Competition watchdog delays Telstra-Adam decision

The Australian Competition and Consumer Commission (ACCC) has flagged that the Telstra takeover of Adam Internet, to turn it into a Jetstar-like budget internet service provider (ISP), could lessen competition in the telecommunications industry.

Telstra, which signed a deal to pick up Adam Internet in October for a rumoured AU$50 million, will turn the Adelaide-based ISP into a national budget broadband company that will target the low-cost sector of the market where BigPond cannot compete. However, the company first needs the approval of the competition regulator.

Telstra's competitors, including iiNet, Macquarie Telecom, Vodafone, and Optus, all raised concerns with the regulator that because Telstra is the wholesale owner of the fixed copper network in Australia, it would offer a better price to Adam than it does to its retail competitors.

The ACCC was due to make its decision on the deal today, but this morning delayed the decision until February 7, 2013, giving the industry a chance to comment on several issues surrounding the deal.

ACCC chairman Rod Sims said that the ACCC has come to the view that the takeover would result in a substantial lessening of competition in the fixed voice and broadband retail market.

"This is because Telstra would have the ability and incentive to use its market power in wholesale markets to favour the Adam Internet business over its other wholesale customers, which is likely to foreclose competition in the relevant downstream retail markets," he said.

The ACCC said that these concerns were not addressed in the Structural Separation Undertaking (SSU) that came as part of the deal between Telstra and the National Broadband Network (NBN), because the SSU was created prior to the announcement of the Adam deal.

The acquisition of Adam would also damage the competition in South Australia, the ACCC said, because Telstra's market share would increase from 40 percent to 45 percent up to 55 percent to 60 percent. As Adam Internet owns datacentres in South Australia, competition in this sector would also be potentially lessened as a result of the deal.