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News, Telecommunications - Written by Renai LeMay on Thursday, October 25, 2012 12:19 - 23 Comments
Telstra’s Adam buy will boost competition,
say Hackett & Malone
news Telstra’s controversial move to acquire South Australian ISP Adam Internet would actually increase competition in the state, iiNet chief executive Michael Malone and Internode founder Simon Hackett said yesterday, despite concerns from Adam Internet customers about the deal.
Telstra’s dominant position in Australia’s broadband market, owing to its historical nature as a vertically integrated telecommunications monopoly, has largely prevented it over the past decade from acquiring smaller players in the sector. However, yesterday the telco announced plans to acquire one of the few smaller players left in the Australian market, South Australia’s Adam Internet. The move will effectively consolidate the state’s broadband market into just three players; Telstra, iiNet (which also owns Internode, which had a strong base in the state) and Optus, which has a strong national presence. It’s not clear to what extent Australia’s fourth major player, TPG, has a presence in the state.
However, according to Malone and Hackett, the move shouldn’t be blocked by authorities such as the Australian Competition & Consumer Commission, which does have the power to query the transaction on competition grounds. “I don’t believe it should be blocked. To the contrary, I think this will be great for competition in South Australia,” Malone said in response to an emailed query. And Hackett added: “We wouldn’t seek to block the transaction (even if we were asked, and I don’t especially expect that we will be).”
Hackett said Adam, with its estimated 90,000 broadband customers, didn’t add a great deal of size to “the Telstra empire” in the larger scheme of things (Telstra is estimated to have about 2.6 million ADSL broadband customers). “But I do believe it’ll polarise competition in SA in a good way, because now there is new and clear point of difference between the traditional rivals in South Australia: Internode and Adam,” the Internode founder, who now sits on iiNet’s board, added.
“That new difference is simply that one of them has now gone over to the Empire, and the other is already a strong and active member of the Rebel Alliance :) I’ve always preferred being a rebel – and I’m sure a number of Adam customers are likely to feel the same way at this point! Then again, Telstra obviously haven’t bought Adam in order to leave it alone – I’m sure it’ll change in terms of the nature of its offerings to the market over time as well. Hence there will be a substantial rise in competitive options, and opportunities, in the SA market, and consumers will win.”
As one example of the claimed competition boost, Hackett gave the example of a new broadband offer which Internode released yesterday, which appears to be targeted Adam customers. The “centrepiece” of the deal is the waiving of setup/churn costs and the first three months of broadband charges free on Internode’s $49.95 Easy Broadband Plan (which comes with 200GB of monthly data) on a 24 month contract.
In a separate post on Whirlpool, Hackett also appeared to take a swing at Adam Internet executive Scott Hicks, who, Hackett said, had vowed that the company would not be sold. “I guess the times, they are a-changing …!” wrote Hackett.
“I’ve always seen Internode as being a bit of a Rebel (and in joining forces with iiNet, I’d definitely call us ‘The Rebel Alliance’. We love doing innovative things that contrast us with bigger, and more boring, incumbent players. I think the sale of Adam to Telstra represents a pretty substantial shift in the orientation of Adam. To continue the analogy, its easy to see that change as representing their acquisition by ‘The Empire’ … the very empire that Adam (and Internode) have spent two decades competing against vigorously in the retail market, and differentiating against with great services and pricing.”
In terms of Adam Internet’s customer base, it does not appear from forum postings that the ISP’s customers are planning a mass exodus to other providers, but there is a general suspicion from a number of customers that the ISP’s service levels or general approach may decline under the new Telstra ownership.
“Let’s face it, this (Telstra) is a company that until recent times had a total monopoly on the telecommunications industry in this country and I don’t think they got over losing that monopoly,” wrote one poster on broadband forum Whirlpool. “They won’t be happy until they have gotten rid of all their competitors, so I find the announcement lacks integrity. I will now consider to dump Adam, this is my choice as was their choice to sell to Tel$tra.” Wrote another: “Telstra is evil and Adam has sold outright. It is a real shock actually. Goodbye Adam!”
The assertion by Hackett and Malone that the buyout will increase competition in the South Australian broadband market and drive outcomes for consumers does not appear to be borne out by the past few years of history in Australia’s broadband market.
For example, an extensive analysis of iiNet’s own acquisitions (including OzEmail, Westnet, Netspace, AAPT, TransACT and Internode) published by Delimiter in April this year found broadly that each specific buyout had had at best a mildly negative impact on real-world competition in Australia’s telecommunication sector, while at worst they have removed a strong competitor from the market and removed a solid option from the list of choices of ISP which consumers have enjoyed.
Delimiter’s article at the time stated: “In 2012, why bother buying telecommunications services from companies like Westnet or Netspace? They offer the same plans as iiNet does — if you want real choice, you need to look elsewhere — Telstra, Optus or TPG. And it is far from clear whether major players like TransACT and Internode will go the same way over the mid-term period or not. Certainly a number of Internode customers are currently fearful that the company’s products will be harmonised with those of iiNet eventually. And, given iiNet’s past history with most of its acquisitions, it’s a valid fear.”
“As Australia moves into the world of the National Broadband Network, we can thank iiNet for the fact that only a handful of major players will be providing services over the NBN. If iiNet had not bought the number of ISPs which it has, Australia would have a handful more of nimble, innovative players to provide services over the NBN — companies such as Netspace, Westnet, TransACT and Internode, all of which innovated strongly in the local broadband market before being acquired by iiNet. These companies provided consumers with strong alternatives to iiNet and other ISPs in Australia but have now been consolidated under the one umbrella, reducing real choice for consumers in the market.”
The mitigating factor, according to Delimiter’s analysis, is that iiNet has acted as a very strong competitor towards larger, dominant rivals such as Telstra and Optus. However, this factor does not apply to the Telstra acquisition of Adam Internet.
To be honest, I’m not sure why Michael Malone and Simon Hackett wouldn’t want to attempt to block the Telstra acquisition of Adam Internet. It seems like it would be in their best interest to do so; why, after all, would anyone want Telstra to get an even more dominant grasp over Australia’s telecommunications industry at this point? Why wouldn’t every Australian want to keep nimble players like Adam Internet in business, so that they can provide competition and innovation against the market incumbents? Personally, I just don’t get it.
But one thing I do know is that the level of real competition in Australia’s telecommunications sector is diminishing every day at the moment, and that is a bad thing for Australia’s consumers. Adam Internet, as Hackett said yesterday, has been one of the companies keeping Telstra and Optus honest in the South Australian broadband market for the past decade. But now that role is ended – and one more bar to Telstra getting its way whenever it wants to has been removed.
Image credit: Internode, iiNet
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