Broadband subsidy cut-backs guarantee intense competition

ISPs forced into the commercial battlefield

Koala Telecom today declared it has not received one red cent from the government's Broadband Connect program proudly stating that it is business as usual at the Adelaide-based Internet Service Provider (ISP).

The declaration follows an announcement yesterday by Internode that the rollout of its broadband network has been suspended after the federal government ended the Broadband Connect Program.

Internode claims that without the Broadband Connect subsidies it will be impossible to operate.

Head of engineering at Koala Telecom, Curtis Raams, labelled the claim as ridiculous adding that not everyone is reliant on government handouts.

Last week, the Department of Communications Information Technology and the Arts (DCITA) announced that from April 2007, its new $162.5 million Australian Broadband Guarantee initiative will replace the $878 million Broadband Connect program.

Under the Broadband Connect scheme, subsidies of up to $3300 were available to all ISPs for each regional customer that connected to their wireless networks, with the average grant in the $2000 range.

The new Broadband Guarantee reduced the subsidy to $1100 for metro and regional ISPs and only awards the grant to one provider per region, including satellite service providers.

Raams said the government's switch to Broadband Guarantee will force ISPs reliant on the subsidies to compete aggressively against each other for market share, and will place regional wireless infrastructure at risk.

"ISPs will have to compete on true commercial grounds like price, service and quality to survive which means those that have relied on government subsidies without much consideration for the customer will be at risk of amalgamation," Raams said.

"ISPs won't be able to sustain their regional wireless infrastructure projects [without the subsidies] and there will be no way they can avoid consolidation; the end result will be a handful of big guys remaining.

"Without the subsidy, it is not possible for multiple wireless providers to operate in the same area because it costs about $250 000 to service 200 to 500 customers and the means for successful competition just isn't available."

However, Curtis said industry claims that the subsidy cut-backs will make it impossible for ISPs to operate are "ridiculous".

He said Koala Telecom has remained competitiveness by boosting the spectrum and coverage of its wireless network through installing United States technology, and is running a $3.5 million marketing campaign to give-away free LCD TVs to attract new customers.

He said the need for ISPs to provide competitive offerings will increase if the subsidies go to satellite operators.

"If satellite operators get the subsidies, wireless ISPs and development of regional infrastructure will be at risk because, while they can't provide [services like] VoIP, IPTV and in-house content, they have a higher latency and their coverage extends about 500 kms compared to wireless limitations of about 40kms."

He said the costs of construction and maintenance for wireless network towers will put many regional infrastructure projects, like Internode's, on ice.

Koala Telcom has operated for two years and services 11,500 metro and regional South Australian customers.

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