Does Australia Really Need 3 Phone Networks?

phone network

In many countries with high populations in relation to land area, such as many European countries, the cost of installing telecommunications per head of population is far less than a country like Australia which has only 24 million people covering a huge land area. The concentration of people is mainly around the coast, but even there, there are vast distances between towns. In the regional inland areas there are smaller populations which focus their activities on mining and other primary producing activities and to a certain extent on tourism.

What happened when there was only Telstra?

For a long time communications linking regional remote areas was the responsibility of the government owned company, Telstra, but over a period of time this was privatised. This eventually opened up telecommunications services to competition, bringing about the rise of Optus and Vodafone, which started to invest in parallel network infrastructure throughout the country. This of course has been paid for by the users, not the companies which are raking in millions of dollars of profit. In some cases, as with the black spot funding by the federal government, they aren’t even prepared to plough back profits to improve their networks unless they are given tax payers funds to do so.

Who is likely to invest in regional Australia if there is no profit incentive?

The government is now trapped into trying to find ways of getting regional Australia connected as private telcos have no interest in providing non-economic services.

Telecommunications for householders should be a right, not a privilege, as it provides a communication method for families to connect with their kin, a source of up-to-date news as well as links to emergency services and weather warnings. It hardly seems to be much to ask for the citizens of a country to all have equal access to modern communications. With the current situation of 3 main telcos vying for the lion’s share of the telecommunications cake, none of them want to invest in uneconomic infrastructure. So who steps in? The government, of course!

Despite efforts to narrow the gap between rural and urban areas, an independent report revealed recently that Telstra’s customers outside of the metropolitan areas pay far more for telecommunications services than people living in the big cities. You can’t really expect much more as Telstra has to account itself to its one million shareholders and the company is currently the most widely held ASX listed company. Investing in non-economic infrastructure would not go down too well with the shareholders if their dividends are hit.

The “Telstra Price Premium” report by the Centre for International Economics also revealed the total value of the premium paid by Telstra customers each year amounts to $1.4 billion for mobile services and $1.8 billion for fixed services, which is equivalent to an increase in petrol prices of around 14 cents for each litre.

Vodafone Reveals Price Disparity

Dan Lloyd, Vodafone Chief Strategy Officer, recently exposed how lack of competition in regional areas is leading to an increase in the gap between regional and urban customers and what they are paying for mobile services. He says there is a need for urgent reform to allow the networks to be more competitive so a better deal can be offered to rural customers. He also said that the price premium for regional Australia’s customers was $10 per month for pre-paid services and for post-paid exceeds $4 covering the same period. This is double what a Sydney customer would pay. He also says that many customers only have the possibility of connecting to Telstra because of where they live. He firmly believes that more competition would change all that.

Would domestic roaming be the answer?

Australia is stuck with what it’s got at the moment and that is 3 main telcos, Telstra, Optus and Vodafone. There is also a heap of other Mobile Virtual Network Operators (MVNOS) like Virgin Mobile, Amaysim and Boost that all want to increase their bottom line. None of the companies want to use their profits to invest outside of the main metropolitan areas, as the benefits gained financially would not be substantial. The Australian Competition and Consumer Commission is still discussing whether allowing domestic roaming would be the answer, by increasing competitiveness and bringing the amount rural customers have to pay more in parity with their urban neighbours. This is going on the assumption that other providers, apart from Telstra, are willing to lower their rates in order to attract customers.

Domestic roaming is permissible in some countries

When there is competition between telcos in countries where the population isn’t concentrated in specific areas but is more spread out, domestic roaming is a common solution, and it certainly makes economic sense as it means infrastructure such as more towers don’t need to be built. However, in Australia, domestic roaming is slow to be fully considered. Meanwhile, to offset the disadvantages that rural Australians have to face, subsidies are provided to Telstra to the tune of $300 million annually under the Universal Services Obligation (USO), which helps little to keep prices to reasonable levels. Even the Productivity Commission sees flaws in the USO, as it is failing to truly account for its use of subsidies and it doesn’t release information about where the subsidies are actually ending up.

Vodafone claims Telstra’s prices are unreasonable

There are other findings in relation to Telstra’s charges which are that Telstra customers are paying $3.2 billion every year over the average cost of similar services offered by other service providers. This price premium paid out by Telstra customers is $10 monthly for a mobile plan that is post-paid. A SIM only post paid mobile plan is $5, while $17 monthly is paid for a mobile pre-paid plan and a fixed line is $18 per month. This premium that Telstra customers are faced with equates to a 14 cent per litre rise in the price of fuel.

