Telstra yields on wholesale pricing

Telstra has caved in to ACCC pressure and announced some reductions to its wholesale pricing to appease frustrated ISP partners.

The telecommunications giant came under the scrutiny of the Australian Competition and Consumer Commission (ACCC) after slashing the price of its cheapest broadband Internet services to $29.95, without reducing wholesale rates. Smaller service providers complained to the ACCC that such a strategy would prevent them from being able to compete with Telstra on price.

The ACCC slapped Telstra with an Advisory Notice, telling the telco giant to drop its wholesale broadband rates and warning Telstra against engaging in anticompetitive conduct that contravenes the Trade Practices Act 1974. The ACCC claimed that it had received numerous complaints that Telstra’s new retail prices were below its wholesale rates.

“The inability to compete, especially at the important entry-level end of the market may also ultimately foreclose more sustainable access-based competition at a vital stage of broadband growth in Australia,” ACCC chairman, Graeme Samuel, said.

“Telstra will need to closely consider whether it implements its planned retail price reductions, or alternately reduces wholesale prices for its competitors,” Samuel said.

Within 24 hours, Telstra responded to the ACCC demands.

The company released a statement to explain how its reduced retail prices would flow through to wholesale customers.

"We welcome the ACCC's engagement to ensure that these reduced prices, which align Telstra’s retail prices with prevailing industry levels, do not harm competition in the industry,"group managing director of Telstra Broadband, Bruce Ackhurst, said.

Telstra said it would adjust the pre-GST wholesale price for its 256K end-user access charge so it was available to wholesale customers at a rate lower than the post-GST $29.95 price that applied for retail customers.

The telco also plans to pass savings on to regional wholesale ISP customers by reducing its wholesale rates for broadband access in non-metropolitan areas.

"Telstra believes that the overall margin that previously existed will apply when these wholesale price changes take effect," Ackhurst said. The wholesale discounts had been in train since the company announced retail price reductions 10 days earlier, eh said.

But managing director of regional ISP NetSpace, Stuart Marburg, said that representatives from Telstra’s Wholesale business claimed they were not aware of the pricing move, only realising what their retail peers were up to once they had read about the new plans in the press. A spokesperson for Telstra made no apologies for this confusion.

“Telstra’s wholesale and retail businesses are completely autonomous,” he said. “The two have been in discussions on how to [appease wholesale customers] ever since the retail changes were announced.”

The wholesale price changes would apply as of the same day as retail price changes took effect, the spokesperson said.

Again, the telco made no apologies for the length of notice (under 24 hours) it gave wholesale partners to prepare new pricing and marketing to compete effectively under the new pricing arrangement with Telstra.

“We have made no secret of the fact that there was a change coming [in wholesale arrangements],” the spokesperson said.

He pointed to the numerous examples of wholesale partners that had already announced pricing changes in anticipation of Telstra wholesale’s move.

“These partners were confident in the knowledge that change would come about,” he said. “There may be some others that did not anticipate this change that were caught napping.”

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