main exception relating to inbound minutes Optus current reporting does not capture the requested Number of inbound minutes of roamed calls (received from home) statistic. However, Optus current reporting does capture the number of inbound minutes of roamed calls for national calls and international calls. 4.3 Whilst most of the requested information is captured in Optus systems, the new reporting requirement will nevertheless increase Optus auditing costs and internal staff costs due to increased workload from collecting and validating the data. Optus will need to seek further advice from its auditor on the amount of additional auditing costs Optus will incur as a result of the new requirement. 4.4 Optus will need to seek clarification from the ACCC regarding the request for the reporting on the amount of inbound data used whilst roaming and the amount of outbound data used whilst roaming, as the definitions are not completely free of ambiguity. 4.5 Similarly the definitions for retail and external wholesale in the roaming context require further clarification. Optus observes that the ACCC discussion paper mentioned that a new external wholesale service will be inserted in Schedule 4(a) Retail Service Descriptions but it has not been reflected in the proposed amended RAF provided by the ACCC. 5 The sections of the RAF that the ACCC proposes to amend include: - Schedule 4(c) External Wholesale Service Description item 19 International Mobile Roaming A service for the provision of mobile phone services whilst abroad utilising the SIM card of the Home provider ; - Schedule 8(a) Service Usage Report Retail item 13 International mobile Roaming Number of customers that have roamed (i.e. incurred roaming charges), Number of inbound minutes of roamed calls (received from home), Number of outbound minutes of roamed calls (placed to home), Number of inbound minutes of roamed calls (national calls), Number of outbound minutes of roamed calls (national calls), Number of inbound minutes of roamed calls (international calls), Number of outbound minutes of roamed calls (international calls), Number of inbound SMS messages received whilst roaming, Number of outbound SMS messages sent whilst roaming, Amount of inbound data used whilst roaming, Amount of outbound data used whilst roaming ; - Schedule 8(b) Service Usage Report External Wholesale item 13 International Mobile Roaming -Number of customers who have international mobile roaming enabled, Number of customers that have roamed (i.e. incurred roaming charges), Number of inbound minutes of roamed calls (received from home), Number of outbound minutes of roamed calls (placed to home), Number of inbound minutes of roamed calls (national calls), Number of outbound minutes of roamed calls (national calls), Number of inbound minutes of roamed calls (international calls), Number of outbound minutes of roamed calls (international calls), Number of inbound SMS messages received whilst roaming, Number of outbound SMS messages sent whilst roaming, Amount of inbound data used whilst roaming, Amount of outbound data used whilst roaming Page 11

12 New reporting requirements for mobile data 4.6 The ACCC has sought parties views on the introduction of reporting for mobile data and several other issues including: combining upload and download for total data carried ; ability to accurately capture handset browsing; and the ability of MNOs to distinguish between data carried via different data transmission technologies Optus accepts the proposed change in Schedule 2 Mobile Data Revenue at Optus has some concerns arising from the proposed changes in Schedule 8(a) Service Usage Report Retail item 14 Mobile Data and Schedule 8(b) Service Usage Report External Wholesale item 14 Mobile Data. Optus will need to seek further clarification with regard to the terms standalone mobile data services and bundled mobile data services. It is possible that standalone mobile data services and bundled mobile data services would encompass the Optus Wireless Broadband product and the Optus Wireless Fusion product respectively. If that is the case, Optus will able to supply the ACCC the requested information. 4.9 Optus has no objection to the proposed introduction of reporting for combined upload and download data as total data carried Optus has no objection to the proposed introduction of reporting on total SMS and total MMS With regard to Optus ability to capture information on handset browsing, Optus submits it may be difficult to separately report the provision of data based on a handset or a 3G modem. Many 3G handsets can now also be used as 3G modem. Accordingly it would be difficult to distinguish between data carried via a handset or via a 3G modem as there is a high level of convergence between the two. Further, it is also possible to transfer the sim card used for 3G dongles (the 3G model used to provide mobile broadband for laptops) to a 3G handset and use the handset to browse the internet. This transfer, which is not detectable, would further conflate the information the ACCC is proposing to capture in separate categories Optus is concerned by the proposed introduction of reporting that distinguishes between data carried via different transmission 6 The sections the ACCC proposed to amend include: - Schedule 2 Mobile Data Revenue at : All revenue earned from the supply of mobile data services, including SMS, MMS, GPRS, EDGE, UMTS or HSPA data - Schedule 8(a) Service usage Report Retail item 14 Mobile Data & Schedule 8(b) Service Usage Report External Wholesale item 14 Mobile Data: Number of standalone mobile data services, number of bundled mobile data services, total data carried standalone mobile data services, total data carried bundled mobile data services, total data carried circuit switched, total data carried packet switched, total data carried highspeed packet switched, total SMSs, Total MMS Page 12

