Vodafone says government favour for Telstra cutting into revenue

Vodafone says there's "more to do" to balance the competitive playing field for telcos.

Vodafone said Telstra has failed to pass on to customers savings received from cost reductions for calls from fixed lines to mobile phones. The reductions meanwhile have reduced revenue Vodafone recieves for that type of call, said Vodafone GM Industry Strategy & Public Policy general manager, Matthew Lobb. The example—a claim Telstra has denied—is reflective of the big telco’s regulatory advantage, Lobb told Computerworld Australia

Vodafone has recently raised its voice about how the government treats Telstra compared to Vodafone and other competitors. In an earnings call last month, Hutchison chief executive Bill Morrow claimed dominant telco Telstra “had an advantage” and “some regulatory favour” from the Australian government.

“A great deal of the issue is a legacy of history, in that the government some time ago allowed or accepted that Telstra could remain a dominant player in fixed mobile, HFC and have a share in the pay-TV business,” Lobb said. As a result, maintaining a competitive telco market has been an “enduring policy challenge in Australia,” he said.

The NBN and the structural separation of Telstra “are important and vital reforms in this jurisdiction to overcome that unfair competitive playing field, but there’s more to do,” Lobb said. Telstra continues “to be one of the most profitable fixed-line players in the world,” Lobb said. “That sets them up with a distinct market advantage, not just in fixed but in bundling, mobiles and in broadband.” NBN will level the competitive playing field on the infrastructure level “but we do need to be mindful that [Telstra continues] to have retail dominance.”

Telstra’s fixed-line dominance has an impact on the mobile market through the rates that telcos charge to connect calls between landline and mobile callers, Lobb said. When a Telstra retail landline customer calls a Vodafone mobile customer, Telstra pays Vodafone an airtime fee. The government has cut that fee by more than half since 2004, resulting in savings for Telstra, Lobb said. But what Telstra ultimately charges customers for the call “has barely changed,” he said.

“We’ve got the price reduction at the wholesale level that’s led to … a 25 cent revenue decline for [Vodafone], but that cost savings that Telstra has enjoyed has not resulted in a reduction of prices to their retail customers.”

Late last year, the ACCC chose to reduce the fixed-to-mobile wholesale fee again to 6 cents per minute. Lobb said the ACCC found it was not appropriate to require Telstra to simultaneously reduce its retail rate. Vodafone has urged the agency to reconsider, he said.

Telstra declined to comment for this story, but in documents submitted to the ACCC denied withholding savings to retail customers.

“Even if the [fixed-to-mobile (FTM)] market were assessed separately, Telstra, as an integrated operator, has passed through almost 100 per cent of its cost savings to FTM calls,” the telco said in a 19 September 2011 filing at the ACCC. “Given that Telstra has also passed through cost savings to others in the fixed voice bundle, Telstra has effectively passed through more than 100 per cent of its cost savings in the relevant period.”

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