Why we can't trust Telstra with FTTP

Why we can't trust Telstra with FTTP

Summary: One of the strangest arguments against the NBN is that it's going to raise the price of broadband access. What those spouting this argument don't seem to realise is that next-generation access prices won't be any cheaper — and if Telstra has its way, it will make NBN Co's pricing look like loose change while killing VoIP, IPTV and "naked" services.

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One of the most persistent and bizarre assumptions about the NBN has been the idea that it is supposed to bring us faster, cheaper telecommunications services. The supposed high price of NBN services, which in reality doesn't seem set to be much more than what we're paying now, has been used as ammunition by opponents of NBN Co over and over again, and forms a key plank in Malcolm Turnbull's specious argument that the cost of broadband is the major impediment to its take-up.


Telstra's price creep shows it's ready to charge like a wounded bull where it can.
(Bull attacks matador image by
ChrisO, CC BY-SA 3.0)

What, then, will the NBN's foes make of the revelation this week that pricing for Telstra's new fibre-to-the-premise (FTTP) services in South Brisbane — which I have previously held up as a prime example of why nobody believes wireless can be a full replacement for fixed lines — is not only going to be high, but will force wholesale customers to bundle data services with overpriced voice lines customers don't want or need.

Telstra's proposed wholesale pricing was revealed by industry journal CommsDay and showed that Telstra has no compunction in pricing its FTTP wholesale services at rates far higher than its existing ADSL services. A service provider wanting to offer 8Mbps/384Kbps FTTP services would be paying Telstra as much as $28 per month; $35 per month for a 30Mbps/1Mbps service; and $50 per month for a 100Mbps/5Mbps service.

Compare that with NBN Co's proposed wholesale pricing, where $27 per month will get internet service providers (ISPs) a 25Mbps/5Mbps service, $34 per month will get a 50Mbps/20Mbps service, and a 100Mbps service costs just $38 per month with a 40Mbps backchannel and Telstra's pricing looks positively extortionate.

And then there's the little matter of the add-ons: Telstra will not sell FTTP wholesale services unless ISPs also agree to take a $27-a-month wholesale fixed-voice service. The Telstra wholesale service, unlike that from NBN Co, doesn't support IP multicast — which will stop ISPs from offering Telstra customers IPTV Foxtel rivals like FetchTV — and wholesale customers will also have to pay an Aggregated Virtual Circuit charge of around $60 to $70 per megabits per second.

With Telstra charging like a wounded bull for access to its FTTP services this pricing paints a scary picture of the future without the NBN.

CommsDay cites an industry estimate that this pricing model could add $30 to $40 per month on the retail price for an 8Mbps service, and probably even more for higher speed services.

With Telstra charging like a wounded bull for access to its FTTP services — and keen to kill off cut-rate "naked" broadband as well as rivals' VoIP and IPTV services in one fell swoop — this pricing paints a scary picture of the future without the NBN. Critics who have attacked the anticipated NBN prices as being too high will be simply flabbergasted at the market restructuring that Telstra's indicative FTTP pricing will impose.

This is Telstra's model for the future of Australian telecommunications. Just as it did in the past with its non-competitive broadband and mobile pricing, a Telstra left to its own devices would continue to let the copper network limp along, driving customers to despair and convincing them to part with their hard-earned just to get a decent internet connection if they're lucky enough to be in an area where they can get FTTP services.

Should the Coalition be elected in 2013, count on Telstra moving quickly to saturate high-population areas with comparable FTTP services — which will do wonders for average revenue per user (ARPU) but leave online users shrieking in despair as the company's fixed-line monopoly is reasserted at substantially higher prices.

This is, we are today told, already happening: Telstra has reportedly been raising wholesale rates in those exchanges that have been exempted from the ACCC's price regulation, causing consternation amongst ISPs that is so bad the competition regulator has been forced to wade into this messy issue once again.

A Telstra submission on the issue has argued that its price increases "reflect the real, competitive constraints that it faces" in the exchanges. Interestingly, Telstra also claims that "market evidence clearly shows that Telstra is unable to exert market power with respect to voice-only services".

Should the Coalition be elected in 2013, count on Telstra moving quickly to saturate high-population areas with comparable FTTP services.

This last claim is particularly interesting given Telstra's FTTP vision, in which it will reassert that market power by forcing all customers to take an expensive voice service whether they want it or not. Does this sound like a positive outcome to you? I certainly don't see NBN Co demanding wholesale customers take its voice services.

Telstra's pricing is already causing problems for companies like Internode, which has this week revamped its pricing in response to a Telstra "price squeeze" and is now, apparently, considering pulling out of rural areas where it's becoming untenable to rely on Telstra's wholesale DSL product. That's a big change in posture from November 2008, when Internode head Simon Hackett turned his back on the previous NBN tender and signed a massive ADSL2+ wholesale deal that gave it access to over 1400 exchanges around the country.

Guess that's what happens when you dance with the devil in the pale moonlight. As Internode and others have painfully learned, Telstra does this with all its prey; it just likes the sound of it.

