Telstra reveals flat-rate wholesale charges

Telstra Wholesale has raised the ire of some of its internet service provider customers with a new ADSL2+ port price proposal that some fear could "cement" the incumbent's price squeeze on retail competition.

In a submission [pdf] to the competition watchdog this week, Telstra revealed plans to charge a reference price of $31 a month excluding GST for metropolitan ports on its off-net wholesale ADSL2+ product and $38 a month for ports in outer metropolitan and regional areas.

In addition, leasing Telstra backhaul to a point of presence in a nearby capital city (known as the aggregated virtual circuit or AGVC) would be charged at $65 a megabit - three times the planned cost of similar connectivity to be offered by NBN Co.

Telstra justified the AGVC cost as accounting for the bandwidth it forecast its own retail customers would use over coming years.

This component price would fall "as Telstra's retail customer usage increases", it said.

A spokesperson for Telstra Wholesale told iTnews that the AGVC charge from Telstra used "different constructs, cost components and inclusions" than those included in the NBN's CVC.

The reference prices represented the first time Telstra had publicly stated its price intentions for wholesale ADSL services, which had to date been unregulated by the Australian Competition and Consumer Commission.

Wholesale prices for these ports were often governed by bespoke agreements between Telstra and wholesale customers, with the end results kept confidential.

As part of its structural separation undertaking to the ACCC, Telstra pledged to publish the reference rate card as a means of increasing transparency around equivalent pricing between Telstra's BigPond retail arm and its wholesale customers.

Telstra would provide regular economic model reports to the watchdog to substantiate whether the internal and wholesale pricing was kept within a five percent margin.

Prices would be updated every six months where a change of more than three percent to the reference rate, or more than five percent to Telstra's retail pricing, was required.

The rate card as a whole was due for review every three years upon commencement.

The prices, however, remained subject to approval by the ACCC as part of the separation undertaking, which the watchdog remained concerned over.

Should the new construct be approved, wholesale customers would be eligible to pay the reference prices for off-net services once their respective contracts with Telstra expired, some of which could still be years' away.

The telco suggested to the watchdog that wholesale customers continue to be able to form bespoke agreements.

Price discrimination complaints would be handled by an independent adjudicator, under Telstra's proposed undertaking.

Big resellers lose out

While the reference rates would likely provide relief for smaller providers, others had already negotiated cheaper rates with Telstra directly.

Industry sources told iTnews that the indicative pricing would continue to make it difficult for many ISPs to compete with BigPond retail, particularly in outer metropolitan and regional areas where competitors did not often install their own ADSL-serving equipment.

When inclusive of the wholesale line rental required to offer a service to an end-user - charged at $22.84 per month - they argued the proposed pricing construct would effectively "cement" the price squeeze some providers have claimed the telco has placed on its competitors through its monopoly ownership of infrastructure.

They also suggested Telstra's retail arm would need to boost its end-user pricing to swallow the increased wholesale prices along with the rest of the industry, or operate at a loss.

"Subject to the SSU acceptance, any future reductions to Telstra’s retail ADSL prices will be passed through to lower wholesale ADSL prices, so all wholesale customers will benefit from this in the future," a spokesperson said.

Analysts did not believe Telstra would increase retail prices but maintained Telstra was likely to use its current prices as a means of limiting the margins its competitors could make on off-net services.

"Telstra ADSL 2+ wholesale started the downward trend in 2007, long before Telstra got aggressive with ADSL retail," Telsyte telecommunications analyst Chris Coughlan said.

ACCC statistics showed the number of Telstra's total DSL retail and wholesale ADSL customers had dropped 7.4 percent between March 2008 and March 2011, while end-users on the unlimited local loop service had increased by more than two times over the same period, particularly in metropolitan areas.

Gartner telecommunications analyst Geoff Johnson identified the proposed pricing construct and economic modelling as the next step in what would ultimately become a heavily regulated environment.

"The regulation is going to be much more heavy-handed than it has been in the past because you've got this open access national broadband network," he told iTnews.

"You're not going to move from the existing environment to the wholesale environment that's planned and the structural separation without some unintended consequences or effects like this one."

Competing telcos, he said would need to be a "bush lawyer" - effectively on top of both regulation and economics - in order to follow any resulting pricing constructs.

"There's going to be a really interesting structure in this economy," he said.

Updated at 1.30pm on September 15 2011 to include comment from a Telstra Wholesale spokesperson.