UPDATE: Wholesale plan still anti-competitive, ISPs claim

Telstra is to remain under the scrutiny of the Australian Competition and Consumer Commission (ACCC) and its wholesale ISP partners, despite the reductions to wholesale terms announced yesterday.

Telstra caved in to ACCC pressure late yesterday afternoon and announced some reductions to its wholesale pricing to appease frustrated ISP partners. But many ISPs feel the reduction is not adequate for partners to trade competitively.

Telstra reduced wholesale prices for its 256K product down to $29.75 pre-GST, or $32.70 including GST, a figure that still exceeds the $29.95 plans being offered to consumers by Telstra Retail.

The $32.70 (GST included) charge covers each customer port, more than what Telstra Retail charges, before the ISP pays various other costs such as ATM pricing, bandwidth, staffing costs, equipment, sales and marketing and the other costs associated with running a business.

“I don’t have to do my maths to figure out that this doesn’t work,” said Stuart Marburg, managing director of ISP Netspace. “Basically we are still in the same position as before – we still can’t compete - but we are that little bit closer. It is good to see they are starting to make changes; I hope this won’t be where the reductions finish.”

The ACCC released a statement welcoming the price reductions, but said it was yet to access the full impact of the changes on the level of competition between ISPs. “The ACCC will continue to investigate the matter to determine whether Telstra has or is still engaging in anti-competitive conduct,” said ACCC chairman Graeme Samuel. “The ACCC wants to ensure that the wholesale price drops go far enough, and are not unduly delayed.”

The wholesale price changes, like Telstra's Retail prices, are applicable today. This means that Telstra’s wholesale partners have had a few hours to adjust pricing and marketing campaigns accordingly. “This is what makes it so unfair,” Marburg said. “They expect that we can come up with a competitive product in one afternoon.”

Simon Hackett, managing director of fellow ISP Internode said the price reductions are so trivial, his company will be making no price adjustments as a result.

Hackett said that to date, Telstra has merely been playing a game of appearances. “They have put out a disguise that this is some kind of negotiated environment,” he said. “There was no negotiation. We have no leverage to negotiate with. There is no competitive environment and all we have is the ACCC to simulate a competitive environment.”

Hackett is concerned Telstra has carved up a new market that its competitors will not be able to compete with. “We are not so much worried about losing broadband customers to Telstra,” he said. “We are more worried that if we cannot match this pricing, we advocate our dial-up customers to move to Telstra. We miss out on the cross-over market.”

There is also a possibility, Hackett suggests, that the current pricing arrangements will attract customers into those Telstra services where the telco does not compete with its own channel. “If it pushes them to cable, Optus is the only competitor,” he said. “We have been asking for wholesale access to cable for two years. Telstra’s best defence is time – they can tell us that even if they started now it would be years before we would have that access. It is not in their current interests to do that.”

As well as the cheap broadband plans, Hackett said it should be remembered that Telstra has made gradual adjustments to all of its retail broadband plans – but has not changed a wholesale plan since 2001. “This margin squeeze is weakening the industry,” he said.

Hackett has placed his faith in the ACCC, and in turn Telstra, to make further reductions. “We are still on a path of anticipating further reductions,” he said. “The ACCC are not fooled by this. Telstra can say that they have solved the problem, but it is only the ACCC and the industry that can say when the problem is solved.”

Desperately seeking solutions

Marburg said there was one solution he would like to see the regulator propose. “Telstra would be making it easier for everybody if Telstra Retail was expected to buy services from Telstra Wholesale at the same price as the rest of us.”

Hackett believes that this is unlikely to ever happen. But what he would like to see is accountability from the telco. “Telstra is not out to get anybody,” he said. “You should never ascribe to conspiracy what is actually incompetence.”

Telstra Wholesale has always been reactive to Retail and never proactive, he said. He believes it would have been possible for Telstra Wholesale to have pre-empted the move with its own price movement.

“What we want is to see the Federal Government act on what it says – if Retail has beneficial access to the infrastructure, they should have to document it,” he said. “They should have to break down their costs, show us how they can make those numbers work. We have to inject honesty into the equation.”

The end result, he said, would not be to force Telstra Retail to raise its prices, but to prove that such prices are anti-competitive unless wholesale prices are significantly reduced.

If wholesale prices do not come down, Hackett suggested more and more smaller ISPs will disappear from the market, while larger ones will begin investing in their own infrastructure to avoid using Telstra’s as often.

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