In a statement released by the Western Australia Internet Association (WAIA), the group said ISPs are "afraid of being driven out of the market by the Telstra's anti-competitive behaviour."
Charles Warner of Concept Networks said that his company has dropped from 60 to 70 new accounts per week down to around 10.
"Before February, we were growing at a rate of 10 to 15 percent every month. For the past three months, growth has been static," Warner said.
He added that some of the smaller ISPs are doing even worse, with one even losing 200 dial-up customers on a 1,500 user network. Warner charged Telstra with abusing its power of advertising to "cherry pick" the profitable, lower usage customers, which most ISPs use to subsidise their high usage customers.
"It's all about traffic management. We can offer 90 to 100 256K connections on a one megabit ATM because not everyone downloads at the same time. If all we get are heavy users, then we will be able to offer fewer connections on the same line, making our business unprofitable," Warner said.
WAIA spokesman Charlie Stephens said other ISPs are being forced to play "catch up" after Telstra's price reduction and that "Telstra compromised market integrity and continues to do so with its half-hearted wholesale offering, designed purely to relieve the pressure of the ACCC."
According to WAIA, Telstra is currently offering ISPs two wholesale pricing plans -- the protected plan and the growth plan.
In the protected plan, Telstra is giving wholesale providers a guaranteed discount to its retail prices. Stephens said that this plan "constricts ISPs into mirroring Telstra's plans in terms of download limits and speeds which reduces the diversity of ADSL offerings in the market place."
The growth plan, on the other hand, offers a reduction in Telstra's wholesale ADSL port costs but is not tied to retail pricing. Stephens said that this means "it may be rendered redundant by a future round of retail price reductions."
iiNet managing director Michael Malone suggested that the perfect solution would be for Telstra to allow ISPs to use the protected plan for light usage accounts and growth plan for high usage accounts.
"By putting in this artificial barrier which only allows us to use one or the other, Telstra is effectively asking us to choose whether we want to lose money on every account, or on just the light usage accounts," he said.
Malone also raised the issue on BigPond's zero set-up fee promo for retailers saying that the set-up fees were still charged to ISPs by Telstra wholesale.
"If Telstra really wants to stimulate ADSL growth, it should abolish the set-up fees across the board," Malone said. He added that his company has not been that much affected like the other ISPs and that they will soon be moving ADSL customers to their own network.
Telstra reduced its wholesale price following a competition notice served by the Australian Competition and Consumer Commission.