Why we can't trust Telstra with FTTP

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.

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?