news National broadband provider iiNet has warned the competition regulator that Telstra must not be allowed to introduce a new, low-cost ‘Jetstar’-like brand into the broadband marketplace without strict controls being placed around such an initative, due to the potential for Telstra to further increase its already dominant market share.
In late October, Telstra 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.
At the time, iiNet chief executive Michael Malone and Internode founder Simon Hackett said Telstra’s move would actually increase competition in the state, despite concerns from Adam Internet customers about the deal. However, since that time, Telstra chief executive David Thodey has openly speculated that Telstra could expand the Adam Internet brand nationally as a low-cost broadband model running alongside Telstra’s existing BigPond brand, in a similar model to the way that Qantas uses its low-cost Jetstar subsidiary or Optus uses its Virgin Mobile brand in the mobile space.
In an interview this morning, iiNet regulatory chief Steve Dalby said his company continued to believe that the acquisition of Adam Internety alone wouldn’t change the dynamics of Australia’s tightly contested broadband market dramatically, due to the relatively small number of customers the company boasted. However, the executive warned it would be a different situation if Telstra was allowed to shift Adam’s market offering to a low-cost premise, similar to that of existing low-cost brands TPG and Dodo, with some of the company’s costs being absorbed by the larger Telstra cost base.
iiNet’s concerns around the issue, which were first reported by The Australian newspaper this morning, are the subject of talks between the telco and the Australian Competition and Consumer Commission. Optus has also, according to The Australian, expressed concerns with the Telstra acquisition.
“Since Michael and Simon made those comments,” Dalby said, referring to Malone and Hackett’s initial reaction to the Telstra buyout, “Telstra has been making some additional comments about using Adam to increase some market share in the price-sensitive part of the market.” Dalby said Telstra’s rivals needed to be comfortable that Adam wasn’t set up as a marketing vehicle for Telstra which wouldn’t bear the actual costs of competing in the broadband market – especially outside metropolitan areas, where Telstra still has an overwhelming market share in some areas.
The relationship between Telstra’s wholesale and retail divisions is tightly controlled by the Australian Competition and Consumer Commission and through other regulatory instruments, in a complex legal framework which has evolved over the past decade precisely to ensure that companies such as iiNet, Optus and TPG are able to compete on a level playing field, accessing similar prices through Telstra’s wholesale division that Telstra’s retail division is able to access.
However, Dalby said these controls may not apply in the same manner if Telstra chose to operate Adam Internet as a subsidiary company rather than as an integrated brand.
In one example of how this complex situation could play out, Dalby pointed out that Adam Internet had invested in its own ADSL infrastructure in South Australia and was offering so-called ‘naked DSL’ to customers – a service where customers buy broadband but not bundled telephone services from the company. Telstra has declined to offer naked DSL services to customers, claiming that it would need to heavily modify its IT systems to do so, and that its copper network may suffer increased faults from such an offering.
Dalby questioned whether, if Telstra were to turn Adam Internet into a national brand and use it to promote low-cost broadband services nationally, how its naked DSL services would be provided or whether such a model would be modified by Telstra. He doubted that Adam would deploy its own ADSL infrastructure nationally; believing it more likely that the ISP would rely on Telstra’s infrastructure in future.
According to iiNet’s figures in its most recent statement to the Australian Stock Exchange, Telstra currently has about 2.6 million ADSL broadband customers, with iiNet in second place on that basis with about 824,000 and TPG and Optus coming up behind at 595,000 and 583,000 apiece.
opinion/analysis
I wholeheartedly agree that Telstra must not be allowed to simply set up a low-cost brand with Adam Internet and increase its market share by taking on low-cost broadband players like TPG and Dodo (and potentially even undercutting premium players such as iiNet and Optus along the way). Telstra already has more than enough market share in Australia’s broadband sector; and we’ve seen in the mobile sector what the telco is like when it gets an inch; it then proceeds to grab a mile.
However, it is far from clear that this precisely what Telstra intends for the Adam brand. Personally, I don’t see “Adam Internet” as a very attractive brand for Telstra to take nationally; certainly it’s nowhere near the level of attraction which ‘Virgin’ (Optus) or ‘Jetstar’ (Qantas) have; or even the really downmarket names which Coles (Bi-Lo) and Woolworths (Food for Less) have attached to their low-cost brands. It will be interesting to see what Telstra really does intend for Adam Internet in the future.
Hopefully they don’t destroy Adam… I’ve been with them for 20 years first with my folks and then by myself!
