Friday, March 20. 2009Why Is Telstra The Only Company In The World.....John Linton .......that doesn't "get" the Commerce For The Under Fives (101) principle of retail + wholesale = more revenue and more profit? What is it about the El Sol/McGaughie reign that has made Telstra pursue a policy of making every attempt possible to destroy it's wholesale customers rather than gratefully accept that they make even more money out of their monopoly by simply subtracting from their retail prices the costs a wholesaler eliminates from their cost of sale? What am I missing in my, acknowledged less than comprehensive understanding of commerce in Australia in the 21st century, that drives Telstra to make every effort to "increase its market share" of every aspect of communications via its unbelievably expensive retail processes rather than simply subtract its retail costs and allow its wholesale customers to do all that work and incur all that expense on its behalf? Now I know the simple answer is that "the government of the day" didn't enforce that scenario by selling off Telecom Australia in two 'tranches' (the base network separated from the sales and support functions) but that doesn't actually change anything. There are costs of selling to, and then supporting in their use, end customers that any bunny with basic Excel skills can easily determine and there is no doubt that Telstra knows those costs as well as any other commercial enterprise. So why add floors full of lawyers, the most expensive advertising budget in Australian communications and foreign cities full of call centres that deliver nothing but needless expense and do ABSOLUTELY NOTHING TO ADD A DOLLAR TO THE BOTTOM LINE? My simplistic understanding of wholesale pricing is you take the 'manufactured cost' of the base product/service, add the desired margin and then 'sell' it to either your retail or wholesale 'partners' at the same price and let them add their operating costs and profit margins and any 'value adds' they might wish to include to provide the service at an end user cost. This seems to work for every other commercial enterprise in the world, including all the monopolies, but it seems beyond Telstra's current management's abilities to grasp. What possible value is there to their shareholders, or Telstra itself, to carry the cost of the lawyers and law firms they have put in place if they ever had any intention of doing business lawfully? What possible value is there to their shareholders in spending hundreds of millions on advertising services that people will buy any way? What possible value to their shareholders is there in employing tens of thousands of call centre and accounting personnel when wholesale customers can do that at far lower costs? As far as I can see there is absolutely no value to anyone (shareholders, end users, Telstra itself) in continuing to pursue their current practices....but I must be wrong because Telstra is not only continuing to pursue their current practices but appears to be entrenching them further in every aspect of their operations). So maybe its me that just doesn't "get it"? Why does Telstra Wholesale charge Exetel 300% more each month for an ADSL1 8 mbps circuit than we buy an ADSL2 circuit for from any one of three other providers (who have to pay Telstra for exchange rental and line termination charges included in their price to us)? The only answer is - because if we want an ADSL1 circuit then they can, and do, charge whatever they like. They then offer the same 8 mbps circuit to a retail customer at less than they charge Exetel for it based on some 'special promotion'. This means they make LESS money from the identical service AND they incur the selling, administration and support costs on top of lower price they get for the service? Now, I defy ANYONE to make sense of that simple set of numbers. Even on the simple transaction of buying IP a different version of the same illogic applies. IP transit can be done out of Australia ia very few cables; the most heavily used being the Southern Cross cable owned by a consortium of three carriers of which Telstra isn't one - but Telstra is the largest buyer of SX bandwidth at the moment. So Telstra would buy this 'third party' product at a better price than anyone else and incurs no 'value added costs' if the want to re-sell a tiny part of what they buy to another party - such as Exetel. So you would assume that Telstra would dominate today's IP third party market just as they did from 1994 to around 2006. However that is no longer the case because the larger IP buyers have stopped buying from Telstra (some did this a decade or so ago) because it is so much cheaper to buy from, literally, ANY other carrier or even carrier reseller than it is from Telstra. So what is it that, even with a third party buy in/add no value/sell at a large profit product that Telstra (which has the lowest buy price either on either SX or on its own cable) feels compelled to sell this third party product (to which they add no value) at a minimum of 40% more than most other 'respectable' IP suppliers? There can be no possibility of saying it's a superior product - it simply is the same third party product offered by every other carrier/carrier reseller. It can only be the floors full of lawyers and the corporate sponsorships and the multitudes of overpaid managers etc, etc that add so much overhead to their asking price of even the simplest product that incurs none of these overheads. It's obvious to me, using the IP pricing disparity as an example that Australia will never have sensibly priced communications services for as long as Telstra has any monopoly on their provision - but then why have I wasted 20 minutes of my life stating the bleeding obvious? ....and why have you bothered to read it? Trackbacks
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Telstra have tried to justify the additional cost by citing their capacity on Sea-Me-We-3, allowing for better connectivity to Asia and Europe.
