UPDATED: ISPs are calling for the ACCC to investigate Telstra’s latest cut-price ADSL broadband product offering, pointing out the $29.95 retail price tag is in fact higher than the cost of porting a customer on the telco’s wholesale network.
This call follows Telstra's announcment that it would offer its retail BigPond customers new entry-level broadband plans across both its ADSL and cable services from the end of February for just $29.95.
The plans, which are available on a 12-month contract, include 200MB of downloads a month and are based on 256Kbps/64Kbps access speeds.
Although the new plans look like a win for consumers, ISPs competing against the telco giant are upset, saying the retail pricing undercuts the telco’s broadband wholesale charges per user.
Commenting on Telstra’s price cut to ARN, iiNet managing director, Michael Malone, said the cost of a wholesale ADSL port (also referred to as ‘end-user access fees’) from Telstra equated to about $30 per user.
“That excludes all other costs, such as aggregated virtual circuit (AGVC), transmission, bandwidth, hardware, servers, support, sales costs and overheads,” he said.
For example, ISPs providing an ADSL service on the Telstra network pay a fixed cost per month for each user port which varies, depending on the access speed.
“So for metro users, a 256K port costs more than $30, a 512K port even more, and a 1.5M more again,” he said.
In addition, ISPs using the Telstra wholesale network must also pay for the link between Telstra and their own network (the AGVC), which is dependent on the aggregated local data from customers in each state.
“This is simply for the data from the customer’s computer through the copper to our point of presence (POP),” Malone said.
Both of these prices are determined by Telstra Wholesale.
The ISP then also pays to maintain its own POP, including hardware and servers. Finally, ISPs pay to gain access to the Internet in the rest of the world.
“We pay for the bandwidth from the rest of the world to us, on a variable basis,” Malone said.
Although Malone was reluctant to comment on the exact cost per ADSL user, Internode managing director, Simon Hackett, said the $29.95 price was about $15 less than what Telstra wholesale customers could do per user – even when operating on a zero profit margin.
“Matching that $29.95 per month service would result in a minimum loss to Internode of $15 per month per customer to deliver that base service,” he said.
Malone said an investigation should be undertaken by the ACCC into the new pricing plans, comparing the telco’s latest actions to its anti-competitive behaviour following the initial launch of ADSL services in Australia in 1999.
“This move winds the clock back four years … at the time, they [Telstra] sewed up some 90 per cent of the ADSL market," he said. "In February 2001, the ACCC slapped a competition notice on them and forced Telstra to fix this. The market exploded afterwards.”
Nevertheless, Malone agreed that the $29.95 price represented a “sweet point” in the broadband market.
“If ADSL is available broadly at this price, it will open the market up hugely," he said. "So I don't believe Telstra should have to increase their prices.
“What I want is a substantial slashing of the wholesale rates. That way the whole market price point drops to around that $30 point and we can all compete and innovate.”
Western Australia-based Internet provider, Datafast, is also a customer of Telstra Wholesale.
Datafast CEO, Simon Ehrenfeld, agreed the BigPond retail pricing was contentious.
He said there had been a flurry of complaints made to the ACCC Monday regarding the new retail pricing from Telstra.
While Telstra Wholesale was yet to release new pricing for its customers, the telco had allegedly strung together an urgent meeting in Melbourne on Monday to discuss the latest retail price points, Ehrenfeld said.
“Some action will have to happen,” he said.
A spokesperson for the ACCC said the watchdog would be looking into the latest broadband pricing from Telstra to see whether there were any competition concerns.
But Telstra spokesperson Rod Bruem said the telco rejects any deriding claims that its pricing arrangements are anti-competitive.
“We believe strongly that they are competitive,” he said.
Bruem said although Telstra is talking to customers about wholesale prices, it would be wrong to assume such discussions will result in across the board price reductions.
“What we’re saying is there is a major new player in the market. This has intensified competition, which is a benefit for consumers. The market has to adjust. But it is wrong to assume that this means automatic cuts in wholesale pricing,” he said.
Bruem said Telstra had in fact discussed the $29.95 price point with the ACCC before its public announcement last week and conducted its own “imputation testing” to ensure the pricing was fair.
In addition, “we’re always willing to speak to wholesale customers about pricing on an individual basis,” he said.
The costs of accessing the wholesale broadband network depend on the individual customer’s contract, he said.
Commenting on the ACCC’s reaction to the new retail price and subsequent wholesale complaints, Bruem outlined three ways the pricing changes could be taken by the industry: either the ACCC will find it is happy with pricing as it is, or there could be some adjustments required by the ACCC to Telstra’s wholesale or retail broadband price points.
He added providers losing money on some products “doesn’t necessarily make it wrong or illegal, or that it requires regulatory intervention”.
In Telstra’s case, some products have negative or no profit margins, while others may have positive margins, he said.
New plans a potential danger to consumers
While debate on the new retail pricing has focused on the impact of the cuts to Telstra’s ISP competitors, Internode’s Hackett said the 200MB download limit imposed on the new plans could also present a danger to consumers.
“On broadband, you can download 200MB in 14 minutes, even at 256Kbps,” he said. “On 10MB cable it takes only three minutes of full-speed downloading. After that it will cost you $9 per minute, or in other words, $540 per hour.
“If you accidentally download something big, the bill will clock up at a truly frightening speed.”