Telstra blamed for iiNet regional decline

iiNet has blamed expensive Telstra port prices in regional and rural Australia for a portion of the 43,000 off-net broadband customers that it lost in the last financial year.

Michael Malone
(Credit: iiNet)

The company added around 8000 new customers, excluding AAPT customers brought on by the acquisition in September last year, but iiNet CEO Michael Malone told journalists during a results briefing yesterday that customer gains in suburban Australia were offset by the losses in regional Australia.

"We've actually grown about 51,000 during the year in on-net customers, which is suburbia, whereas off-net, we've actually decreased by about 43,000," he said.

"Some of that has been from us migrating customers onto our own infrastructure, but a lot of that is real loss of market share in those areas we are purchasing wholesale services from Telstra, and Telstra is charging more for the ADSL2+ port than they are charging retail themselves. So we're actually doing it pretty tough in regional Australia."

Telstra's price squeeze in areas where internet service providers (ISPs) have not built out their own ADSL2+ infrastructure has been a major issue for Telstra's competitors over the last few years, with Internode founder Simon Hackett raising the issue on several occasions. Most recently, he blamed the price squeeze for a rise in Internode's plan pricing.

Also a concern for Malone was Telstra's upgrade of the South Brisbane exchange to fibre. He said that iiNet is not pleased with the prices that Telstra intends to charge when it moves its wholesale customers over to fibre, or the products it will allow retailers to offer.

"We're looking at all options. We largely have a gun to our head on this one. Telstra's saying, 'we're going to be switching off this network shortly, do you want to sign this contract?'," he said.

"We have a lot of customers on there now, so we've got to give them something. We're signing onto the Telstra agreement so customers can get a continuing service, but we're not particularly happy with the pricing or the feature set, so we're exploring whatever options we can there."

The company's fetchtv product, for example, would not be able to be offered via multi-cast, as Telstra does not allow it.

As part of Telstra's agreement to structurally separate and move customers onto the National Broadband Network (NBN) over the next 10 years, it has submitted an undertaking to the competition regulator to outline how the Telstra wholesale arm will operate in the time until the NBN is fully rolled out. Although this is aimed at addressing some of Telstra's rivals' concerns about pricing, Malone said that the undertaking was "completely inadequate".

"There's a lot of work to be done on it; it's a first cut. We look at some of the things in there, such as the supposedly independent party is appointed by Telstra, which seems odd," he said. "There's a ream of things in there we think are inadequate."

NBN pricing

Malone said that iiNet would imminently release pricing for commercial services on the NBN "within weeks". He said that based on the company's calculations, he expected to be able to offer similarly priced services on the NBN as he does on ADSL2+ today, and that there would be "a big healthy drop" in the prices for regional areas.

"In a perfect world, of course, I would want the top-line price to be pretty exactly the same, because then most customers would get a better product for about the same price that they're paying per month now. We're still modelling up exactly how to do that best, though," he said.

Acquisitions

In the last financial results, iiNet predicted that the acquisition of AAPT would give the telco roughly 650,000 broadband customers. This year, however, the ISP reported a total customer base of 641,000. iiNet's chief financial officer David Buckingham said that although iiNet had slowed AAPT's churn rate, it was still losing customers rapidly at the time of acquisition.

"The 650 to 640 is primarily driven by the fact that we bought AAPT, and that's a declining business," he said. "The core business of iiNet is growing strongly, but the drop-off in AAPT is bigger than the iiNet increase."

Malone said that he plans to "retire" the AAPT and Netspace brands. He said that like previous company acquisitions like Ozemail, iiNet would continue to support the names but wouldn't advertise them.

"We're not advertising it any longer. We'll obviously support it ongoing, so from the customer's point of view, nothing will change. We don't intend to invest any further in the Netspace brand. Likewise AAPT," he said. "The iiNet brand has more equity and momentum."