Friday, October 22. 2010Competition Only Suits Some Competitors Some Of The TimeJohn Linton I read this earlier this morning: http://www.zdnet.com.au/isps-prep-for-accc-telstra-adsl-war-339306765.htm and was struck by two aspects of the standard whining from Internode and iinet and the self righteous posturing of Dodo. All these companies (and, of course including all other ISPs which of course includes Exetel) only exist because Telstra was forced to wholesale ADSL1 services and then chose to sell the same services at sky high prices for as long as possible which allowed many of those ISPs to make very easy money for over seven years. They made so much money they thought they were carriers and used some of the profits they made to 'bite the hand that fed them' and to install their own versions of the Telstra infrastructures in Telstra's exchanges and stop buying from Telstra and 'use their own infrastructures' - in other words set themselves up as a direct competitor to Telstra having used all of Telstra's investments to put themselves in that position. This worked relatively well for a while until Telstra decided to compete more sensibly by doing exactly what these whiners had done - set their prices lower than other ISPs operating from the same exchanges and provide ADSL2 in 800 or so exchanges that all other competitors had not put their own equipment in. Does this sound unreasonable to you? I mean, is it unreasonable that one ADSL2 provider should not compete with other ADSL2 providers on whatever terms they choose to adopt? The reason that the ACCC didn't "declare" ADSL2 services was for this very reason - that any ISP could install ADSL2 DSLAMs in any exchange they wished to do so (and many already had with a bonus $2.50 pm line from local users to the exchange) and use any provider they wished to run back hauls from those exchanges. The result, from Optus on down, was that those ISPs who chose this path confined their installations to the profitable exchanges and, unlike Telstra's commitments under its USO, ignored the rest of the country. Now they whine to the ACCC that Telstra has an unreasonable advantage and they want their sheltered workshop arrangements extended so they can simply use Telstra's investments for their own benefit - or that's how it looks to me. I don't seem to see any repeat of the previous boasts that they were responsible for 'driving down ADSL prices' because of their superior efficiencies and superior service - apparently they aren't superior in any way now but are actually inferior - at least in terms of price per month and activation cost and low cost other services. Do they want competition or not? Apparently not. I was also amused to see Dodo's comments praising their new best friend - Telstra. Nothing wrong with the 'sentiment' but a little obsequious I would have thought. Dodo, like TPG and, to a much lesser extent Exetel have all, apparently, recently benefited from Telstra's slightly changed attitudes towards their wholesale customers. TPG, which has a larger investment in ADSL2 DSLAMs and back hauls than either iinet or Internode has simply recognised the reality of the current Telstra situation and 'done a deal' with Telstra to sell their ADSL1 and ADSL2 services in the exchanges in which they have no presence. They have been able to sell those services at lower costs than Telstra offers the same services (something that iinet and Internode are apparently unable to do) therefore putting in place the competition that Internode and iinet do not seem to be able to do. In a lesser way Dodo have done the same. The residential ADSL marketplaces ARE a dog eat dog mess at the moment but if anyone is to blame for that it's the ISPs that thought a few years of umbrella pricing made them carriers and they 'poked the sleeping bear with a stick' one too many times....and got the predictable response. The reality has yet to play out but the next 12 months are unlikely to get any easier and almost certainly will get even tougher. I don't like what I see and while I am sure the whiners have much stronger balance sheets than Exetel does and have far larger customer bases I don't think whining to the ACCC will be of much use in addressing the ever bloodier 'bath' this industry has become - at least in terms of residential market places. Copyright © Exetel Pty Ltd 2010 Trackbacks
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It is not at all clear to me that size of customer base is an advantage in a bloodbath.
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John,
Your hyperlink gives a 404 error, you need to remove the %20 from the end of the link. A very blunt post IMO but it hits the nail on the head to a degree, iiNet and Internode have cherry picked profitable exchanges and I am getting a little over Simon Hackett's grandstanding with Telstra, he can be more competitive but that would mean either a reduction in profitable margins or alternatively less of an investment into infrastructure (They certainly have a fantastic international network). Comment (1)
I agree with you on the state of ADSL competition and the freeloading of ISP such as iinet and Internode but I feel the ACCC will side against Telstra again.
They have done everything they can to crush Telstra for doing what the NBN will soon lift to an art form with their legislated monopoly. Whilst the ACCC are independant I feel there is a lot of nudge nudge wink wink communication from the Govt in their rulings, Comment (1)
This situation is what you get when you introduce competition to a market that has cross-subsidy. There is no way you can convince me that the cost of providing ADSL (1 or 2) to someone in Broken Hill or Alice Springs is the same as the cost of providing it in suburban Sydney. The problem is competition undermines cross-subsidy because it will invariably cherry pick and undermine the cross-subsidy.
I have no sympathy for Internode, iiNet or any other ISP that has put in their own DSLAMs. They've cherry picked. Mostly the places they want Telstra to wholesale to them are the more expensive areas to provide ADSL connections - though there are probably some where it is technically impossible. But largely they have brought this situation on themselves. So tough luck. I hope the ACCC will keep their hands off. As an aside, another thing I hate about NBN2 is the cross subsidy. It is a hidden tax. Comments (2)
The strength of a balance sheet is a clear advantage.
The size of a customer base could be an advantage but may well not be. Comments (2)
Slice it any way you want, Telstra is, on the whole, a monopoly provider of product. That means that the Trade Practices Act comes into play on this basis and requires Telstra to compete fairly to allow competitors to offer like for like products (at least) and actually compete -- reasonably.
I find it absolutely disgusting that Telstra can sell to the average Joe Blow cheaper on a single connection than they are prepared to sell to a wholesale customer with thousands of connections -- heck even hundreds of connections should get you a "fair" deal. Without action by ACCC (which may not be useful), Telstra gets to enjoy increasing market share with offers that "competitors" cannot match -- don't forget that wholesale customers are customers too. As I've said before, but it's no longer an option, I wish Exetel had gotten on board with it's own DSLAMs. Back haul has always been (from my understanding), the blocker for ISPs to put equipment into rural and remote locations. Some ISPs get around this by providing their own back haul links (from their own communities to the big smoke), but it isn't going to work for any location. Comments (2)
Telstra are not "on the whole, a monopoly provider of product". The majority of Australians have a choice - even more if you consider the product to be "broadband" rather than "ADSL". Just on a quick search for figures Telstra has 2.2 DSL million customers (http://www.commsday.com/commsday/?p=1384) out of 9.6 million internet subscribers (http://www.abs.gov.au/ausstats/abs@.nsf/mf/8153.0) of which
4.2 Million are DSL customers. So Telstra DSL only has around 50% of all DSL customers or 22% of all internet connections. That is not a monopoly. It has a monopoly on the copper, but that is already regulated. Comments (2)
For those providing services via Telstra Wholesale, it IS a monopoly in many locations. The ISP pays for the port and then pays TW..... only when alternative equipment is available is it not traversing Telstra network. So, just because an end user service might not be Telstra, the percentages of end user services using Telstra infrastructure are far greater than the ABS figures suggest and that is not just the copper....
Comments (2)
I'm not sure how fantastic Internode's international network might look on paper but after using them for 3 months recently during a house move I can tell you that my experience was that their network is no better than any other network I have used, nothing impressive it all
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