Internode cuts ADSL pricing as ACCC hits out at Telstra

Succumbing to market pressure, Internode has cut the cost of its entry-level ADSL service to $29.95.

Internode is one of many ISPs overhauling its broadband product offerings after the introduction of Telstra’s $29.95 ADSL and cable retail products in February.

Much like its competitors, the Internode $29.95 plan is based on 256Kbps/64Kbps access speeds. Internode has, however, boosted the monthly usage limit to include 300MB of downloads per month (BigPond, WestNet and Netspace offer a 200MB download limit).

Excess usage will be capped at $30 per month and charged at 14 cents per megabyte. This is the equivalent of around 200MB of additional data. Customers will still be able to download data after they reach their $30 cap, but at the slower download speed of 33Kbps.

Internode will offer the $29.95 plan contract free.

Internode managing director, Simon Hackett, was one of several ISP representatives criticising the gap between Telstra’s retail and wholesale pricing following the telco’s $29.95 retail broadband product launch.

Talking shortly after Telstra’s official product launch last month, Hackett said the $29.95 pricepoint was around $15 less than what Telstra’s wholesale customers could offer per user while still making their money back.

Late last month, Telstra dropped its wholesale pricing to $32.70 ($29.75 excluding GST) in a bid to appease its wholesale customers and avoid regulatory action from the ACCC.

Hackett said Internode will continue to lose money on the $29.95 plan at this time – “the trivial cut last week won't fix it”.

He continued: “The [wholesale] price cuts last week … were announced without prior reference to the very wholesale customers they were claimed to benefit, and they represent posturing, not negotiation - and they resolve nothing,” he said.

“However, Internode is strong enough to support that loss until the competitive situation is remedied, at which point we will simply be asking Telstra for our lost money back,” he said.

Other 256Kbps ADSL residential plans from Internode are based on unlimited download access (with download speeds shaped to 33Kbps once the customer downloads 12GB of data each month) or on a flat rate (with no download limit). Prices range from $49.95 per month (on the Internode 256Kbps Unlimited Red plan) to $69.95 per month (on a FlatRate 256Kbps plan).

ACCC pursues Telstra

Internode’s new pricing announcement comes a day after the Australian Competition and Consumer Commission’s (ACCC) Graeme Samuel warned the telecoms industry that the watchdog would not tolerate ISPs implementing major price changes across “sensitive markets”.

Speaking at the annual Australian Telecommunications Users Group (ATUG) in Sydney on Thursday, Samuel said telecoms companies wishing to make major changes to the way they are “doing business” should inform the ACCC first.

Samuel said the ACCC was both “concerned and surprised” when Telstra announced it would cut its entry-level broadband retail price to $29.95.

“As I have told Telstra since – to advise the ACCC of a major change in what is clearly a sensitive market, on the day it happens, is not good enough. This is particularly so when the relevant market is one that the ACCC has previously signalled its interest in – and in the clearest way possible – by issuing a competition notice.”

A spokesperson for the ACCC said it is now undertaking an investigation into Telstra’s retail and wholesale pricing. The regulator has issued Telstra with an Advisory Notice, which serves as a precursor to a Competition Notice against anti-competitive behaviour, the spokesperson said.

By being served with such a notice, Telstra risks penalties of $10 million from the day of notice issue, as well as $1 million in penalties each day thereafter.

The spokesperson said the ACCC usually aims to complete investigations into anti-competitive behaviour in a weeks’ turnaround time. However, the watchdog wants to move “even more quickly” on the pricing issue with Telstra to avoid the telco gaining a long-term uncompetitive advantage in the market.

A Telstra spokesperson confirmed the telco had been in constant communication with the ACCC, and was currently awaiting further guidance on what changes Telstra would be required to make to either its wholesale or retail business.

In a statement on Friday, Bill Scales, Telstra group managing director, regulatory, pointed out that since Telstra announced discounted broadband prices in the middle of February, broadband applications have more than doubled.

The rate of greatest growth was being experienced through sign-ups generated by Telstra’s wholesale ISP customers, he said.

Scales said that regulatory intervention from the ACCC would make it more difficult for Telstra to respond to wholesale customers' concerns.

“By imposing itself on a very competitive market, the ACCC would put at risk the tremendous benefits consumers are enjoying,” he said.

"Precipitous regulatory intervention would add legal complexity to our wholesale relationships, which would make it harder and slower for us to deal with our wholesale customers,” he said.

Hackett said if a Competition Notice is what it takes to force Telstra to change its pricing, “so be it”.

“Many ISPs are not as large as Internode and are not financially capable of matching our decision to take an initial loss to keep up with Telstra. Every day this problem persists is another day that the entire competitive marketplace is commercially damaged,” he said.

“Telstra had an incalculably valuable 12-month head-start in the retail ADSL broadband space in 1999-2000, until the first ACCC ADSL Competition Notice generated the necessary attitude readjustment within Telstra and allowed the rest of the market to create a competitive landscape.

“Internode will not abdicate its continued growth in marketshare to BigPond for a second time. This time around, everyone knows the rules. The onus is on Telstra to do the right thing - and do it now.”

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