Competition concerns over Telstra takeover deal

TELSTRA will learn on Thursday whether it is allowed to proceed with plans to turn a small Adelaide-based internet provider into its own Jetstar-like national broadband provider.

TELSTRA will learn on Thursday whether it is allowed to proceed with plans to turn a small Adelaide-based internet provider into its own Jetstar-like national broadband provider.

Telstra announced plans to buy Adam Internet for about $55 million in late October, but is still waiting for clearance from the competition watchdog.

There are concerns the deal will lessen competition in South Australia and that there are insufficient controls to stop Telstra giving Adam more favourable wholesale prices than other competitors.

Optus, iiNet and business telco Macquarie Telecom have all expressed concerns Adam Internet could undercut their prices if Telstra gives it cheaper access to the copper network.

The chief regulatory officer at iiNet, Steve Dalby, said its main concern was that Telstra would be able to offer "sweetheart deals" to Adam and at the same time absorb all its marketing costs.

"That's something no other telco can do and it's something that if approved could set a precedent for other takeovers," Mr Dalby said in October.

The Australian Competition and Consumer Commission has also raised concerns about this. "Adam Internet relies on Telstra Wholesale [to serve consumers], so you do not want [Adam] getting more favourable terms than other Telstra Wholesale customers," ACCC chairman Rod Sims said.

"We have got to make sure, that in [Telstra] having their wholly owned subsidiary, which was not envisaged with the structural separation undertaking, that there is some mechanism to make sure that Telstra cannot favour Adam Internet."

The problem is Telstra announced the purchase several months after the competition regulator finished writing new competition rules for Telstra, known as the structural separation undertaking. For the first time Telstra is forbidden from giving its own retail division cheaper wholesale access to consumers' phone lines than Telstra's competitors can get. However, the rules did not consider what would happen with a wholly owned subsidiary.

The other concern is competition in the fixed-line communications market in South Australia. Telstra supplies between 41 per cent and 47 per cent of broadband customers. Adam has fewer than 100,000 residential, business and government customers nationally, but has up to 20 per cent of the broadband market in SA and up to 25 per cent in Adelaide.

This means Telstra would have at least a 60 per cent market share in SA and close to 70 per cent in Adelaide.

Another independent Adelaide-based broadband provider, Internode, was bought by iiNet a year ago.

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