Of course, that would be a complete lie given Optus also have plenty of capacity on that cable. All the more reason to hope that Exetel goes down the path of acquiring a nice slice of bandwidth directly from SX. Comment (1)
why do Telstra do what they do, greed, nothing else I'm sure, these are decisions made by people that earn in a year what the average working person can't even make during their working life, these are people that are beyond reality and trapped in their own world of 'greed is good' don't expect sensible decisions while ever large corporates are run by these bandits
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It isn't even greed.......as I said, they sell at less retail than they do wholesale.....and incur all the expenses wholesale removes.
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OK I admit I skimmed the article, I was hoping for something, anything.
Telstra are out to make a buck, there high prices create opportunities for 3rd parties. If they wanted to run a monopoly they could undercut the competition. Telstra's trump card is still retail PSTN customer base. Comment (1)
Unfortunately John I think that being paid stupid sums of money does something to people. You can see it in any industry. The stupidest decisions come out of the highest paid. Yes sometimes there is a diamond of an idea, but you should get that all the time being paid diamond prices.
I think there are likely those at T that also just want to be able to say, "We have the most people so we MUST be the best. The best value, quality and quantity at what we do." In the next few years I think they will have more than a few wake up calls. But then I have been wrong so often before and they could just hire a bigger backhoe to dig the hole faster. Comment (1)
Exetel has no plans left I could sign up too.
since November 2008 - these price increases. BASE PLANS- 1500/256 $40 pm --- now $50 pm - 25% increase – some increase on GB’s but not usable for me. 8000/384 was $65 pm --- now $$75pm - 16% increase - some increase on GB’s but not usable for me. HSPA Plans- HSPA 10GB plan $57.50 -- now -- only 8GB / $55 per month my poor addled brain cant work out the increase but its allot. John , you keep preaching the lowest prices but you are increasing them at a very accelerated pace. I cant afford Exetel anymore – sad to say but true. Comments (2)
How can you not afford Exetel? When you currently pay $75.00 per month to Pacific Internet for significantly less included data? http://www.pacific.net.au/internet/broadband/express/
The plans you quoted are much less than you currently pay, and come with much more included data. Comments (2)
that was part of the greed I was referring to, maybe not always about the most profit, having the most customers also seems important to them, regardless of the cost to do that business rather than wholesaling it
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My contract with Pacific finishes in may and it was intention to return to Exetel after seeing for myself what ADSL2 was actually like.
But Exetel pricing has increased at a rate which I find hard to fathom. All the lower end plans for adsl just seem to keep rising and with that in mind, I had decided to go with the 10GB HSPA plan for $57-50 - now the reduced GB's per month for a minimal $ drop now move this plan out reach as 8GB is just not enough -- 10GB was going to be extremely tight but workable. By going to HSPA the idea is to use mobile phones and ditch Telstra's phoneline. I was talking to another Exetel user today who is still on the $65 8Mit plan, who due to all overtime being cut and forced leave being instigated at OneSteel they are looking to drop back to lower speeds and are having difficulty finding an Exetel plan of enough saving with approx 20GB's - thats all they need or want. We need some basic 20GB plans for 1500/256 Comments (2)
Hi Bill,
They should email their needs to james@exetel.com.au and i'll see what I can find for them. James Comments (2)
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