Study: Telstra's broadband network would cost Aussies more

A report released Thursday by the Centre for International Economics (CIE) claims that Australian consumers would pay 15 percent more for broadband services if Telstra wins the contract to build and manage the new national broadband network (NBN).

The report, titled "Telstra return on a national FttN network: community impacts," claims Telstra would reap an additional A$897 million (US$858 million) a year from consumer's pockets, based on the telco's initial estimate that the NBN would cost around A$9 billion to build (including the government's A$4.7 billion contribution).

The CIE figures are based on comparisons of what consumers would pay for broadband services from an alternative operator, with a rate of return based on benchmark market returns achieved by other telecommunications providers.

CIE director Kerry Barwise will present key findings of the report to Senator Conroy's expert broadband panel, senior government officials, telco industry experts and local and international speakers at an industry event in Canberra Thursday.

Telstra Wholesale managing director Kate McKenzie responded swiftly, calling it "a completely bogus report paid for by a bunch of competitors."

"The report has no basis in fact. It is a dishonest distortion that is designed to do nothing but delay the process," McKenzie said.

The report labelled comments by Telstra Group director of communications Phil Burgess to the Weekend Australian that the company needs a return "north of 18 percent" on the NBN as potentially "consistent with the abuse of market or monopoly power."

The G9 Terria consortium said if it wins the NBN contract it would be happy with a ROI of 13 percent.

The CIE report also considered two other cost scenarios:

Telstra CEO Sol Trujillo has recently claimed that network build costs could escalate to A$15 billion. If this was the case, Australian's would pay an additional A$1.4 billion a year for broadband services.

Last year Telstra proposed with the then federal government to build a broadband network to capital cities and the Gold Coast at a cost of A$4.6 billion. If Telstra were just to build this network, it would cost consumers an additional A$443 million per annum.

All three scenarios, the CIE claims, would increase inflation, reduce national growth, lower wages and reduce national consumption.

Executive director of the Competitive Carriers Coalition (CCC), David Forman, said the report supports the industry's greatest concerns - that if Telstra is allowed to provide a monopoly high-speed broadband service it will have a significant negative impact on Australian consumers and the economy.

"At a time when interest rates are increasing, food costs are on the rise and petrol prices are at an all time high, this is a simple proposal to strip money from Australian families to satisfy the greed of Telstra's insatiable monopoly demands."

If the network cost were $9.3 billion, the additional revenue that Telstra would need to obtain each year is $897 million. This is similar to having a telecommunications private tax, the report said.

Forman labeled the extra costs to consumers a "Telstra Tax" and said the nation cannot afford to let Telstra recreate another monopoly.

"Telstra has for three years offered only small glimpses of what it was demanding from successive federal governments and has refused to reveal publicly the full detail of its plan to build a fiber to the node network. It is clear that it has something to hide. This analysis shows why Telstra has not gone public," he said.

Telstra is interested in getting on the business of designing a 21st century broadband network for Australia rather than spending money on fanciful reports and media stunts, McKenzie said.

"For three years Telstra has tried to build a high-speed broadband network for Australia, for three years these people have tried to stop us. How can these guys know what our prices will be when we are still doing the calculations? Why don't they come clean on their own prices?"

"This project is too important to be bogged down by these sorts of stunts and distractions. Do they think Australia's broadband future is a joke? We take it very seriously indeed and we are getting on with the job of designing a network," she said.

The Tell the Truth Telstra (T4) initiative, which includes ISPs such as AAPT, Adam Internet, iiNet, Internode, Optus, Primus, Unwired and others, is hosting an industry event in Canberra today that will present live to Senator Conroy's panel of experts that will determine the regulation of the NBN.

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