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. 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"
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
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
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
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
"Of the $9 million, approximately $7 million will be spent in
Malone said iiNet would keep putting its hardware into
Telstra's exchanges and to move away from reselling any of its
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
According to reports he added it was unlikely Telstra would be
able to keep its network to itself, but welcomed any approach by
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 firstname.lastname@example.org