Consumers and economy $897 million worse off under Telstra FTTN

Sydney, Australia – 5th June 2008 – A report released today by independent economic consultants, the Centre for International Economics (CIE) shows that Australian consumers would pay 15 per cent more for broadband services(1) should Telstra win the rights to build and manage a national FTTN Network.

The increased cost to Australians is due to Telstra’s targeted return on its capital investment. According to the Report’s authors, the rate of return Telstra had publicly said it would demand was relatively high and “may be consistent with the abuse of market or monopoly power”.

The Report titled, “The Telstra Return on a National FTTN Network: Community Impacts”, shows that consumers would pay an additional $897 million a year to Telstra for high-speed broadband services, based on Telstra’s initial estimate that the network would cost about $9 billion to build (scenario 1) (2).

The Report looks at two other scenarios:

• Telstra CEO Sol Trujillo has recently claimed that network build costs could escalate to $15 billion. If this was the case, Australian’s would pay an additional $1.4 billion a year for broadband services.

• Last year Telstra proposed with the then federal government to build a broadband network to capital cities and the Gold Coast at a cost of $4.6 billion. If Telstra were just to build this network, it would cost consumers an additional $443 million per annum.

According to the Report, all of these build-cost scenarios would increase inflation, reduce national growth, lower wages and reduce national consumption.

“The CIE Report supports the industry’s greatest concerns: if Telstra is allowed provide a monopoly high-speed broadband service it will have a significant negative impact on Australian consumers and the economy,” said David Forman, executive director, Competitive Carriers’ Coalition.

“At a time when interest rates are increasing, food costs are on the rise and petrol prices are at an all time high, this is a simple proposal to strip money from Australian families to satisfy the greed of Telstra’s insatiable monopoly demands.”

“The additional 15 per cent cost consumers would face under Telstra’s FTTN model is equivalent to charging a private ‘Telstra Tax’ on broadband services. There is no point building a new network if customers can’t afford the service,” Mr Forman said.

“The difference between such a private tax and a normal Government tax is that it all flows to Telstra. As a nation we cannot afford to let Telstra recreate another monopoly.”

“Telstra has for three years offered only small glimpses of what it was demanding from successive Federal Governments and has refused to reveal publicly the full detail of its plan to build a fibre to the node network. It is clear that it has something to hide.”

“This analysis shows why Telstra has not gone public.”

“No responsible Government could agree to Telstra’s exorbitant terms for return on investment and price protection. The cost to the economy and to ordinary Australian is too great.”

1 When compared to what consumers would pay for broadband services from an alternative operator with a rate of return based on benchmark market returns achieved by other telecommunications providers.

2 This includes the federal government contribution of $4.7 billion and assumes a uniform rate of return on both investments.

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