13 technologies Total data carried circuit switched, Total data carried packet switched, Total data carried high-speed packet switched. Where certain types of data can be transmitted by different transmission technologies (to take just one example, an SMS can be transmitted by 2G or 3G technologies), many of the same issues would arise as those arising in the context of separate 2G and 3G voice reporting (see above in the section on Specific 2G and 3G reporting). As a result of these issues, Optus current records list a high proportion of data that is classified as unknown rather than 2G or 3G. Further, Optus systems do not record the 2.5G category. Allocation method for customer support, billing and bad debt expenses 4.13 The ACCC has sought parties views on new allocation methods for customer support, billing and bad debt expenses as well as the proposed exclusion of marketing and sales expenses for external wholesale services Optus submits that with respect to subrule (11)(a) Customer Support and Billing, the current Optus reporting system only captures External and Retail Customer Support and Billing Costs separately at source and that any allocation of such shared costs would be based on the customer numbers for these activities Optus submits that any changes to the method of allocation on Customer Support and Billing will incur additional audit costs Optus submits that with respect to subrule (11)(b) Marketing and sales, further clarification from the ACCC is required. It is unclear whether Optus would need to directly assign these against the ACCC Product Codes. Given the bundled nature of telecommunications products, as well as the customer based approach used in Optus Business, it would not always be possible to attribute these types of costs directly to products. 7 The ACCC proposes to amend the following sections: - Part 3 Reporting Requirements, Rule 11 Allocation of Costs, Revenues and Capital Employed, subrule (11): (11) Product and customer costs for external wholesale services provided on mobile networks should be attributed in the following way: (a) Customer support and billing: by relative proportion of external wholesale services customers to total customers (external wholesale services and retail services customers provided on mobile networks). (b) Marketing and sales: no allocation of marketing or sales expenses is permitted. (c) Bad debt expenses: where possible this should be done on a direct basis relevant to the wholesale customer, service and revenue stream reported. A secondary allocation key may be permitted based on the relative proportion of external wholesale services revenue to total revenue (external wholesale services and retail services revenue provided on mobile networks). - Schedule 3(b) List of Line Items for Cost Product and Customer, Customer Support, the following words are inserted in Column 4 Allocation Method: For mobile services only; by relative proportion of External Wholesale Services customers to total customers (External Wholesale Services and Retail Services customers provided on mobile networks - Schedule 3(b) List of Line Items for Cost Product and Customer, Billing, the following words are inserted in Column 4 Allocation Method: For mobile services only; by relative proportion of External Wholesale Services customers to total customers (External Wholesale Services and Retail Services customers provided on mobile networks - Schedule 3(b) List of Line Items for Cost Product and Customer, Bad Debt Expenses, the following words are inserted in Column 4 Allocation Method: For mobile services only; where possible this should be done on a direct basis relevant to the wholesale customer, service and revenue stream reported. A secondary allocation key may be permitted based on the relative proportion of External Wholesale Services revenue to Total revenue (External Wholesale Services and Retail Services Revenue provided on mobile networks). Page 13