I don’t see why iiNet should be worried – they don’t exactly focus on the “price-sensitive part of the market”. TPG and Exetel would be understandably worried though.
Exactly, nor should Internode be worried because apparently they are a premium provider.
What ticks me off is the constant whinging and whining from the ii group (Simon Hackett included), yet they don’t build on their combined market share and become real (not pretend) national players. Constant cherry picking of infrastructure deployments or buying up of small player to boost their head count – no real earning of customers.
I think a low cost, high quality ISP would be great for the market right now – too many so called premium (read high dollar) and their so so network currently running around in the market.
Cherry picking is the consequence of needing to generate a return on investment. Welcome to commercial reality. Telstra is no different in that respect.
NBN will help resolve this by having a broader footprint; but even it cannot deploy fibre to every single person in Australia, at a price point Australians will accept.
I am pretty sure they are worried about Adam suddenly offering plans below (Telstra wholesale) costs as Telstra has done in the past and at times been chastised for ACCC.
Sort of thing where its not even possible to compete without making a significant loss, which Telstra can simply write of without majorly affecting their bottom line due to scale.
Anyone trying to compete is losing money whilst still benefiting Telstra machine as they’re making margins on the wholesale deals. The number of players in the market that can afford to do so is pretty limited so the market share grab could be significant.
That also benefits them under the NBN deal as they get paid for those extra people to transfer over to the NBN too.
Flap iiNet!
If adam is a cheap low cost Telstra, then I am sure many people in regional and rural areas will jump onto the good deals.
You know those same regional and rural people you iiNet have completely forgot about……
+1 Jason
The ACCC don’t have to stop Telstra from offering a low-cost, high value connection through Adam internet – Telstra will do that. Can you see them offering Unlimited data for $60 the way TPG does? Telstra goes about pretending like low-cost competition simply doesn’t exist.
I’m not so sure about that; the new Telstra under David Thodey is decidedly smarter than the old one …
In some aspects maybe, but their DSL wholesale ports are still double that of Optus’s, have no dealings with them for transit for 5 years now, but I doubt they have improved that much there either, amazed me few years back when Optus/MCI would give you AUD 250 per mb, and Telstra /Wholesale wouldnt budge under AUD 600.
Sure cost of transit has dropped my huge margins since, but where Optus will give me for AUD 40, still bet TW would do not better than 150plus.
and before I forget bug +1 to Jason.
I’m all for Telstra pushing Adam nationally as a low cost provider. I like Telstras service, it’s been the most reliable for me compared to others. I don’t like their price tag though. This seems like a win win for customers.
I also think you’re wrong about Adam not being a valuable brand Renai. Adam has very loyal customers, see first comment. If Telstra don’t destroy that, then it has a real fighting chance to successfully go national.
People are missing the point. Telstra is a regulated monopoly. Telstra operating via Adam would not fall under the all same provisions; at most, it would be held to TPA and comms Acts.
It has the potential to use Adam as a method to side-step regulation, that was the point. And it’s not like Telstra has a fantastic record in regulatory matters.
Don’t get me wrong, competition is a good thing, but there is a real temptation here for Telstra to offer services through Adam, at a price point that is below wholesale rates.
im sick to death of all members of the now ii group whinging about how telstra is ripping them off. IF and that is a big IF, the ii group wanted to compete on low cost, low margin, they could but they don’t want too.
I hope telstra tears them a new one, so long as it isn’t currently under what they wholesale to others.
I cant wait till TPG buys out iiNet…….
I am so tired of the iiNet group always crying poor when they are all to happy to screw over customers!!
I think I like the idea of this new Adam service: a low-service-quality connection at a low-money-price.
The comparison with Qantas and Jetstar is, however, entirely misplaced. Qantas offers its Five Star service at a premium Five Star price, while Jetstar offers customers of more modest financial means the chance to get a much lower quality of service at an equally lower budget price.
By contrast, Telstra starts off with rubbish service at premium prices. I presume the new Adam service is going to the same dreadful service, but at a new low price. That sounds fair to me.
Why is it that every single article that you write about ISP’s or NBN you never mention iPrimus or their parent company M2?
They are quite a big NBN player and areas like South Morang are the only provider except Telstra you can connect with…
Are you showing bias against them or something? It is not giving a very accurate representation on the current ISP’s available in Australia. Or do you only mention iiNet as you get kick backs from them?
Primus are quite a small player on the market, and even though they’re now larger with M2, they rarely talk publicly about what they’re doing. Same with TPG; they very rarely talk to the media.
