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.

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