ACCC: telco competition needs to go further

Competition in the telecommunications industry has not developed to the extent expected when the industry was substantially deregulated in 1997, according to the Australian Competition and Consumer Commission's annual report.

The report released last week found effective competition was limited to services or access-based activities, with service providers competing at the retail level only.

“Of the carriers to emerge in that time, many either operate solely at the retail level and have relatively few directly connected customers, or operate in niche markets only,” ACCC commissioner Ed Willet said.

“One result of this is that Telstra continues to account for most of the directly-connected fixed-line services, and indeed Telstra and Singtel Optus account for around 99 per cent of these services between them,” Willet said.

Telecommunications analyst Paul Budde said that the ACCC report shows current regulations have failed.

“As I said when deregulation was introduced in 1997, everyone knows who wins if you have one elephant and 10 mice. I think there were about 11 companies operating in the traditional telecommunications arena when deregulation was first introduced and now that has shrunk to about five or six,” Budde said.

Michael Malone, managing director of iiNet, said his company is trying to compete with Telstra at an infrastructure level by rolling out Digital Subscriber Line Access Multiplexer (DSLAMs) which have to go into Telstra exchanges, but Telstra has many barriers in place to make competition difficult.

“Telstra charges $100 set-up fee for customers connecting to iiNet equipment in Telstra exchanges, higher than it charges for customers connecting to Telstra’s own DSLAMs. So even though we supply the gear, Telstra charges us more,” Malone said.

“Worse yet, Telstra charges a $99 fee for a customer to leave us. This fee does not apply to customers leaving Telstra wholesale. We get charged for everything in the exchange obviously including rent, but duct space, electricity, heat output, cables, you name it,” he said.

Malone said that since iiNet announced its intention in December to roll out its own DSLAMs in Telstra exchanges, the costs have increased by 5 percent.

One of the largest barriers, Malone points out, is that Telstra charges $15 per month for line sharing (LSS) when the real cost should be closer to $2 per month.

The commission's general telecommunications manager, Michael Cosgrave, said it is investigating this issue and others relating to competition in the telecommunications arena.

“The report's conclusion is not a new position for the ACCC. We have long believed that competition in telecommunications is not at its full potential, and we are always looking at ways to change this situation,” Cosgrave said.

Pacific Internet's managing director, Dennis Muscat, said although Pacific Internet is competing by operating in a niche market, government intervention is needed in order to create a better environment for competition.

“Trying to introduce competition where there used to be a monopoly is not an easy thing. The company with the monopoly will not willingly let go of its advantage,” he said.

Muscat and Malone both point to Telstra’s sales of broadband plans at under the wholesale cost as the most recent nail in the coffin for competitors.

“The current competition notice about Telstra’s wholesale pricing is a good move by the ACCC, but possibly a distraction from the main game. I’d like to see it settled quickly and the right solution is for Telstra to offer both sets of pricing (Growth and Protected) to ISPs,” Malone said.

The Growth pricing rate is fixed and the Protected pricing is a scaled rate.

“Ideally, Telstra should allow ISPs to purchase both products and tailor them as appropriate. So we could buy some protected products and sell them to clients as a low-volume solution. But Telstra doesn't allow that,” he said.

Muscat says the government should make the wholesale market more transparent, similar to British Telecom.

“Telstra wholesale needs to be more separated from retail, with a separate board and a separate governance,” he said.

Cosgrove said the commission is looking into this as a possibility.

“The issue is not easy. You have to look at the costs as well as the benefits, but we are looking into this,” he said.

“We have also previously suggested the need for Telstra’s interests in cable (Foxtel) to be more clearly separated, and we are exploring this too.”

Telstra spokesperson Rod Bruem said the ACCC had already spent more than a year devising accounting separation procedures between Telstra retail and Telstra wholesale, which were now in place.

Bruem described any criticisms made by smaller ISPs as “regulatory gaming”.

“They are trying to create a self-serving impression of discrimination, so as to get a competitive leg-up,” he said.

“Telstra is merely providing the network as determined by regulations. The ACCC determines our prices, and any prices it doesn’t actually determine, it certainly scrutinises closely.”

Bruem said rather than Telstra wholesale prices being too high, the regulations are too restrictive, and this could be a reason for the lack of competition growth.

“The (federal government) Productivity Commission has found that ACCC set its prices too low, which actually discourages companies from building alternative competition,” he said.

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