by Grahame Lynch*

Some 15 years or so ago a group of hyperactive Optus executives mounted a podium in Canberra and breathlessly accused Telstra of deliberately under-provisioning their interconnect gateway, thus causing Optus customers to receive busy signals when they called Telstra lines. It was a charged time for the then new concept of competition: Australia's unique leg-up to Optus in the way of the "preselection ballot" was taking place (a regulated courtesy I understand was extended only in one other country globally, Mexico) and Optus was very concerned that its first customers appeared to be the victims of foul play.

That event set the tone for the subsequent decade and a half, where Telstra is usually depicted as bad and the competitors as aggrieved victims. Never mind that a subsequent regulatory investigation into the great Canberra interconnect incident showed the reality was more complex and that both parties should have shared some blame.

Fifteen years later it is somewhat depressing that these spats are still occurring, more so that again antagonists and protagonists are still shouting at each other and yet to get over their characteristic rhetorical positions.

I'm not fully sold on this week's substantive complaints about Telstra as they seem to subscribe to conspiracy theories rather than accepting that the issues probably have as much origin in simple disincentives to optimise systems—not surprising, since Telstra's financial incentives to be a smiling wholesale supplier keep on being reduced as a matter of ACCC pricing policy by a neat 12% a year (plus a lot more if you backdate it!).

At the same time, it's not really clear how Telstra's logic about not offering ADSL2+ wholesale services can be reconciled with the fact that it does offer ADSL1 wholesale services and plans to offer FTTN access services. I understand the strategic impulses, I don't understand why it already offers what it does and why it promises to offer more in the future.

BLAME TELSTRA: But as with all these spats, it's not particularly intelligent to just blame Telstra foul play for everything, especially given that the environment has been so sharply influenced by external regulatory market design. I'm not just talking about the obvious ACCC strategy to manipulate the market up those "stone steps" by regulating unbundled local loop access at lower and lower prices while doing nought to encourage resale or bitstream models.

For example, over the dying days of the last government, hundreds of millions of dollars were handed out in subsidies to regional DSLAM deployments, not just by Telstra but also by Internode, as part of the Australian Broadband Guarantee. One catch: these subsidies were expressly for retail services only, use to subsidise wholesale builds was prohibited. Indeed, Internode managed to bump Opel out of the Yorke Peninsula this way—not a great win for open competition.

Then there was the Opel grant of nearly one billion dollars aimed precisely at creating a wholesale-only ADSL2+ and WiMax network. Although the original rhetoric suggested this network was only to serve areas not currently covered by broadband at all, various public domain statements imply that Opel will switch on WiMAX and ADSL2+ in regional centres and outer metro Australia covering 30% or more of total households. It's worth remembering that in June 2007, then Communications Minister Helen Coonan said that "the switch on of the 426 exchanges to ADSL2+ will commence immediately across 426 outer metropolitan, regional and rural areas," qualifying this commitment to mean "weeks, not months" at a press conference.

To date, only two exchanges have been enabled and publicly announced as part of the Opel plan and neither appear to offer the promised wholesale access. Nevertheless, presumably any obligation on Telstra to facilitate competition in the regions will have a massive negative impact on Opel's own plans. That's what makes Optus' most recent complaints about Telstra Wholesale's lack of common courtesies so bizarre, given it has been handed a quite attractive opportunity to become a genuinely national wholesale supplier in its own right. (And why do the competitive carriers refuse to make any criticism of the Opel delays—hardly consistent now is it?)

It is now a matter of Optus policy not to make use of Telstra resale products as it has its own DSLAM and HFC infrastructure, what's more it uses unbundled elements to provide its own fully-fledged fixed wholesale offering that turns over the very healthy annualised sum of about $640m or so a year covering voice, business grade DSL and transmission services.

Optus has installed DSLAMs in over 330 exchanges, drilling down deep enough into regional Australia to reach the likes of Albury, Bunbury and Noosa. Apparently there is still plenty of capacity on about 80% of these DSLAMs—doesn't this represent a substantial wholesale opportunity to sell to those apparently aggrieved by Telstra? And what of the fact that those apparently capped exchanges are already site to DSLAM installations from others, presumably few of which are "sold out" in their own right? Is it beyond the access seekers to come to some form of resale, customer exchange or informal sharing arrangement—just as TV networks use pool crews, doctors on leave use locums, florists pool international ordering services and, ahem, competitive carriers form joint FTTN bidding and lobby groups? The answer to this is probably the simple one—the cheap and low entry-price ULL and LSS mandated by the ACCC does little to foster the consolidation or alternate wholesale market development that would solve what economists would call information issues but what the competitive carriers see as monopoly issues.

Which leads us to where I think Internode's Simon Hackett does have a point. Why is the ACCC still so so keen to put everyone on a DSLAM when it is a matter of government policy to throw everyone back off them and on to a FTTN bitstream service over the next few years? It is a massive and gaping contradiction—as Hackett says, FTTN is just xDSL with the ports further down the street. As has happened so many times in recent history, the pledges of the politicians run up dramatically against the long laid if somewhat opaque intentions of the competition regulator.

* Grahame Lynch is CEO and founder of Communications Day, Australia's leading source of daily news for the telecommunications industry. This is an extract of a comment that appeared in Communications Day on 26 February 2008. Communications Day (www.commsday.com.au)