ACCC threatens Telstra ADSL regulation

Yesterday the Australian Competition and Consumer Commission published an open letter stating that there might be a case for tighter regulation of Telstra's ADSL broadband services.

The move was prompted by complaints from telcos like Internode and iiNet, who said Telstra's retail division had made price cuts that its wholesale division didn't match, and that these cuts were causing a "price squeeze".

The ACCC has in the past said that "a compelling case has not been made for declaring and regulating third-party access to a wholesale xDSL service". However, yesterday that view changed.

The regulator's group general manager of its Communications division, Michael Cosgrave, wrote in the letter that the information currently available suggested that the complaints warranted investigation into whether the relative prices of Telstra's wholesale and retail ADSL services allowed other internet service providers to profitably compete with the giant telco.

In general, the ACCC said it was concerned about three areas:

• The apparent delays that occur between the release of new Telstra retail broadband pricing and the finalisation of negotiations around Telstra Wholesale pricing
• The ability of and incentive for Telstra to leverage its position as "sole supplier" to discourage the use of competitive infrastructure in CBD and metropolitan areas
• The level and structure of wholesale pricing compared with retail pricing

The regulator also noted that while there had been "aggressive deployment" of competitive ADSL infrastructure in metro areas, the roll-outs had been very limited in regional and rural areas.

"Market evidence indicates that expansion of the collective footprint of competitive DSLAM (DSL multiplexer) roll-outs is slowing, and the deployment of competing facilities in many regional areas remains unlikely," Cosgrave wrote.

For reasons such as this, the ACCC is interested in conducting an inquiry into the case for regulating Telstra's wholesale ADSL service.

Telstra said in a statement that the regulation of wholesale DSL services was "unnecessary".

"This situation creates uncertainty and risk for companies who want to invest in new services for customers," it said. "The real problem is not DSL, it is an ACCC pricing approach which advantages competitors serving city customers over those in rural Australia. Our preference, as always, is to deal with our wholesale customers on a commercial basis in what is a highly competitive market."

On the price squeeze issue, Telstra said that its competitors could provide customers with broadband using "a range of services from us or other providers", including the line-sharing services from Telstra's Wholesale division for just $2.50 a month.

"If you look at retail price levels healthy margins are available," it said.