Adam buy harms ‘fragile’ competition: Macquarie


news Business-focused telco Macquarie Telecom has filed a submission with the competition regulator calling for it to block Telstra’s proposed acquisition of Adelaide ISP Adam Internet on the grounds that it would “further weaken” the already “fragile” state of competition in the nation’s telecommunications market.

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.

Several weeks later, national broadband provider iiNet warned the Australian Competition and Consumer Commission that Telstra must not be allowed to introduce a new, low-cost ‘Jetstar’-like brand into the broadband marketplace, using Adam Internet as the vehicle, without strict controls being placed around such an initative, due to the potential for Telstra to further increase its already dominant market share. It is believed that Optus broadly supports iiNet’s view on the matter.

Last week Macquarie — one of Telstra’s major competitors in the business space — filed its own submission with the ACCC on the issue. The submission was first reported by the AustralianIT.

“Macquarie is concerned about the harm to the already fragile state of competition in Australia’s telecommunications sector that would arise if the proposed acquisition were to proceed,” the submission, seen by Delimiter, stated. “In particular, the proposed acquisition would further strengthen Telstra’s dominant market position in a market where competition is evidently weakening. The proposed acquisition is particularly concerning as Australia’s telecommunications sector is in transition to the national broadband network (“NBN”) which is driving major change in competitive dynamics.”

“Macquarie considers that the proposed acquisition will further entrench Telstra’s already dominant market position in the Australian telecommunications sector,” Macquarie added. “This will occur through Telstra acquiring Adam’s customer base which is estimated at up to 100,000 customers.”

Macquarie stated that there were currently “many signs” which indicated that competition in Australia’s telecommunications sector was weakening, highlighting the spate of acquisitions over the past two years as one specific example. Since 2010, iiNet has bought Netspace, Internode, AAPT’s consumer division and TransACT, while TPG has bought PIPE Networks and M2 has bought Primus Telecom. In addition, Further consolidation is also expected with Leighton Holdings recently offering its technology businesses Nextgen Networks, Metronode and Infoplex for sale.

Furthermore, Macquarie highlighted the potential for the construction of the National Broadband Network to depreciate competition.

“At the time when the NBN was first announced it was understood that all retail service providers (“RSPs”) would have ready access to the network services provided by the NBN,” Macquarie wrote. “That is, it was assumed that the barriers to entry would be low. However, as the NBN has taken shape and gained momentum it has become evident that significant barriers to entry do exist for RSPs who wish have an access seeker relationship with NBN Co.”

Macquarie pointed out aspects of the NBN such as the requirement for ISPs to independently source backhaul capacity to all of NBN Co’s 121 points of interconnection if they wished to compete on a national basis using the NBN, an issue which has also previously raised the ire of Internode founder Simon Hackett. Hackett cited the inability of Internode to compete in an NBN world as one reason why he sold his company to iiNet in December 2011.

Macquarie said there were other issues associated with the NBN — such as the costs of establishing and maintaining a relationship with the national wholesaler. And it also raised other issues with the Adam acquisition — such as the removal of an independent buyer of wholesale network services from the South Australian market (Adam would likely only use Telstra wholesale services if the acquisition proceeded) and its fear that Telstra was currently seeking to build up its customer base ahead of the transition to the NBN.

“Macquarie believes that the proposed acquisition by Telstra of Adam should not be allowed as it would lead to a substantial lessening of competition,” the telco concluded. “In particular, it would strengthen Telstra’s dominant market position and further weaken competition by removing an independent player at a time when competitive dynamics are shifting in the lead up to the NBN. Macquarie further believes that the proposed acquisition would set a dangerous precedent by giving Telstra a free hand to pursue further acquisitions.”

I’ve always been opposed to the Telstra acquisition of Adam Internet. Australia needs more players in its broadband sector, not less, and I agree wholeheartedly with all of Macquarie’s arguments here. Telstra must not be allowed to increase its market share — it’s already the dominant player in all areas of telecommunications in Australia and should be restrained from making acquisitions in the space — not set free to do as it wishes.

I also agree with Macquarie’s sentiments about the state of competition in Australia’s telecommunications sector in general. Over the past several years we’ve all watched as iiNet, TPG, Optus (think vividwireless) and others have reined back competition in the space, to the point where we now have only a handful of significant consumer and business ISPs. A similar situation is emerging in the mobile space, as Telstra grabs market share in chunks, Optus stagnates in terms of its customer numbers and Vodafone loses customers en-masse.

At what point will the ACCC say enough is enough? For me, that point is right now, in fixed broadband. Telstra must not be allowed to start acquiring rivals again. That would be a disaster for everyone.


  1. Can’t say I disagree with anything in that article.

    Can someone refresh my memory of who it was that pushed the ACCC to go 121 POI’s?

