12 May 2010
How might Telstra respond in a competitive scenario?
Telstra has several options that might slow down fiber take-up and upset the NBN Co’s business strategy:
- Cutting DSL and ULL prices to slow traffic migration to the NBN.
- Upgrading its HFC network to DOCSIS 3.0 nationally, and cutting retail prices for its high-speed cable download products. It could also leverage Foxtel pay-TV services by offering a triple-play bundle.
- Cutting 3G data prices.
In the initial years, when speed is less of an attraction for customers, these could slow migration considerably. But these actions would also cost Telstra revenue. And though the HFC network is a potent weapon in the roughly 25% of the market that it covers, the government can make it harder to use alternative networks.
The study canvasses options for preventing “cherry-picking,” ranging from imposing technical standards and equivalent wholesale access to mandated pricing, universal service levies, and even prohibitions on construction. For now, the study only recommends basic measures such as technical standards and equivalent access.
Irrespective of the details, the competitive scenario between Telstra and the NBN Co would split available market revenues between the two, pushing down returns for both. This outcome is suboptimal for both parties.
We still think a deal is possible, but that will depend on finding common ground or one side making concessions. But after a year, the common ground has not yet been found, and neither side has blinked.