The Facts: Telstra’s Myths Exposed
Telstra Myth1
The Government is stifling broadband investment. If government and
regulators don't allow the next wave of Internet investment, Australia
will be left behind ... as our global competitors work even smarter and
faster.
The Facts
Government policy is not preventing Telstra from investing. No
government policies prevent Telstra from investing, it has chosen not to
invest because it wants the rules to change. The ACCC believes this is
so it can earn inflated profits2. Telstra continues to keep secret the
price it wants to charge others to use its proposed FTTN network. This
is where it can’t reach agreement with the ACCC. Instead, it talks about
the speeds the network would deliver and the size of the investment, but
nothing about the impact on users. What good is a network that no one
can afford to use?
Nations that are leading the world in broadband have promoted
competition - not subsidised their old telecommunications companies3.
Nowhere else in the world has one telecommunications company been
allowed to retain and exert so much power in so many markets4. Around
the world in the last three years, incumbent telecommunications
companies have separated their network businesses from their retail
businesses – voluntarily or by regulatory order – to prevent these
problems occurring. The trade off for them has been the promise of
reduced regulation if the restructuring works. The UK and Sweden are
examples of this. The idea that giving Telstra yet further advantages
and expecting it to invest in broadband flies in the face of the lessons
from the most successful broadband countries5.
Competition fosters investment, innovation and better prices in
Australia. Many of the innovations in the sector in the last four years
were sparked by competitors6. E.g. competitors introduced dial-up
Internet, 3G mobile services, capped mobile price plans, high-speed
ADSL2+ broadband, and capped broadband plans. Telstra followed, it did
not lead innovation.
Telstra Myth7
Instead of subsidising foreign telcos at Telstra's expense, government
and regulators should give Telstra a fair go so it can invest in the
broadband infrastructure needed to provide high-level services.
The Facts
Foreign companies are not getting a free ride. Competitors pay for
access to Telstra’s networks typically at a cost that is high by global
standards. The cost of access is calculated using a formula that
includes all Telstra legitimate costs – including a contribution toward
overheads such as executive salaries. It is the same formula Telstra
demands applies in New Zealand, where it needs access to the incumbent’s
monopoly network. For example, Telstra recently complained about the
ACCC decision that the fair price for the service called the Line
Sharing Service (LSS) is $2.50 per month, not the $9 Telstra has been
charging. The ACCC found Telstra was charging consumers twice for the
same costs, once in their line rental and again as part of the LSS
rental8. Line rental has increased by 134 per cent from $11.65 to $27.23
since 20009. Currently Telstra charges its competitors more to rent its
lines at wholesale than it sells it to retail consumers. Before
competitors even enter the market, their costs are higher than what
Telstra is charging consumers i.e. an anti-competitive price squeeze.
Other companies invest in Australia’s infrastructure, not just Telstra.
Other carriers have invested in the necessary broadband infrastructure
to deliver up to 20 megabits per second to customers, and have turned on
that equipment. The Group of Nine (G9) carriers have a proposal for a
nation wide network upgrade that would allow even more people to access
these speeds. Telstra has turned down repeated invitations to join these
discussions and exerted its significant power to prevent the investment
going ahead.
The poor state of broadband is not everyone else’s fault. Customers of
other carriers have been able to access speeds of up to 20 megabits per
second since 2004. Telstra has begun offering faster speeds in only the
past four months. But it still only offers those speeds to Australians
living in neighbourhoods where other carriers have already invested in
the equipment to deliver true broadband. It continues to neglect other
Australians. For example, Internode has delivered wireless broadband in
large areas of South Australia when Telstra will only supply a phone
line at best and no service at worst. Internode and iiNet pioneered the
introduction of ADSL2+ and Telstra has only entered markets where there
were competitors present.10
Telstra Myth11
The government and regulators should create a level playing field for
all and get rid of the regulations that only apply to Telstra and stifle
investment in broadband infrastructure.
