Motley Fool Australia

Telstra under attack from rivals

Telstra’s dominance as an Internet Service Provider has many of its competitors worried about its ability to use its power to gain an unfair advantage until the NBN is rolled out.

For years, Telstra (ASX: TLS) has owned the copper cable used to connect houses and businesses throughout Australia. However that will all change if the NBN is rolled out according to Labor’s strategy. Under its plan, fibre optic cable will run straight into households and provide much faster internet speeds than can currently be run over the existing cables.

Previously rival ISPs like Optus, owned by Singapore Telecommunications (ASX: SGT), iiNET (ASX: IIN) and AAPT, owned by M2 Telecommunications (ASX: MTU), have raised concerns about Telstra’s ability to substantially increase its wholesale prices before customers are able to move off the copper network.

As a result a Structural Separation Undertaking (SSU) was introduced to make sure Telstra’s wholesale unit treated both its own retail business and its competitors the same. However Telstra has a history of doing as it pleases.

Since the NBN isn’t likely to be completed until 2021 and by 2019 there’s still expected to be 2 million households without the super-fast internet, AAPT has become concerned that “Telstra will have the ability to deny access or charge monopoly rents in circumstances where no alternative to the NBN is available”. It will enable it to “apply a retail price squeeze” that will increase their market share, according to iiNET.

The Australian says the ACCC is reviewing whether it “should again set new rules for Telstra”. Under the current deal with the NBN Co, Telstra will be paid approximately $5 billion to lease infrastructure and $4 billion in disconnection payments. However Optus believes “The transition to NBN will most likely increase the incentive for Telstra to utilise its ownership of the (customer access network) to prevent other RSPs from gaining retail market share during the ‘land-grab’ of subscribers during NBN roll-out”.

Foolish takeaway

Some investors fear Telstra’s dominance could be undone when the NBN finally arrives. However Telstra remains a healthy company in a booming industry that can only get larger as more Australians begin to rely on technology and the internet.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

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