Broadband prices under a Telstra-owned national fibre-to-the-node (FTTN) network could rise by up to 15 per cent, a report commissioned by the Competitive Carriers Coalition (CCC) — whose members include Macquarie Telecom, iiNet and TransACT — has concluded.
The report, authored by the Centre for International Economics (CIE) — an independent economic consultancy service — concludes that a Telstra-owned FTTN network would likely see a significant increase in consumer broadband prices of up to 15 per cent, and would impact negatively on the Australian economy as a whole.
The report also found that the 15 per cent increase would occur due to Telstra's desire to seek a "high return relative to many other investments in the Australian capital market", basing its findings on comments previously made to The Australian by Telstra CEO Sol Trujillo and head of public policy Phil Burgess, saying the telco would seek a 27 per cent return or "a return north of 18 per cent" respectively.
"I think that an 18% rate of return is a very privileged rate of return," said Barwise, telling ZDNet.com.au that it was a figure "normally associated with a very poor competitive environment".
"To be able to achieve its targeted return on equity of 18 per cent Telstra would have to extract additional revenue from the network users through higher prices. Higher prices in industries will be passed on to consumers in the form of higher prices for consumer goods and services, leading to a general increase in the level of prices," concluded the report's authors, Mayela Garcia and CIE director Kerry Barwise.
Barwise and Garcia also argued in the report that based on current estimates, the cost of Telstra building the network would also contribute to high prices, with Telstra CEO Sol Trujillo having suggested that the final cost of the network could be as high as AU$15 billion. The authors added a AU$15 billion Telstra build could eventually lead to a 0.35 per cent drop in GDP due to decreases in consumption and investment occasioned by the higher commercial and consumer costs of accessing the network.
"Most people would think that what's good for Telstra is good for Australia," said Barwise, "although there are a lot of shareholders who stand to benefit from this, what we've shown is that Australia will be in a less competitive position, leading to higher prices and higher inflation...a concern which more than offsets any potential benefit to [Telstra] shareholders," he said.
"The additional 15 per cent cost consumers would face under Telstra's FTTN model is equivalent to charging a private 'Telstra tax' on broadband services. There is no point building a new network if customers can't afford the service," said CCC executive director Forman in a statement.
"No responsible government could agree to Telstra's exorbitant terms for return on investment and price protection. The cost to the economy and to the ordinary Australian is too great," he said.
Telstra denied the report presented accurate results and accused its competitors of paying the independent group to produce embellished conclusions.
"This is a completely bogus report that has been bought and paid for by a bunch of competitors who want one thing only — to stop the building of Australia's national broadband network and keep their current cosy arrangements," Telstra wholesale director, Kate McKenzie, said in a statement.
"The report has no basis in fact. It is a dishonest distortion that is designed to do nothing but delay the process," she added.