For all the criticism over the NBN's supposed high pricing, Telstra's indicative pricing model makes two things very clear. First: there is a real cost associated with building last-mile networks and FTTP: whether rolled out by NBN Co or Telstra the resulting services are not necessarily going to be cheaper than today's ADSL services; and second: that while Telstra is ready to play its old anti-competitive tricks if it's given enough slack and incentive to build an FTTP local loop, NBN Co's plan remains the most price-competitive option going forward.

NBN Co has even said it may lower prices if its initial pricing is found to be too high; would you anticipate this kind of promise from Telstra? Of course not. And as details of our two possible FTTP futures continue to emerge — and remember that all our futures are based on fibre — it's ever clearer which option will actually raise prices the most.

What do you think? Does the NBN still seem so expensive? Is Telstra being outrageous, or just pricing FTTP as a premium product, as it should be?

Topics: Telcos, Broadband, CXO, Telstra, NBN

About

Australia’s first-world economy relies on first-rate IT and telecommunications innovation. David Braue, an award-winning IT journalist and former Macworld editor, covers its challenges, successes and lessons learned as it uses ICT to assert its leadership in the developing Asia-Pacific region – and strengthen its reputation on the world stage.

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Talkback

28 comments
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  • Its quite simple, NBN just has to recoup costs whereas Telstra have to recoup costs and add profit margin because each wholesale unit sold to a competitor is retail money they will not make. Even if Telstra is separated, whilst more fair for competitors it will result in more expensive broadband overall.
    xBeanie
    • The stated aim of the government is to sell off the NBN within 5 years of completion. Who is going to buy a multi-billion dollar company that isn't making a profit margin?
      mwil19-a34f7
      • There is a difference between choosing to make a profit margin, and not too...
        evilsync
    • Its quite simple, with a FTTN network we can offer between 100-12Mbps at 1/10th the price, or maybe 1/20th the price, if NBNCo balloons to 60-80Bn which is likely...

      the cost of broadband will then drop to around 20-40$ per month, unlimited speed and unlimited speed, based on how far you are from the node.

      Thats a win for everyone, and an economy of scale , not all this BS about NBNCo , fake business cases, no cost benefit analysis, and this thing called Telstra monopoly and compensation.

      We get max. benefit for consumers and the economy
      ADFSAFSAF
      • The tired old claim that a FTTN solution of comparable reach can be swapped in for - how do you put it - "1/10th the price, or maybe 1/20th the price". Or maybe another number easily plucked out of the air, perhaps?

        Aside from being bogus on the face of it and untethered to actual costings, this approach treats the copper as though it is simply free for use, because it is already in the ground. Which is a lovely thought; but how on earth do you deal with the structural monopoly that Telstra currently enjoys through its ownership of the copper?

        The only real solution is to buy the copper outright - and estimates for this range around the $20 billion mark. Not exactly 1/10th the price of FTTH - and all you wind up with is a poor-quality, decaying asset with limited lifespan. And you haven't even built one "node" yet.

        And one more thing. Has anyone seen one of these "nodes" in the wild? From accounts, they have to be a fairly hefty, unsightly thing. Not exactly a winner for the neighbourhood beautification scheme.
        Gwyntaglaw
      • "if NBNCo balloons to 60-80Bn which is likely."

        It can balloon to $800 billion, it makes no difference, the government is only providing $27 billion.


        "the cost of broadband will then drop to around 20-40$ per month, unlimited speed and unlimited speed, based on how far you are from the node."

        What?
        Hubert Cumberdale
        • If you actually understand the technology and construction and equipment cost of these technologies you are talking about here , there is one very big difference between FTTN and FTTP proposals.

          The FTTN is an UPGRADE, whereas FTTP in all accounts MUST be a complete overhaul.


          While with the upgrade the business and capital costs can be pre determined and are sound, it makes it a risk free investment, yes it is actually RISK FREE. And it will generate immediate returns in producitivity and service improvements.

          FTTP is a RISK based investment. Which is why there should be a proper cost-benefit analysis and a proper inquiru into it. In addition, an unbiased and valid business case study.

          FTTP is by all measures a risky investment, I doubt that anyone who is not self deluding or totally ignorant would disagree.
          ADFSAFSAF
          • Add the words deluding and arrogant to try to legitimise your BS...LOL...

            My friend (and I say that with complete insincerity).. you have NFI, take up sewing and leave this to the men...!
            Rizz-cd230
          • "The FTTN is an UPGRADE, whereas FTTP in all accounts MUST be a complete overhaul."

            Wow, that certainly is some amazing insight but it doesn’t change the fact that you still have to negotiate with Telstra and play them a hefty price regardless and you expect the taxpayers to pay for this while Telstra takes that very money and rolls out a FTTH network making that investment worthless? Brilliant just brilliant.




            "In addition, an unbiased and valid business case study."

            The coalition said they would oppose it regardless of the outcome.




            "it makes it a risk free investment, yes it is actually RISK FREE."

            False. It is far more riskier.




