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Vodafone cannot invest in regional Australia as Telstra is unassailable

Australia's third-largest mobile provider has labelled claims from Telstra and Optus that domestic roaming would end coverage investment as empty threats.
Written by Chris Duckett, Contributor
(Image: Vodafone)

Regional and remote Australia are captive to Telstra thanks to first mover advantage, market failure, and not enough scale to support multiple mobile providers, Vodafone has said in a submission to the Australian Competition and Consumer Commission (ACCC).

In those areas, Vodafone believes Telstra cannot be challenged, and it cannot invest in them.

"Telstra's first mover advantage, has enabled Telstra to capture those areas that can only viably support a single network," it said. "Optus has followed to capture those areas that can only viably support two networks. VHA [Vodafone Hutchison Australia] has invested and continues to invest as far as it can in the circumstances that is it in."

The submission was the latest salvo in an ongoing battle around the issue of domestic roaming, which saw the ACCC issue a draft decision that it would not declare it due to "reasonably effective competition" in the national retail mobile services market.

On the back of the ACCC's decision, Vodafone launched a judicial review of the domestic mobile roaming inquiry process.

In its latest submission, Vodafone claims it has evidence consumers will save AU$658 million per year if domestic roaming is declared. The monetary figure was arrived at in a commissioned Frontier Economics report, with Vodafone saying the number is corroborated by those found in analyst reports.

"That's an extraordinary amount of money that could be staying in the wallets of consumers, instead of lining Telstra's pockets with no added value," Vodafone chief strategy officer Dan Lloyd said.

"We found the ACCC's draft decision baffling, particularly since many of its comments strongly support the case for regulated domestic roaming."

Telstra has said previously that a domestic roaming declaration would remove any incentive to invest in further coverage.

"Where there is lack of choice of operators for regional Australians, it is the result of decisions by our competitors to not invest in those areas," Telstra group executive for Corporate Affairs Tony Warren said in September.

"Declaring mobile roaming would stop coverage being a differentiator in the Australian market and, therefore, remove the key rationale for investment in regional Australia for all operators.

"Declaration would ensure there is no incentive for any operator to invest for competitive reasons in many regional areas."

Last month, Optus said it would invest AU$1.5 billion in its mobile network as a result of the ACCC's decision.

"This decision will provide Optus with the certainty it needs to invest a further AU$1.5 billion in 2017-18 to deepen network capacity and coverage, and continue delivering high-quality services, choice, and competition, particularly in regional Australia," Optus CEO Allen Lew said at the time.

On Friday, Lloyd said there has been no evidence presented that domestic roaming would reduce investment.

"There have only been empty threats," he added.

"Telstra tries to convince everyone it is regional Australia's knight in shining armour. But even the ACCC admits Telstra doesn't have any incentive to invest in regional areas unless taxpayers cough up."

Following the ACCC's draft decision, Telstra CEO Andrew Penn said Australia's largest telco would expand its 4G network to 99 percent of the Australian population should the ACCC's draft decision hold.

"It also paves the way for ongoing investment in the coming years that would see an additional 1.4 million square kilometres of 4G coverage for regional and rural Australia. This means that about 600 base stations will be upgraded from 3G to 4G," Penn said in May.

"If this decision is confirmed, I look forward to Telstra getting on with the job of supporting regional Australia with even more investment."

Penn welcomed the ACCC's decision as it keeps incentives for mobile providers to invest in building networks across regional Australia.

"The overwhelming call from regional Australia was that their top priority was encouraging telecommunications investment to improve and extend mobile coverage," he said.

"Through our own direct investment, as well as co-investment, we expect to see up to AU$1 billion of investment flow to small towns and regional centres across the country over the next five years."

According to numbers used in Vodafone's submission, Telstra's 4G network covers 900,000 square kilometres, and its 3G network covered 2.4 million square kilometres.

By comparison, Optus' 4G coverage reaches 450,000 square kilometres, and its 3G networks is approximately 1 million square kilometres; while Vodafone's 4G network is 450,000 square kilometres, and its 3G network is able to hit 900,000 square kilometres thanks to a roaming agreement with Optus.

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