Telstra escapes Naked ADSL mandate

Telstra has all but successfully fought off attempts to have Naked DSL mandated as a wholesale service after waging war on the issue last year.

The competition watchdog said in a draft wholesale ADSL determination today (pdf) that its "draft view [on Naked ADSL] is to maintain the status quo ... whereby an active PSTN service is required on a line before Telstra supplies wholesale ADSL".

However, the victory is marred —and potentially offset — by the Australian Competition and Consumer Commission (ACCC)'s draft decision to cut wholesale ADSL prices further and to reject a contentious proposal to factor network congestion into those prices.

"We are working through the report on the draft determination in detail and will provide our response through the ACCC's consultation process," a Telstra spokesperson told iTnews.

"From our initial reading it appears the ACCC has largely retained the balance of charges across access and usage set out in the Interim Access Determination."

Telstra had raised a laundry list of reasons why it should not be forced to offer a wholesale Naked DSL product, after the prospect was first flagged in July last year.

Australia's incumbent telco said it would incur costly system changes and the proposal disregarded the way Telstra provisioned ADSL services.

It also argued such a proposal would divert valuable resources from NBN works; that Naked DSL would introduce too many line faults; and that the ACCC was potentially overstepping its powers in seeking a wholesale Naked product.

The ACCC draft view is that mandating a Naked product would not improve competitive outcomes, and that recovery of costs by Telstra to make it happen would "either substantially diminish or eliminate any retail price advantage".

The ACCC also accepted many of Telstra's technical arguments, including around the provisioning constructs and that Naked ADSL "may increase the incidence of line faults and affect the reliable operation of Telstra's current network infrastructure".

"The ACCC considers that maintaining the status quo will promote the reliability of Telstra's current wholesale ADSL services suppled over its current network," the commission stated.

No congestion charge

While the fight against Naked ADSL appears successful, the ACCC's draft determination effectively scotches several other attempts by Telstra over the past year to increase the prices of wholesale ADSL services.

One of the more contentious proposals raised by Telstra was to have network congestion factored into wholesale ADSL rates.

The proposal was raised unannounced in August last year, prompting a new line of consultations by the ACCC.

The incumbent effectively asked the ACCC to increase wholesale ADSL prices "to assist with the management of network congestion" and provided extensive economic analysis to justify the proposal.

Telstra found little support from rivals Optus, iiNet, Adam Internet and Macquarie Telecom — and, it seems, ultimately with the ACCC, whose draft decision is against the plan.

Though the ACCC recognised congestion as a challenging issue, it argued that action must begin with "those whose demand is causing the congestion...".

"That is, end-users at the retail level should face price signals related to their usage of the network at peak times (when the network is congested)," the ACCC stated.

The ACCC noted that ISPs such as Telstra appeared to encourage congestion via broadband quotas and unmetering of certain types of data, a potential mismatch in the priorities that Telstra was seeking to enforce at the wholesale level.

"Telstra and other RSPs [retail service providers] offer plans where the 'cost per gigabyte' substantially decreases as data allowances in retail plans increase," the ACCC noted.

"The ACCC considers that such retail pricing encourages high data use, which in turn increases traffic on the network.

"Telstra also offers significant amounts of unmetered (i.e. unlimited data allowance) high-traffic content to its retail customers... These types of video services typically use large amounts of data.

"The ACCC considers that current retail offerings appear to encourage greater use of data on the ADSL network rather than seeking to manage data growth or congestion".

The ACCC also raised concerns that, if the lax attitude towards congestion at the retail level remained, that ISPs hit with a congestion charge would effectively be subsidising Telstra's inaction at that level.

"While a higher wholesale price may be passed through to wholesale ADSL end-users and subsequently choke off some demand on the network, Telstra Retail customers would not fact the same incentive to reduce their demand," the ACCC reasoned.

"Given that the end-users of wholesale ADSL access seekers make up approximately 25 percent of total users on Telstra's ADSL network, any impact on wholesale ADSL demand would have a limited impact on overall demand for bandwidth on Telstra's network".

Imposing a congestion charge would also likely place ISP at a commercial disadvantage when trying to compete with Telstra Retail on broadband prices, the ACCC concluded.

Price shifts

The ACCC has proposed a zone 1 port price of $24.56, compared to $25.40 in the interim access determination laid out in February last year. Zone 2/3 port prices are proposed to fall from $30.80 to $29.81.

The zones refer to whether the connection is being made in a metropolitan, regional or remote area. Zone 1 metropolitan port prices are cheaper than those further out.

However, the backhaul component of the network — the aggregated virtual circuit — is priced to increase from $33.65 to $36.08 per Mbps.

Prices changes would not be backdated. Rather the changeover from interim to final prices would occur once a final determination is made.

Industry has until April 5, 2013 to make submissions on the draft determination.