            "And it will generate immediate returns in producitivity and service improvements."

            A FTTH network achieves this and has the advantage of being future proof.
            Hubert Cumberdale
  • The current NBN plans do not seem expensive or unreasonable to me, currently I pay $99 for a 1tb plan, if for example I got a NBN plan from iiNet and paid the same price I would be getting 25mbps rather than the pathetic ~13mbps I am currently getting plus 5mbps upload which is at least 5x more than what I get now (and yes I realise their plans are currently 100/40)

    I remember on another website someone was arguing that by 2028 50% of people would be "stuck" on 12/1mbps plans with the NBN. I doubt that very much, assuming the NBN is completed as scheduled 100/40 connections will become the standard by then if not sooner.
    Hubert Cumberdale
  • Never let it be said that Telstra would ever stop being the worst example of a Corporation Australia has yet seen.

    Thanks for nothing, Howard.
    GoddyofAus
    • Kinda hard to choose between Telstra, almost all the banks, a certain news organisation, certain retailers that complain about online/overseas shopping wreaking their over-priced business models....hell, the list just goes on and on and on.

      Most Australian business are just a just a pack of greedy mofos and I no longer have faith that a "free market" is the best way for a society to get value. When it comes to Australia, I feel pretty certain the NBN will be a much better proposition for us (Australian society as a whole) than anything the "corps" would come up with.
      Tinman_au
  • Internode is only interested in profits, and why it always complains when other isps are lower .
    They blame others and not themselves and will use the accc as much as they can
    Alain-615ff
    • I'm a bit skeptical of any claims in the form "Company X is only interested in profits".

      Incorporated entities are usually divided into "for profit" and "not for profit". Complaining that a corporation of the first type is not of the second type, without further explanation about why that should be so, is not very helpful.

      Or to look at it another way, to accuse a for-profit company of caring about nothing but profits, is a restatement of the argument against altruism. That's where it is claimed that nothing we as humans do is truly altruistic, because we stand to benefit from even our own altruism (we feel good about ourselves, or we gain status).

      Companies like Internode provide jobs, they offer services at a fair rate (according to the rules of the market), they conduct themselves in an ethical manner. That all seems fair enough. If they also performed acts of public charity or sponsorship, as some big companies do, then it could be argued (as with altruism) that such acts are really only based in self-interest (ie profit) because the company stands to benefit from having its name attached to good causes.

      In the end, you can't win. If it was generally agreed that ISPs should be not-for-profit (for whatever reason), then it could be argued that a for-profit company was undesirable for holding such "selfish" motives. However, I see no basis for that, as the ISP market clearly benefits from competition between for-profit companies.
      Gwyntaglaw
  • David,

    You do realise that NBN Co are also forcing you to bundle ? You cannot get a standalone voice plan. You also do realise that the $27 does not include the NBN Co AVC costs as well as the backhaul costs to get from the POI to the ISPs POP - so will be in the region of $60 - $70 assuming the ISP does not want to make a profit ?

    Most of all you do realise that there are a lot of us out there that want to provide these services as well, and can do so at a fraction of the cost of NBN Co but have now been stopped by so called cherry picking legislation or put out of work having to compete against our own taxes. Telstra isn't the only alternative game in town !.

    I think however the most telling issue is that Telstra are not allowed to offer its wireless services as a fixed service as NBN Co are worried it will undercut NBN Co profits. It is a scary though when wireless is regarded as a competitively priced service to fixed broadband.
    Rossyduck
    • "Telstra are not allowed to offer its wireless services as a fixed service" ????

      That's a bit like complaining that inflatable jumping castle manufacturers are not allowed to offer their products as solutions to a housing shortage.
      Gwyntaglaw
    • Again with the Wireless crap. Has it not been proven that Wireless CANNOT achieve the same speeds as the NBN fibre? Telstra wouldn't have even bothered advertising their wireless because THEY KNOW THIS. Why else would they have agreed to NBNco's terms?
      GoddyofAus
      • Another trap for the starry eyed. The sad thing is 80% of NBN Co's coverage will be wireless. It is only the areas with establsihed customer bases where there are customers that can be transferred that are getting fibre.

        The wireless that TElstra have been stopped from offering is mobile wireless. Apparently this will be competitive with RSP rates. Given the pricing starting to be offered to the market for a piddly 12/1 is above $100 can see why they regard mobile wireless as competitive - and the name of the game is to stamp out any competition.
        Rossyduck
        • Rossyduck, it's hard to take anything you say seriously when you persist with the statement "80% of NBN Co's coverage will be wireless". What on earth do you mean by this? The 80% of landmass that includes the Simpson Desert, the Nullarbor, what? What relevance does this have to anything under discussion?
          Gwyntaglaw
    • Another gem: "You do realise that NBN Co are also forcing you to bundle ? You cannot get a standalone voice plan."

      Wrong. Just wrong. Standalone voice plans are explicitly provided for in the business plan, for people who only have basic voice service now and don't want broadband.
      Gwyntaglaw