iiNet disappointed with Telstra wholesale ruling

Australia's third-largest internet service provider, iiNet has said that the wholesale DSL prices are effectively triple the cost for Telstra to offer the service.

The Australian Competition and Consumer Commission's (ACCC) draft decision to price wholesale ADSL in Australia based on the cost that Telstra has estimated it incurs to offer the service to retailers, has been labelled as disappointing by iiNet.

Wholesale ADSL is generally used by telcos in areas where Telstra's retail competitors, such as iiNet, Internode, and Optus, don't have their own digital subscriber line access multiplexer (DSLAM) infrastructure, and are therefore required to wholesale the entire broadband service from Telstra. In these areas, commonly referred to as "off-net" areas, Telstra has been under fire for charging wholesalers more than it charges retail customers through BigPond.

The ACCC yesterday said that it had come to the decision that metro port pricing should come down to AU$24.56 per month, while regional port pricing should drop to AU$29.81 per month, and aggregating virtual circuit cost would rise to AU$36.08 per Mbps.

The watchdog said that it determined the price based on the cost for Telstra to offer the service to other telcos, taking into account the cost of running and maintaining the network. The price uses the same framework to estimate prices for the other declared fixed-line services it offers over its copper network.

"Using the same pricing approach ensures consistency in the way prices have been set for services that are provided using many of the same infrastructure assets," the ACCC said.

But the move has come under fire from one of Telstra's biggest wholesale ADSL customers, iiNet, which as of December 2012, had 280,000 off-net customers. iiNet's chief regulatory officer Steve Dalby said that the efficient wholesale price was more than what it costs Telstra to offer it.

"It's disappointing because the ACCC is of the opinion that an 'efficient' wholesale price (for a DSL port) is almost triple the cost of what it actually takes to provide," he said.

Dalby also criticised the ACCC for refusing to unbundle line rental from the wholesale DSL product, which would have brought Naked DSL services to regional Australia.

"It's disappointing because the ACCC thinks that its a good idea that customers should be forced to buy services they don't want (phone lines), when all they want is broadband," he said.

In the ACCC's decision, the regulator said that much of the price for the port was offset by compensation gained in the line rental charge. Dalby said the decision will mean, contrary to the ACCC's claims, that competition will suffer in regional areas.

"It's disappointing that other Telstra competitors like Optus and TPG will continue to avoid servicing regional broadband markets where there is no incentive to do so," he said.

The decision to tie in the wholesale price into the cost for the infrastructure is concerning to Optus, because as Australia shifts onto the National Broadband Network (NBN), this could potentially leave it open to raising prices as the infrastructure costs more than originally expected.

"Optus is still reviewing the details of today's decision," David Epstein, vice president of Optus Corporate and Regulatory Affairs said. "Our initial view is that it appears inconsistent with recent statements on NBN pricing principles."

Commonwealth Bank analyst Nathan Burley said that while certainty of the price may spur competition in regional areas to secure scale ahead of the NBN rollout, it is more likely that no change will happen now as a result of the ACCC's decision.

"Major changes to status quo, in our view, are now unlikely," he said.