If you stopped 100 people as they emerged from your nearest train station and asked them to name a recent price war, my guess is that most of them would make reference to the cheap airfare campaigns waged by Jetstar and Virgin Blue.
But as the first volleys were being fired to determine who will control Australian air travel’s bargain basement, the initial skirmishes of a far more significant and bloody battle have taken place at a similar price point in the local broadband market.
Whatever your take on Telstra’s slashing of its entry-level broadband rates for retail customers, the move has certainly picked the market up by the collar and given it a good shake. It will take time for the dust to settle but two outcomes can already be predicted with some confidence: That broadband has now hit a price point capable of driving seriously accelerated adoption among consumers; and such rapidly shrinking margins will quickly reduce the number of ISPs able to remain competitive.
The reaction of the market has already been fascinating. Many ISPs made an immediate decision to take Telstra on and cut their own entry-level pricing. Dart scored an early goal by undercutting the BigPond price and Referral.com.au went even further, offering a broadband package for less than $20 per month. The immediate upshot of this call to arms from the ISP community is that broadband is now available for about the same price as some dial-up services. If anything is finally going to kickstart wider broadband adoption, surely this is it.
Not surprisingly, some ISPs have complained to the ACCC that Telstra is guilty of anti-competitive behaviour in selling retail broadband packages at a cheaper price than it offers to wholesale customers. The competition watchdog reacted by issuing a ‘play fair’ notice, warning Telstra that it should either scrap plans to introduce the aggressive new pricing or drop its retail charges accordingly. Telstra, like a school bully caught in the act, playfully ruffled the hair of ISPs all over the country and insisted it had always intended to reduce wholesale prices. And yet its wholesale division claimed it had no knowledge of plans to reduce the retail pricing and made no mention of intending to follow suit.
When wholesale price changes were announced they did nothing to diffuse the situation. The minimal reduction still leaves ISPs buying broadband from Telstra at a similar price to that the telco giant is offering direct to end-users — ISPs must then factor aggregated virtual circuit (AGVC), transmission, bandwidth, hardware, servers, support, sales costs and overheads into their packages. All the majority of ISPs are asking for is a level playing field and the ACCC, having stepped in, now needs to ensure Telstra provides it.
Whatever the outcome in the battle for broadband hearts and minds, those with the most to gain and least to lose are the companies offering related products and services. While the D-Links, NetComms and Netgears of this world all have preferred ISP partners, those allegiances can be changed accordingly and cheap broadband will be a winner no matter who is providing it. Companies making or selling gaming PCs, the console giants and any company with a vested interest in the home convergence market will also see their potential customer numbers soar.
These are interesting times and the reshaping of the Australian broadband market during coming months will be intriguing to watch. We have already seen some significant merger and acquisition action in this space during recent months but the new world order introduced by Telstra’s retail pricing seems sure to force more former rivals into collaboration. What does the broadband price war mean for your business?
Brian Corrigan is Editor of ARN. Reach him at email@example.com