Internode, Exetel enter Telstra greenfields game

Updated: Wholesale price squeeze exacerbated.

Internet service providers have begun offering competitive services to residents in fibre-to-the-home estates previously locked to Telstra, but first pricing indicates an ongoing wholesale price squeeze.

Internode this week announced its first pricing for residents in one of 125 Telstra Velocity greenfield estates, joining Exetel — which launched its own pricing in June.

Internode's standalone broadband pricing ranges from $49.95 a month for 30 Mbps download and 1 Mbps upload speeds with a 30 GB quota, to $109.95 for a 100/5 Mbps service with 250 GB of quota.

However, the wholesale product offered by Telstra in the estates requires bundling with a standard landline telephony service, adding approximately $30 to the monthly bill either through Telstra's HomeLine service, or Internode's Nodeline offering.

Internode's parent company iiNet is expected to offer similar pricing in the near future.

Telstra also offers a basic 8Mbps service with 384 Kbps upload speeds, but Internode product manager Jim Kellett said it was a "bit of a sad product".

Exetel's pricing follows similar grounds, but introduces an 8 Mbps service at $40 a month with a 50 GB quota. Its biggest plan comes in at $100 per month for 150 GB download quota.

However, both ISPs' plans pale in comparison to Telstra's own, which offer higher quotas — up to 500 GB — at generally cheaper prices.

Wholesale squeeze

Kellett attributed the significant pricing differences to a simple wholesale price squeeze.

Telstra has standardised its Fibre Access Broadband wholesale product, developed around the Point Cook trial and later adapted in South Brisbane, but pricing remains seen in the industry as incredibly expensive.

Where NBN Co and similar wholesale-only fibre operators offer a base 12 Mbps/1 Mbps product for $24 a month to all access seekers, Telstra has set a price of $28 a month for an 8 Mbps product with a lesser 384 Kbps upload speed limit (pdf).

Similarly, a 30/1 Mbps product costs $35 per month — compared to $27 per month for 25/5 Mbps on the NBN — or $50 per month for a 100/5 Mbps service, compared to the $38 per month payable for an equivalent service on the NBN with 100/40 Mbps speeds.

Technological differences between Telstra's fibre product and the NBN — such as lack of multicast capability in Velocity estates — has also been seen by third parties and some retail customers as a shortcoming of the incumbent's network.

One source close to the issue said in January that there had been some "movement" on the issue since Telstra first solidified wholesale pricing for the area.

But any regulatory intervention is not likely to touch Telstra, which is protected through the statutory exemption granted by Government.

Where most wholesale-only fibre providers have begun moving to align their pricing structures with the NBN, Telstra's fibre access product has standardised on similar prices to those individually negotiated at Point Cook or South Brisbane.

In the newly available estates, prices are actually steeper, as migration, standalone broadband and bundled rebates offered by Telstra to ISPs in the South Brisbane area do not apply to the Velocity estates, effectively putting those areas at a significant premium to both other FAB areas and competing estates.

The competition watchdog has begun consulting with industry to set a basic wholesale product at 25/5 Mbps for $27 per month — in line with the NBN wholesale pricing. Other pricing would be negotiated commercially and individually.

However, the declaration would not apply to those Telstra Velocity estates, due to the statutory exemption allowing retail competition in the greenfield estates.

Kellett said the wholesale pricing and what he termed the "AGVC tax" prevented Internode from undercutting Telstra while also making higher quota offerings economically unviable.

"It's a bit sad compared to what we're doing on NBN and Opticomm these days," he said.

"Really, the 500 GB and the terabyte [users], they're the most vocal and the most 'clueful' customer base but they're a lot less than 10 percent.

"Even if it's not the most perfect wholesale arrangement possible, it's better we figured to get in there and start to build up the customer base.

"If in future the wholesale price comes down we'll put down our prices and get more customers. It's better than just ignoring it, I think."

Why Velocity is open

The move to retail competition comes after Telstra gained an exemption from anti-"cherry picking" rules introduced last year to limit fibre operators from picking and choosing cheaper high-density areas to build or upgrade fixed networks in competition with the National Broadband Network.

The exemption, granted by Communications Minister Stephen Conroy in January, allows Telstra to expand or upgrade the estates, while protecting the telco from future pricing regulation by the competition watchdog.

Telstra has agreed to allow retail competitors into 119 "specified" estates, including a year-long trial at Point Cook in Victoria.

Kellett told iTnews that it would be able to offer services in a total 126 estates, including Point Cook and South Brisbane.

A Telstra spokeswoman confirmed further estates were made available for retail competition not subject to the statutory exemption, due to the fibre rollout already being completed in these areas.

Kellett said wholesale access to the estates had been open for several months, but Internode had not launched pricing from day one.

"To be honest it's been a matter of prioritising our workload here," he said.

"We've been working on a whole bunch of other projects so it was just a matter of slotting it in where we could."

Updated 3.30pm: Added FAB wholesale pricing from Telstra.