It’s not surprising to find that in regional areas Telstra’s premium charges have a great impact, because Telstra controls the highest proportion of the market share for the mobile service and there are more pre-paid than post paid services.

Telstra is not particularly happy about the report and thinks that Vodafone is trying to get a free ride off its network, especially with the suggestion that domestic roaming should be implemented. This would allow more competition where Telstra is the only telco with customers in a particular region. Telstra doesn’t see price as an issue as it believes customers in regional Australia are truly benefiting from its investments. It views Vodafone’s position as just a failure on its part for not putting investments itself in regional Australia so that its paying customers who travel to these areas can use their mobile devices without disruption.

The Australian Competition and Consumer Commission has already launched their 3rd inquiry into roaming, but it hasn’t as yet come up with any concrete decision about national roaming.

In the meantime, both Optus and Vodafone haven’t been completely sidelined, but have themselves been investing billions of dollars in order to improve their network’s quality which has reduced to a certain extent Telstra’s advantage.

But who is really doing the investing?

It seems the telcos can’t do things on their own or are unwilling to invest too much money so the federal government steps in with the mobile black spot program. It has already committed $220 million to infrastructure for the programme. The extended mobile coverage is designed to link up the major regional transportation routes, be brought to the smaller communities and in places that are more prone to natural disasters. It is not expected to happen overnight but is being done in rounds. This tax payers’ money will deliver:

  • 765 upgraded and new mobile base stations;
  • 86,300 square km. of upgraded and new handheld coverage;
  • 202,300 square km. of new external antenna coverage;
  • more than 7,600 kilometres of new coverage on major transportation routes.

Round 1 of this programme is in the process of putting into place 499 upgraded and new mobile base stations throughout the country. This will lead to 68,600 square kilometres of coverage for hand held phones, 150,000 square km spread across regional areas of Australia using new external antennas and 5,700 kilometres of coverage along major transportation routes which includes new handheld phone coverage or external antenna coverage. Overall the budget for round 1 is set at $385 million. The Australian Government is basically funding this new infrastructure with Telstra offering $165 million of investment cash and Vodafone $20 million.

5 of the country’s state governments have chipped in to round 1, with New South Wales contributing $24 million, Victoria $21 million, Queensland $10 million, Western Australia $32 million, leaving Tasmania with the smallest sum of $0.35 million. $1.7 million comes from other sources, such as local governments, community organisations and businesses and community organisations.

The 499 mobile base stations talked about in round 1 will take 3 years to complete. The sequence of the rollout by Telstra and Vodafone are influenced by such things as getting local government’s planning and approval and where needed consent from the landowner which includes gaining access to existing infrastructure, backhaul and power.

Just recently the government announced what would be included in the 2nd Round which includes the delivery of 266 upgraded or new mobile base stations across the country.

  • They will provide over 17,700 square kilometres of additional and upgraded handheld coverage to remote and regional Australia
  • 52,300 square kilometres additional external antenna coverage
  • 1,900 kilometres of additional handheld coverage over major transportation routes.

The amount for Round 2 is $213 million for new mobile base stations infrastructure. This Government funding has some help from the telcos as well, with Telstra contributing $63.7 million, Optus around $36.4 million and Vodafone a whopping $1.6 million!!!

And there is still more to add from the states along with the bureaucracy that goes with it which are

  • New South Wales = $8.3 million
  • Queensland = $13.7 million
  • South Australia = $1.5 million
  • Tasmania = $0.35 million
  • Victoria = $7.9 million
  • Western Australia = $21.8 million
  • $475,000 from businesses, local governments and community organisations.

It won’t be until 2017 when customers will be able to see the benefits of this investment.

Summary

The whole way of improving telecommunications seems very unwieldy as so many interested parties have got themselves involved that the amount paid out probably by taxpayers when it comes to federal and state contributions and the subscribers when it comes to the telcos contributions. It’s a sad state of affairs when a private company can’t provide what is expected of it and the government has to step in to ensure the country as a whole benefits from the increase in technology which changes almost by the hour.

Privatisation of telecommunications back in the 1990s has today resulted in a scramble between current carriers trying to get their share of the telecommunication’s cake where it’s most profitable while leaving the government to bail them out in the more remote areas. It will be interesting to see whether Telstra, Vodafone and Optus will be asked to contribute any of their profits made from government funded infrastructure or it will just end up as a government handout that doesn’t need to be repaid.

 

Neil Aitken

Having worked in 3 countries for 4 telcos on both voice and data products, Neil is in a position to give you the inside track. Get beyond the marketing messages to the best plan for you.