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ISPs draw swords to fight merger mania

ISPs draw swords to fight merger mania

The proposed $300 million merger between Telstra and OzEmail has Australian Internet service providers (ISPs) flocking to the ACCC in protest. Yet if this tactic fails, the future of the remaining 800 or so local ISPs looks bleak.

`We have requested that the ACCC investigate the competitive aspects of the merger,' said Kimberly Heitman, executive director and manager of Western Australian ISP iiNet.

He is supported by AAPT, which last week filed a complaint with the ACCC on the grounds of anti-competitive behaviour. `Until now, Telstra has had to follow the lower pricing and innovative products offered by OzEmail in order to remain competitive and if this deal is approved it will create a virtual monopoly player that would dominate the industry and limit choice and consumer benefit,' said Ron Nissen, AAPT's acting chief executive officer.

Concerns centre on the argument that the merged company will account for over half the market, resulting in `a real barrier for entry to new companies' and dictatorial powers in regards to service standards, features and price.

`This merger will mean there will be one tier-one player, daylight, then a few tier-three players,' said Heitman. `Say in a couple of years Telstra and OzEmail decide not to support Internet relay chat (IRC) or only do filtered feed because the Government is so narky on censorship at the moment?'Other ISPs voiced similar concerns and added the element of content to the debate. `A lot of the content will go to Telstra and OzEmail because they will have the most eyeballs. This isn't so much of a problem for a company that provides a lot of Internet and telecommunications services but for some of the smaller ISPs that rely on a single line of business, they will be forced to compete with the new company head on, on price alone,' said a spokesperson from an ISP who didn't wish to be named.

The companies also likely to first feel the impact, according to Heitman, are the narrow geographically focused ISPs. Companies such as iiNet that have a reasonably wide focus and a good subscriber base will be able to sustain their businesses by offering better services than the new monolithic company.

Yet Heitman expects that there will be a general `aggregation and possible consolidation' of the ISP industry in the next couple of years, creating `room for at least a dozen good players in niche markets. One can focus on wireless, another on cable and so on.'The issue of consolidation, as opposed to what the ISP spokesperson describes as `just two large ISPs coming together', could potentially be another thorn in the local ISP's side. `Telstra will definitely possess even more of an advantage due to its position as both a carrier and an ISP,' said Heitman, who believes it is also inevitable that media groups will want to create alliances with Internet companies.

`In the long run media groups will want to create alliances with Internet companies. But if we have one dominant ISP, that company will always be more attractive than any other and no other provider will ever have a chance with the big multimedia companies,' Heitman added.

The good news in this scenario for ISPs is that the Telstra and OzEmail deal, and the other mega merger of last week, the Time Warner and American Online (AOL) deal, have catapulted the Internet into the realm of the real and the profitable, shattering its image of science fiction technology and the prodigy full of potential.

`Time Warner and AOL's merger demonstrates that there has been a change in perception and that people see that ISPs are genuinely making money. The Internet is the powerhouse of the economy at the moment,' said Heitman.

Telstra is proposing to retain OzEmail as a stand-alone business and wholly owned subsidiary. It will have its own board and the OzEmail brand, whilst operations and its network will be operated within its management.


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