Prospects bleak if Telstra's case fails

By Richard Braddell

Between the lines

Telstra will appeal against the High Court's ruling on its Telecom rebilling action. For the sake of competition, and cost savings to business, let's hope it succeeds.

However, Telstra's chances look slim. The High Court fulsomely rejected the company's claim to have rebilling reinstated and since the action is only for an interim injunction, the Court of Appeal will be reluctant to curtail Telecom's perceived rights without first having them tested in a lengthy trial.

In the meantime, the dispute highlights an increasingly bleak outlook for the smaller industry players who depend upon Telecom for customer access.

It also foreshadows a difficult life for Telstra which, despite its profile and business presence, remains among that second-tier of carriers because of its limited investment in its own network and its reliance on Telecom for customer access.

Telstra business is built around packages offering savings through simplified administration and tailored services, even though many of the components of this are delivered through its competitors.

To succeed, Telstra overcame two obstacles: its heavy reliance upon Telecom, and Telecom's practice of often charging its own business customers less for services than the wholesale rates it offered to competitors like Telstra.

Serendipity seems to have played its part since a crucial rebilling agreement which sidesteps Telecom's pricing was negotiated by Telecom's middle-management, unknown to the company's top echelon.

In some other countries, such an arrangement would have been unnecessary because of regulatory ground rules about interaction between an incumbent and competitors. In the US, incumbent telcos are required to sell to competitors at retail, less a discount.

In New Zealand the underlying message from the dispute and the subsequent argument between internet service providers and Telecom, is that of a telco world split between those with networks and those without.

The likely scenario is one where telecommunications will break into duopolies in different markets, with Telecom pitted against Vodafone in cellular, against Saturn in residential and either Clear or Telstra in the business market.

But if interconnection costs and excessive charging by the network players squeeze out the rest, that will be more than a pity. As Telstra affidavits show, savings to consumers - and presumably the economy - through innovative packages offered by second-tier players can be immense.

Without those small players, cosy duopolists will have that much less of an incentive to compete on price and some niche innovations will disappear. The case for industry specific regulation has never looked stronger.