    Seems none of the RSP’s actually like it, and I vaguely remember NBNCo it’s self not being a fan of the idea, so who actually benefits from it?

    • Backhaul providers wanted 200+, RSPs/govt/NBNCo wanted 14, so the ACCC picked a blind compromise.

      This happens often with technology in general. A classic example is the ATM cell size which ended up as a 5 byte header + 48 bytes (one group wanted 32, the other wanted 64…)

  2. I always figured there was someone pushing the ACCC to go that way though (possibly a backbone provider or similar), seems odd that they’d push something on everyone that no one actually wanted, and which also seems to actually reduce competition instead or promote it.

    Maybe they were as confused about POI’s as I am :o)

    • Telstra and Optus were in favour of the “As many POIs as possible” model as it benefits them with their existing infrastructure. Most everyone else was against it.

        • Every player except Telstra, Optus and NextGen wanted centralised POIs. Telstra Optus and NextGen also happen to have the largest backhaul networks….

          It was a BIG miss on behalf of the ACCC there.

          I think Telstra should be restrained- there have been HUGE pushes by Telstra marketing to get people onto Telstra ADSL before the NBN goes in (bigger potential market and payout) to the extent that they’ve been lying about what services people will get (there’s a thread over on Whirlpool about Telstra sales reps telling people they’re getting “the NBN” when they get ADSL or HFC installed). They need to be physically restrained if the regulation isn’t doing so. Preventing takeovers is one good way to do it.

  3. MT is crying poor because they’re in the data centre market and Adam scored the SA Health contract off of em by, obviously undercutting MT. The reason why Adam undercut them is two fold. One for the anchor customer to justify to capex on the data centre and secondly because they knew Telstra was ultimately going to pick em up and thus they had carte blanch to go hard and lose margin on the deal.

    MT feels threaten by Telstra because the data centre market is the only place they have any sort of advantage on Telstra. However with Telstra’s aggressive push into cloud and the purchase of Adam and its ready made centre, there obviously feeling threatened by the, irony, competition.

    Is it a fair fight? Can MT hold its own and compete against Telstra’s natural dominance? hmmm its a hard one for sure, especially since i have very little empathy and sympathy for the likes of MT.

  4. I think there is room for a divestment here of certain assets to satisfy conditions precedent in ‘no substantial lessening of competition’.

    It’s true that TPG does not have a reasonable penetration into SA, mainly because of the Agile & Adam presence. They have a ‘handful’ of DSLAMs in position according to (I count 7?)

    I would suggest that Telstra divest it’s Adam DSLAMs within SA to another party other than iiNode or Optus in order to bring another player into the SA market.

    I believe TPG would be a reasonable choice, and a player who could indeed compete with the incumbents while bringing lower prices. Primus are also deploying DSLAMs.

    If either of TPG or Primus A number of exchanges would have both an Adam and a Primus/TPG DSLAM in them but these could be re-deplyed to another location (or the Primus exchanges ‘in-build’ moved to a different exchange).

    If this sort of divestment was not to happen, the acquisition of Adam by Telstra will reduce telecommunications competition in SA.

  5. The telecommunications industry has only itself to blame.

    Telstra invested in network and infrastructure and then invested in marketing to bring customers to their network at the exact time consumers saw compelling benefits in new smartphone handsets – primarily iPhone and content.

    Vodafone and Optus invested the least it possibly could on network infrastructure and spent money on branding (Cricket? / Stupid aniaml ads) and paid the price by having high cost, low value consumers just as smartphones took off.

    The next big investment from Telstra is in a content play to transition consumers from ADSL / Cable to long term NBN based internet. Where is Vodafone and Optus here? Nowhere.

    Meanwhile Telstra goes about building a 4G network, Optus are fast following and Vodafone is wondering about how to convince their regional HQ how to justify a few billion dollars capex in one of the worst performing regions in the world.

  6. If the ACCC thought is was ok for iiNet to buy Internode 12 months ago, one could hardly see them turning down the purchase of Adam to Telstra.

    If they (ACCC) do knock it back, is Adam still for sale and could iiNet be a potential buyer and if so what I wonder what these same people would say about that?

    • To me it sounds like Macq Tel had place various bids over the years and only to be rejected.

      Someone sounds bitter?

  7. I’ll keep saying time and time again. Adam Internet has a large customer base mainly in Adelaide and outside of adelaide you have Ex-adelaide people to access their internet from

    It’s not a threat to competition or less players. Matter of fact with the NBN coming online this means we can see newer generation of Internet services providers focusing on their niche markets, Much like Adam and Internode did 10 years ago when they started offering ADSL2+

    People are treating it like would be optus. Telstra regularly acquires ISP but not widely public announced or reported in the media

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