Banking on the ACCC

commentary If second-tier telecommunications companies like iiNet and Macquarie Telecom were punters at a racetrack, they would now be sombrely looking at the tickets they bought a month ago at formerly great odds. The pair are representative of a number of Australian telcos whose millions of dollars of investment in building network infrastructure in recent years is now at risk as Telstra plans dramatic changes in its own network.

commentary If second-tier telecommunications companies like iiNet and Macquarie Telecom were punters at a racetrack, they would now be sombrely looking at the tickets they bought a month ago at formerly great odds.

Renai LeMay, ZDNet Australia
The pair are representative of a number of Australian telcos whose millions of dollars of investment in building network infrastructure in recent years is now at risk as Telstra plans dramatic changes in its own network.

Corporate- and government-focused Macquarie is spending around $9 million on building different types of network infrastructure in metropolitan areas as part of its "Metro Access Network" platform.

In turn, iiNet is in the middle of its well-publicised rollout of ADSL hardware into Telstra's telephone exchanges. The latest wave of the rollout, the telco said in March, is targeting locations on the nation's east coast at a price of $9.6 million.

When these infrastructure rollouts were initially announced, they looked like sure winners due to their ability to eventually generate higher profit margins than could be achieved by reselling wholesale services provided by larger carriers like Telstra and Optus. They were also expected to increase competition and choice in the market.

But the game has dramatically changed in recent weeks.

Telstra's recently announced plans to extend its fibre-optic network from its telephone exchanges out to neighbourhood street-side "nodes" with the aim of providing higher-speed ADSL2+ access have potentially thrown a spanner in the works.

The rollout could stop iiNet and Macquarie's customers from being able to access the carriers' DSL hardware in Telstra's exchanges.

In addition, to effectively compete with Telstra in the way that they currently are, the carriers would not only need to put their own hardware into Telstra's exchanges but also in those street-side nodes.

This would cost amounts an order of magnitude greater than what is currently being spent, and it's not likely such smaller players have pockets as deep as Telstra's.

The alternative is to buy wholesale services from Telstra -- but the carrier has publicly stated it'll only go ahead with its plans if it can keep its network to itself.

iiNet and Macquarie are not alone -- other well-known competitors like Optus, Internode, Adam Internet, Amcom and Netspace are in the same boat, as well as business-focused Powertel, NEC NEXTEP and others.

Both iiNet and Macquarie have chosen to respond to Telstra's gambit by banking on the Australian Competition and Consumer Commission to step in.

iiNet's managing director Michael Malone told shareholders at his company's AGM yesterday that he believed it was "highly unlikely" that the regulator would allow Telstra to either deny rivals access to its network, or to cut off iiNet's customers from its ADSL infrastructure.

The involvement of the Australian competition regulator was "critical" if a competitive telecommunications environment was to be maintained, he said.

Falling in behind iiNet, Macquarie's chief executive David Tudehope told his own shareholders his company supported the ACCC's "efforts to promote fair competition in the Australian telecomms sector", particularly in its recent decisions on the cost of termination mobile phone calls and the cost of access to Telstra's copper network.

However the real measure of what both companies believe is where they're putting their money -- and both recommitted to rolling out infrastructure despite Telstra's plans.

"Macquarie Telecom will complete the rollout of the Metro Access Network in financial year 2006, and expects the total capital investment to be approximately $9 million," said Macquarie's Tudehope.

"Of the $9 million, approximately $7 million will be spent in FY 2006."

Malone said iiNet would keep putting its hardware into Telstra's exchanges and to move away from reselling any of its services.

In addition, none of the other telcos in the same boat as iiNet and Macquarie have given any indication they will halt their infrastructure plans.

Ultimately of course, nobody except the regulator can say what its intentions are -- but from indications on the weekend it looks like Telstra's competitors might have placed their money on the right horse after all.

"To date, we have never had an approach by Telstra for any form of regulatory certainty ... as to its future investment plans," ACCC chairman Graeme Samuel told a business program on Channel Nine.

According to reports he added it was unlikely Telstra would be able to keep its network to itself, but welcomed any approach by the telco.

What do you think -- will smaller players like iiNet and Macquarie Telecom be able to stare Telstra down, or does the giant have the upper hand? Send your thoughts to renai.lemay@zdnet.com.au

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