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.