It shows Primus and TPG, just “get on with the job” and they are both doing quite well, without appointing public mouth pieces, or , media tarts.
No treason why Telstra or anyone else cannot setup subsidiaries and offer different levels of service as required. This is what competition is about.
With the NBN rolling out there is less reason to regulate Telstra. Thats what it was all about guys. You can’t keep restricting Telstra or others simply because they are big or have a good system
Indeed, but for how long… remember Hypermax (amongst others) and what Telstra did to that
A new low-cost service with wide availability sounds like a “win” for consumers.
I would like to point out that i am on a telstra only exchange and i found UNLIMITED ADSL2+ for $49.90 a month with LOGITEL. Now if ADAM can do better im all ears, as for other telcos i feel no sympathy as they refuse to send on putting in dslams into T$ exchanges and they screw you over for NAKED if you dont want to pay them linerental too. None of them are any better than Telstra IMO, so boohoo to them!
Maybe instead of whinging, the other companies should have bought it!
iinet are just upset because they miss out buying Adam , but when iinet buys other company’s that alright,
just suck it up iinet, and stop crying , I just hope one day TPG will buy iinet and the crying will stop
Sounds like iiNet are just complaining.
Funny that how they can buy out Westnet, Internode, Netspace so there is less competition.
Now all those companies still operate under their titles, but have the same plans/offerings, go check broadband 2+ for example. Sounds like there’s 4 ISPs but really its just 1.
Now Telstra buys Adam and they’re upset?
As much as I hate Telstra, iiNet sounds like they’re complaining, and tbh their plans are not that good in terms of value anymore.
I just wish they left Internode alone, sigh.
TPG buys out iiNet in….. 3……2….1…..
What a glorious day that will be!!! :D
Are these guys for real? They cry that Telstra charges too much now they cry that Telstra might charge too little. Just shut up and compete to the best of your ability and the consumer will be the winner.
You’ve got to be fucking kidding me, OH NO TELSTRA MIGHT FINALLY CHARGE A RESPECTABLE AMOUNT OF MONEY FOR INTERNET, THEY MUST BE STOPPEDDDDD!!!!
If the “competition regulator” EVEN GIVES THEM A SINGLE WORD OTHER THAN “no” they should be fired, nothing screams anti-competition than “You have to stop Telstra from charging less than us”
OK!,So Its ok for IInet to buy out many other isps such as westnet and limit competition for all of us and yet have a dig and Telstra?. Wake up IInet you are harming competition more then Telstra!
As long as they don’t undercut wholesale pricing, I think it’d be a nice opportunity for Telstra to offer cheaper plans to the price sensitive segment of the market, as well as giving them an option to offer naked-DSL lines without the expense of modifying their own aging backend management systems.
I’m with Adam having dumped Telstra for poor service and inaccurate, incomprehensible billing. Just can’t wait to see how long it takes them to screw up my service and bills.
I like how people continue to confuse WHOLESALE pricing with RETAIL. That’s really proving your point there, folks.
No one cares if the retail price is in-line with wholesale. It’s if retail dips below wholesale; it’s at the risk of breaking the TPA and regulations.
Why should Telstra not be allowed to set up low cost internet through Adam?
Telstra only purchased Adam for the strong business/government list and retail customer base is secondary bonus. Not to be a low cost carrier
It’s only grab of users. Nothing more
To incite that Telstra want to make adam into a low cost carrier is stupid comment. Most of the customer base are hugely for South Australia, For Telstra having a larger share of customers in SA is a good thing once NBN comes into play, business customers will be moved onto telstra “cloud” services and Adam own carrier licenses for wireless
used iinet, used internode, now back with dodo. adsl2+, $39.90 per month unlimited deal, no shaping, no data limit,…(they even throw in a new router/modem if you want it)…..a quick search of a few isp’s, and closest was $59.90 with TPG for unlimited….the big 3 would have more users with my economic situation if they had similar deals.
I’ll take a connection that provides me with data when in need it ;)
I have been with all the majors and a few minors over the years.
The old adage, “You get what you pay for” still rings true.
it makes no sense at all for Telstra to have a low-cost brand. How would they stop their normal customers defecting to the low cost brand (and therefore reducing revenue). In other words how does a single ISP provide service-value distinction between two internet connection products? Do they only offer “fast” speeds on the premium brand? – even this doesn’t work to expand customer base – it simply divides their existing base. If they “compete” with the other low cost providers they end up competing with themselves. Telstra has always positioned themselves as the premium provider (“best”,”biggest”, “fastest” network etc) – any move in this direction simply undermines that.
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