Telstra's competitors concerned about Adam buy

Telstra's two biggest fixed-line competitors, Optus and iiNet, have raised concerns about the company's proposed takeover of Adelaide-based internet service provider (ISP) Adam Internet.

ZDNet today confirmed a report in The Australian that the two companies sent confidential correspondence to the Australian Competition and Consumer Commission (ACCC), questioning whether the takeover should go ahead.

iiNet's chief regulator officer Steve Dalby told ZDNet that Telstra plans to use the Adam acquisition to increase its market share in the low-price market, where BigPond does not currently compete.

"In the regions they've got 70 percent of the market, and overall they've got about 56 percent of the market. It is a worry, and what they're planning to utilise Adam Internet [for] is not to be more innovative or to offer new services, but to offer a cut-price offering to the price-sensitive end of the market," he said.

"It's just cut-price, el-cheapo offering. It's fine, it's rational, it's all legitimate, but they won't do it on their own brand; they're going to use the Adam brand. They don't want to lose the margins in their BigPond customer base."

He said that the question the ACCC needs to ask is how Telstra plans to fund Adam's cut-price internet offering.

"Is Adam going to have its marketing costs absorbed by the parent? Are they going to get sweetheart deals on backhaul? Will they get different port prices for wholesale ADSL?"

He said that Adam needs to operate on a level playing field with the rest of the telcos that are wholesaling through Telstra.

Adam Internet becoming a Jetstar-like cheap ISP option for Telstra will be the first real test of the structural separation undertaking (SSU), which was locked into place as part of Telstra's AU$11 billion deal for the National Broadband Network (NBN), the separation of the company's wholesale and retail businesses.

Optus would not comment on the takeover bid, but ZDNet understands that it has submitted correspondence to the ACCC on the matter.

Last week, the ACCC went back to Telstra and Adam for more information on the deal — rumoured to be worth AU$60 million — and set a formal proposed decision deadline of December 13, 2012.

At the same time, Telstra and its competitors are embroiled in a lengthy debate over setting the price that Telstra can charge for wholesale ADSL services. Dalby dismissed Telstra's claims that the company needs to increase prices in order to prevent congestion on its network as "rubbish."