Panel: Telco business models all bundled up

Bundled telecommunications services present a significant threat to the future of competition within the industry, and could cause irreparable harm to new and emerging convergence business models between telco and media content providers, industry representatives claim.

According to speakers at the latest Service Providers Industry Association (SPAN) general meeting, Telstra’s dominance both in providing network access and content services has also hindered the development of stronger competition in the Australian industry by shutting out new players from the market.

Expressing concern over the blending of content and carriage services offered by telco players, the ACCC’s (Australian Competition and Consume Commission) Michael Cosgrave said three big challenges faced the industry: Telstra’s market power, regulation of broadcasting and the impact of bundling.

“In the future, leverage of market powers from one market into another could be used to stifle new entries into existing and emerging telco markets,” he said.

Cosgrave said bundling would be an area of “regulatory interest” to the ACCC this year, as the watchdog tries to determine whether to prohibit such services from being bundled, or deals with the issue on a case-by-case basis.

Industry analyst and principal of consulting firm Cutler and Company, Dr Terry Cutler, said he perceived bundling services as actually working against the customer’s choice and therefore competition. Using the analogy of ordering breakfast at a US restaurant, Cutler said telcos offering consumers bundled services were similar to customers being offered a “big breakfast” without being able to “just ask for toast”.

TransACT CEO Michael Del Gigante called for convergence legislation, arguing that once the industry moves into bundling services, “how do you stop from bundling everything?” For example, the industry could end up with the extreme situation where one provider offers a range of utility services, such as gas and electricity, bundled with telco and Internet services, as well as real estate or property assistance, he said.

Gigante said Telstra’s dominance in the industry has put players offering alternative services into a “niche market”. This in turn, makes investors nervous and introduces barriers between them and budding new telco providers.

The SPAN general meeting, which was held in Sydney on Wednesday, was aimed at discussing the increasing interdependence of telco services and content. Other speakers included Brainwave Interactive director and board member of the Australian Interactive Multimedia Association (AIMIA) Tom Kennedy and Hutchison Telecommunications’ director of stakeholder relations Steve Wright.

As well as concerns over bundling, presentations also pointed to inadequate access to existing network infrastructure as preventing new business models from developing.

One way of addressing the problem was by overhauling the telco industry’s ageing policy regimes, Cutler said.

“The fundamental assumptions [that the regime was based on] don’t stack up now and are holding us back,” he said.

For example, the assumption that a telco is not like other utilities providers has led to many of Telstra’s competitors becoming restricted by its business model, he said.

“As a result, we’ve created second-tier Telstra ‘lookalikes’.”

As well as discussions on bundling, presenters at the SPAN meeting also focused on the role access networks played in the uptake of new high-speed services such as broadband.

Speakers agreed more capital investment would be required to “future-proof” network infrastructure.

Cutler said “dumb” IP networks and not DSL services, represented the future of emerging high-speed technologies like broadband.

“At best, DSL is only an interim solution,” he said. “[The industry] has to start recognising that the copper network is adolescent – and need to look past it.”

But until the issue of access to Telstra’s physical network was amended, “there’s only one business model for convergence: Telstra’s”.

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More about Australian Competition and Consumer CommissionBrainwave InteractiveHutchisonHutchison Telecommunications (Aust)Telstra Corporation

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