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Telstra squeeze doubled TPG churn

TPG has called for the competition watchdog to regulate wholesale ADSL, claiming that the customers it lost when Telstra jacked up its wholesale DSL prices had overwhelmingly jumped to Telstra as a result.
Written by Josh Taylor, Contributor

TPG has called for the competition watchdog to regulate wholesale ADSL, claiming that the customers it lost when Telstra jacked up its wholesale DSL prices had overwhelmingly jumped to Telstra as a result.

In a submission to the Australian Competition and Consumer Commission's (ACCC) inquiry on whether to regulate the wholesale ADSL market, TPG said that Telstra had brought about a "technical barrier" to competition by using pair gains and remote-integrated multiplexers in suburbs and regional and rural Australia, meaning that rival telcos could not install their own DSLAM equipment and faced wholesaling through Telstra directly at a much higher cost.

The company noted that between April and September 2010, when Telstra began raising prices for wholesale DSL in June, the churn of customers from TPG to Telstra rose from 35.04 per cent to 72.55 per cent.

By securing the highest number of customers through the price squeeze, Telstra is gearing up to increase its profits on the National Broadband Network (NBN), TPG stated.

"TPG believes that Telstra's strategy with the price squeeze is to secure increased market share in the regions which will have the result, post-NBN, of increasing Telstra's profits."

Armed with the $11 billion from its deal with NBN Co, Telstra would also seek to lock customers into 24-month contracts on the NBN, TPG said.

The telco said that it is unlikely to invest in more DSLAM infrastructure ahead of the NBN roll-out, but added that should wholesale ADSL be regulated, TPG would be able to offer more competitive services in those areas.

In its submission, Optus said that while telcos would invest in more DSLAMs where it is efficient, it is unlikely that there would be widespread DSLAM investment. This only increases the importance of regulating the wholesale ADSL market, Optus said.

"DSLAM investment costs are significant, and the impending NBN deployment reduces the expected return from a DSLAM investment since it reduces the time available to earn revenue and recoup the investment costs."

Law firm Herbert Geer, on behalf of iiNet, Internode, TransACT, Primus and Adam Internet, said that Telstra had used wholesale ADSL pricing to "attack" its facilities-based competitors, which were forced to wholesale in regional Australia.

"Telstra's wholesale-pricing structure, which attacks competitors that own infrastructure in metro and CBD-exchange service areas, has in regional and rural markets resulted in Telstra's infrastructure-based competitors either providing retail ADSL services over Telstra's WDSL network at a loss, or having retail rates higher than Telstra Retail, and in effect itself pricing themselves out of the market."

In arguing against regulation for wholesale ADSL, Telstra argued that it would have a profound impact on facilities-based competition, because telcos wouldn't install more DSLAMs.

"The broadband market is already highly competitive. There is substantial facilities-based competition, particularly in CBD and metropolitan areas," Telstra said in its submission. "Declaration of the wholesale ADSL service would only serve to limit the incentives for access seekers to invest in DSLAMs and other alternative infrastructure."

The company also strongly rejected suggestions that it is anti-competitive in wholesale DSL pricing.

"[C]ustomers negotiate wholesale ADSL prices with Telstra in the context of a competitive market, and the relative efficiency of the wholesale customer pursuing alternative-supply opportunities. This is a competitive market at work. It is both commercially rational and economically efficient."

AAPT welcomed the possibility of wholesale ADSL regulation, but said that it should only apply to Telstra, as all of the competition concerns are related to Telstra as a vertically integrated network company.

Submissions to the inquiry closed on 19 January.

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