Competition concerns over Telstra takeover deal
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.
Frequently Asked Questions about this Article…
Telstra announced plans to buy Adelaide-based Adam Internet for about $55 million, with the stated aim of turning the small provider into a Jetstar-like national broadband business. The deal was announced in late October and is awaiting clearance from the competition watchdog.
Regulators and rival telcos are worried the takeover could lessen competition in South Australia by giving Telstra's newly owned Adam Internet access to more favourable wholesale terms. Concerns include the potential for preferential wholesale pricing and marketing advantages that could let Adam undercut other providers.
Optus, iiNet and business telco Macquarie Telecom have all expressed concerns, and the Australian Competition and Consumer Commission (ACCC) has formally raised issues. iiNet's chief regulatory officer Steve Dalby and ACCC chairman Rod Sims are quoted in relation to the takeover.
The ACCC is reviewing the deal and has raised concerns about Adam Internet potentially getting more favourable terms from Telstra Wholesale than other customers. The regulator is considering whether mechanisms are needed to prevent Telstra from favouring a wholly owned subsidiary.
Telstra already supplies between 41% and 47% of broadband customers nationally. Adam Internet has fewer than 100,000 customers nationally but holds up to about 20% of the broadband market in South Australia and up to 25% in Adelaide. If combined, Telstra would have at least a 60% share in South Australia and close to 70% in Adelaide, according to the article.
The structural separation undertaking are competition rules written for Telstra that, for the first time, forbid Telstra from giving its own retail division cheaper wholesale access to customers' phone lines. The rules did not anticipate a wholly owned subsidiary like Adam Internet, which is why regulators are concerned about potential gaps in enforcement.
Rivals fear Telstra could offer 'sweetheart deals' to Adam Internet, including cheaper access to the copper network and the ability to absorb marketing costs, advantages that other telcos would not be able to match according to critics quoted in the article.
Yes. The article notes that another independent Adelaide-based broadband provider, Internode, was bought by iiNet about a year earlier, illustrating recent consolidation activity in the sector.
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