Michael Sainsbury accuses Telstra of having “no regard for any type of umpire, particularly not independent umpires” by reference to Telstra’s battles with the ACCC (The Australian 22 July 2008).

But the ACCC isn’t just an “umpire”, at least not to my understanding of the word.

The ACCC does so much more, and in becoming embroiled in policy, politics and PR, moves from position of umpire onto the field of play. When you engage in the hurly-burly of the game, you are going to take knocks – and get your hands dirty.

My first example is the recent release by the ACCC of inflated criticisms of Telstra’s new cost model, the Telstra Efficient Access (TEA) model. The TEA model has been developed by Telstra over more than 18 months, at considerable expense, to estimate the cost of fixed network access. The model is the only one anywhere in the world that anyone can tell me about which has achieved the “Holy Grail” of cost modelling – costs based on real network measurements extracted from the cable and plant records.

The ACCC put its criticisms into a letter – including its concerns that the “errors” it found may be so serious that “the model cannot be properly relied upon” in support of Telstra’s price undertaking for unconditioned local loop services. That letter was put onto the ACCC’s website, where it was very quickly found by the press, leading to headlines questioning the credibility of the model and otherwise giving competitors a free kick.

Only one member of the media, Commsday’s Grahame Lynch (www.commsday.com), questioned the role of the ACCC and its willingness to “punch holes” in the TEA model without having a reliable model of its own.

While the ACCC is completely exposed by its (lack of) cost modelling, the only position it can adopt is as a spoiler, maintaining below-cost access prices while it looks more desperately for excuses to ignore Telstra’s reasonable modelling.

By the way, if the ACCC had given Telstra a chance to respond to its criticism before making its letter public, it would have shown the “errors” affected results by less than 2 per cent. Besides which, Telstra has maintained that the model is in the process of being refined.

Mr Sainsbury’s blind faith in Australian institutions is child-like. A more serious examination of the extent of the ACCC’s powers, and its growing strength, could make more interesting reading.

One of the submissions (www.dbcde.gov.au) to the Government’s National Broadband Network regulatory review highlights the unassailable regulatory position of the ACCC, and therefore the need for reform. That paper talks about the risk of “moral hazard” from the fact the ACCC has powers to set policy, convert that policy into rules and then implement those rules.

Of particular concern are the very limited opportunities for independent review “on the merits” of ACCC decisions in relation to telecommunications. There is no avenue for an appeal on the merits, for example, of the ACCC’s decisions to “declare” that specific services should be subject to regulated access. Other decisions, such as those made in its arbitrations of prices, can’t be appealed on their merits either. As such, there is no ability to challenge whether the ACCC’s resulting decision is correct/fair under the circumstances, only whether or not the ACCC has followed the right rules and processes. It is a situation without corollary in criminal law. It would be like saying you could beat someone to death, as long as you did it the right way.

The Kiah paper points out that the current regulatory regime provides incentives for the ACCC to reject price undertakings. Decisions about price undertakings can be the subject of a merits review by the Australian Competition Tribunal. As long as the ACCC can fend off an undertaking, it has effectively unlimited powers to continue to set prices via arbitration. If an undertaking is accepted, any disputes have to be resolved consistent with the terms of the undertaking, reducing ACCC power. This is the moral hazard.

What does this have to do with the TEA model and the recent spat with the ACCC? The TEA model is Telstra’s best and most credible evidence in support of its price undertaking to set ULL prices at $30 in band 2. While the price undertaking is questioned and delayed, the ACCC can continue to set prices as low as $14.30 per month per line.

But the plot thickens. In May, the ACCC issued draft Procedural Rules (www.accc.gov.au) which, if finalised in the same terms as the draft, will make it even more difficult for network owners like Telstra to have price undertakings accepted.

This, as Telstra points out in its submission, discourages decisions that could be subject to review by the Australian Competition Tribunal, meaning the ACCC’s decisions need never be subject to independent judicial review .Without undertakings, the pricing (and other terms of supply) are largely left to the arbitral context which is free from any merits review. In addition, the rules impose possible criminal sanctions on staff who fail to provide full and complete information with their submissions.

Even SingTel Optus has pointed to “significant disadvantages” of the rules and urges the ACCC to submit “all its proposed rules to stringent review for unintended consequences”.

Is the ACCC independent? Maybe. Dispassionate? Hardly. Infallible? Definitely not! That is why Telstra, or anyone else, has the right to question ACCC decisions and avail itselfof any judicial processes (limited though they are) at its disposal to argue its case.

The ACCC is not just an umpire, it is a player, rule-maker and match tribunal all in one. This is what leads to disputes and appeals to a higher authority, and why the regime needs reform.