The Facts
Regulation does not pick on Telstra unfairly the same regulations
(rules) apply to every company. The Parts of the Trade Practices Act
Telstra wants removed apply to all telecommunications carriers. Any
organisation that has a bottleneck or monopoly is subject to these laws.
Mobile carriers such as Hutchison, Optus and Vodafone, for example, have
some mobile access service prices regulated under the same laws. Telstra
is the company most affected because it has market power in more
markets. This is because it was gifted the national telecommunications
network that was built over many decades with the benefit of express
protections from competition. Hypocritically, Telstra (via TelstraClear)
advocates the need for stronger regulation in New Zealand where it seeks
to use Telecom NZ monopoly network elements12. It argues that NZ should
use the same method as Australia does to calculate regulated prices and
that the regulator should choose the lowest prices possible.
Telstra Myth13
The savings of 1.6 million mum and dad Australian shareholders are
subject to unreasonable regulatory risk and shareholder returns are
being siphoned off to foreign-owned companies by the policies and
practices of the Australian regulator.
The Facts
Telstra shareholders are not unfairly disadvantaged. Telstra remains one
of the most profitable telecommunications companies in the developed
world.14 It dominates almost every communications market in which it
operates in Australia and receives annual subsidies from its
competitors, even if those competitors are running at a loss. It has
also received significant subsidies since 1997 and continues to demand
more profit, more subsidies and less regulatory supervision.
The ACCC is not a rogue regulator. The ACCC applies the rules as defined
in the Trade Practices Act. Telstra’s own long-time economics
consultant, Prof. Henry Ergas, has argued in Canada that this is a model
of light handed regulation.15 Telstra has repeatedly been the subject of
anti-competitive conduct action by the ACCC because it has been accused
of overcharging competitors for access to the monopoly elements of its
network. Telstra now wants these powers taken away from the ACCC but
refuses to restructure itself to prevent the unfair conduct.
Telstra Myth16
Only Telstra has the proven size, vision, leadership, commitment and
capability to deliver the next generation of broadband across Australia.
It will cost billions of dollars to build Australia’s national broadband
infrastructure. Only Telstra can make this investment, just as it has
always built the networks Australians rely upon.
The Facts
Telstra is not the only company that can fix broadband in Australia.
Numerous carriers have proven that they can deliver broadband in areas
where Telstra could or would not. With regard to national broadband
Fixed Fibre to the Node (FTTN) Infrastructure, the G9 has put forward
alternative solutions and are not seeking the same dilution of
regulation in return. This group has invited Telstra to participate in a
joint investment with the rest of the industry -TELSTRA HAS REFUSED.
Footnotes
[1]Telstra, Now We Are Talking website:
http://www.nowwearetalking.com.au/
[2]Graeme Samuel, ACCC Chairman, Senate Standing Committee on Economics,
15 February 2007
[3]Jacob Marsden Assoc, Broadband Adoption and Strategies December 2006
[4]ACCC Emerging Markets in the Communication Sector Report, June 2003
[5]Jacob Marsden Assoc, Broadband Adoption and Strategies December 2006
[6]Backgrounder: Competition Fosters Innovation & better prices
[7]Telstra, Now We Are Talking website:
http://www.nowwearetalking.com.au
[8]ACCC Discussion Papers - TSLRIC
[9]Graeme Samuel, ACCC Chairman, Senate Standing Committee on Economics,
15 February 2007
[10]Backgrounder: Competition Fosters Innovation & Better Prices
[11]Telstra, Now We Are Talking website:
http://www.nowwearetalking.com.au/
[12]TelstraClear Submission to the New Zealand Competition Commission
May 26, 2005.
[13]Telstra, Now We Are Talking website:
http://www.nowwearetalking.com.au/
[14]Company data, Goldman Sachs Research Estimates, GSJBW Research
Estimates, Bloomberg
[15]Henry Ergas & Leonard Waverman, Would Canada Benefit from
Australia-Style Regulations?
[16]Telstra, Now We Are Talking website:
http://www.nowwearetalking.com.au/