14 4.17 Optus has received advice from its external auditors that any changes to the method of allocation on Marketing and Sales will incur additional audit cost particularly if it results in a new method of attribution Optus submits that with respect to subrule (11)(c) Bad debt expenses, it is unclear if this relates to all bad debt expenses or to external wholesale services only. Optus believes in theory the latter should be possible but to determine this would require further investigation with Optus Corporate and Wholesale Credit Management teams Optus submits that any changes to the method of allocation for Bad Debt expenses will incur additional audit costs With respect to schedule 3(b), Optus submits that further clarification is required for the term mobile services. It is unclear if mobile services mean mobile terminating access services. Marketing and sales expenses for external wholesale services 4.21 The ACCC has sought parties views on the exclusion of marketing and sales expenses for external wholesale services This proposal appears to raise issues which go beyond the issues of practicality and cost which are usually considered in the context of the RAF RKRs. As noted above, is not clear whether or not the ACCC is in this context seeking the views of parties on the categories of costs that should most appropriately be recovered through the mobile termination charge in order to promote efficiency and competition By way of example, the question of whether marketing and sales expenses should be recovered through mobile termination costs or not is far from settled. Optus considers that these costs should most appropriately be recovered through the mobile termination charge in order to promote efficiency and competition. This is consistent with the views of economic consultants CEG, who write in a recent report that it is not economically defensible to argue that customer acquisition costs should be recovered only from origination or subscription charges and not termination charges. 9 CEG note that there is a clear causal link between the termination service and customer acquisition costs and that the unit cost of providing mobile services (including mobile termination) is lower the higher is expenditure on customer acquisition costs The ACCC proposes to amend the following sections: - Schedule 3(b): List of Line Items for Cost Product and Customer Marketing, the following words are inserted in Column 4: For mobile services only; no allocation of marketing or sales expenses is permitted. - Schedule 3(b): List of Line Items for Cost Product and Customer Sales, the following words are inserted in Column 4: For mobile services only; no allocation of marketing or sales expenses is permitted 9 CEG, June 2008, Efficient Operator Benchmark, p1. Optus would be happy to provide this report to the ACCC on request. 10 CEG, June 2008, Efficient Operator Benchmark, p14 Page 14

15 4.24 Optus considers that further clarification is required with respect to the term mobile services. It is unclear if mobile services mean mobile terminating access services. Consolidated RAF reports 4.25 The ACCC has sought parties views on the new requirements for consolidated RAF reports Optus accepts the proposed amendment to submit a consolidated RAF report. Optus is already submitting a consolidated report including Optus, Virgin and Uecomm data However, clarification is required on whether the rule applies only to Australian companies. Otherwise the rule could be read as requiring SingTel to prepare and submit on behalf of Optus a consolidated RAF report. If this is indeed the intention then Optus would have concerns with the proposed amendment. Definition of terms in Service Usage Reports 4.28 The ACCC has sought parties views on the requirements to define the terms contained in the Service Usage Reports Optus has no objection to the proposed changes. Optus would however need to consult with the ACCC on interpretation of these new requirements. 11 Optus observes that the relevant section that the ACCC proposes to amend is in Part 2 Application of these Rules subrule 6 Consolidated reports: (1) If these Rules apply to a carrier or carriage service provider, which is a subsidiary of a parent company, the parent company is required to prepare and submit, on behalf of the subsidiary, consolidated reports complying with these Rules. Note: Subsidiary is defined in subrules 3(2)-(4). (2) For the purpose of this rule, consolidated reports are a single set of aggregated accounts combining the reports required under these Rules of carriers and carriage service providers to whom this rule applies prepared by a consolidated entity (as defined in section 9 of the Corporations Act 2001) that is consistent with the Australian Accounting Standards Board (AASB) Standards and this rule. 12 The ACCC proposes to amend Schedule 11 clause 4: 4.0 Product/Service Definitions 4.1 This should include details of the carrier s services and how these map to the product and service definitions that are used in the Rules. 4.2 Terms contained in the Service Usage Reports should also be defined. Page 15

16 5. Minor changes to the RAF 5.1 The ACCC has sought parties view on the minor amendments to the RAF. The minor amendments include: - removing CDMA references/reporting requirements to account for the closure of Telstra s CDMA network in April this year; - changing all Profit and Loss references to income to reflect current Australian Accounting Standards Board definitions; and - updating legislative references in the RAF from Corporations Law (repealed) to the Corporations Act Optus accepts the proposed minor amendments. Page 16