Telstra takes on US Telcos over Internet charges

Telstra wants government help to force US carriers to pay their share of the costs of transmitting Internet data that their customers extract from the world outside America.

However, serious doubts exist over whether the Australian Government has the clout to influence the outcome even if it wanted to. And Telstra's case is weakened because it is doing to smaller domestic ISPs similar things to what the big US operators are doing to it.

At the core of the problem is the fact that US Internet sites supply much more data to the rest of the world than US users pull in from places such as Australia. So tier-one carriers in the US, operating on the principle "you need me more than I need you", are charging for what they provide without paying for what they take.

The result is Telstra pays 100 per cent of the cost of maintaining its trans-Pacific data pipe even though 20 to 30 per cent of the pipe's traffic is generated by US users accessing Australian data.

Adding insult to injury, US tier-one players also levy so-called "port charges" on Telstra and other smaller carriers to access their domestic infrastructure - again without paying for reciprocal rights.

John Hibbard, managing director of Telstra's global wholesale division, claims these charges will total between $400 million to $500 million for Australian ISPs this year.

Included in that is $175 million worth of Internet services provided on behalf of US ISPs to US customers accessing sites here. Of that, "US operators will pay not one cent toward Australian ISPs' costs", Hibbard says.

To change the system, Telstra has been putting together a multi-threaded campaign over the last two years.

It has formed an alliance with Asian carriers in Singapore, Hong Kong, Taiwan and South Korea that are caught in the same trap. At the same time, it is lobbying for support in multinational forums such as the Asia Pacific Economic Community. Now it is raising the ante by seeking intervention from the Australian government.

Hibbard has publicly called for Richard Alston, the minister for communications and information, to use provisions of the Telecommunications Act 1997 which prevent foreign carriers from acting contrary to Australia's national interests when dealing with Australian service providers.

Hibbard wants Alston to let the Consumer and Competitive Commission (ACCC) consumer watchdog off its leash, claiming it has the power to take unilateral action to redress the situation.

The use of government regulators to enforce Internet peering arrangements between carriers is an issue that divides industry experts.

Some argue government intervention produces negative, market-distorting effects. Others claim it is the countries with the strongest regulators which produce the most competitive customer access environments.

In the case of Telstra versus the big US carriers, the question is probably irrelevant.

The combined revenues of tier-one carriers in the US is close to Australia's gross domestic product, so the Australian government will be punching well above its weight.

Telstra is also facing an uphill battle in terms of winning support from supranational organisations such as Asia-Pacific Economic Cooperation (APEC), the European Union and the International Telecommunications Union.

At least that is the off-camera opinion of senior executives with multinational carriers interviewed by The Standard. None were prepared to go on the record, often because their views did not coincide with the political positions of their employers. ut few were optimistic about Telstra's chances of victory in its battle with the giant US carriers.

Telstra will be laughed at if it hopes to convince bodies like APEC by using arguments about fairer Internet traffic peering arrangements, consultants said. Such arguments may work for voice circuits but not for packet-routed systems where costs are smeared over the entire network and the revenue model is entirely different, they claim.

"The US tier-one carriers behave like pirates not just to Telstra but to anybody smaller than themselves, including other US carriers," said a North American consultant.

"The real answer is to set up regional alliances and increase collective traffic flow to the point where they can talk to the major US carriers on an equal footing."

The march of technology is also threatening to punch a hole in Telstra's campaign. While, according to Telstra, savings to Australian ISPs of up to 20 per cent are achievable if the US Internet carriers paid their fair share, such savings will be eclipsed by falling bandwidth costs between the US and Australia, predicts Tim Denton, a Canadian consultant preparing a report for APEC's telecommunications working group.

"We are talking a drop of more than 50 per cent in the next year because capacity is getting greater, the speed to market of installed cable is increasing and because of the technical advances in pumping photons down glass," Denton said.

Another problem for Telstra's campaign is that it seems to behave toward smaller Australian ISPs exactly as its larger US counterparts behave toward it.

That is, it charges many ISPs for the data they download from Telstra's backbone while not allowing credit for data uploads.

Telstra has, however, put offset arrangements in place with some of the larger Internet players, including OzEmail, Optus and, following intervention by the ACCC.

A Telstra spokesman said the domestic front and the international situation cannot be compared. However, the Internet Industry Association believes the same arguments apply and says Telstra should extend peering deals to small and medium ISPs here.

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

More about APECAsia-Pacific Economic CooperationAustralian Competition and Consumer CommissionInternet Industry AssociationOptusOzEmailTelstra Corporation

Show Comments