- Are you someone who lives in the regional areas of Australia?
- The Economic Reality Of It All
- So, Why Is Telstra’s Wholesale Price So Darn High?
Are you someone who lives in the regional areas of Australia? If so, you may have experienced some trouble when it comes to trying to sign up to a broadband connection. Broadband when living in a regional area is very much like going to your favourite fast food joint and not being able to order 90% of the menu - it is just not fair! Unlike your counterparts who live in the metropolitan areas of the country, you will will find yourself being turned away again and again for broadband deals, and this can be a great annoyance.
So, why is this the unfortunate reality? Well, first of all, we have to look into Telstra’s role in all of this. Telstra is often lamented as a monopoly, but this is not exactly 100% the case. Firstly, you have to take note that Telstra is actually two separate entities under one large banner. These entities consist of BigPond, Telstra Home Phone and Telstra Mobile - the retail providers of services.
Turn your head in the other direction and you will come across Telstra Wholesale - the owner and operator of the big copper wire telephone network on which most ISPs use to partially transmit their connection to your home. This copper wire network is gargantuan in size and highly complicated. In each area, every home is connected to a pillar in the street; these pillars are connected to a local exchange, and each exchange connects to a state-based ‘head-end. Eventually, all these roads will lead to NSW or Western Australia, where our international cables connected Australia to the rest of the globe.
What most are unaware of is that the links between states and countries are not actually a monopoly that is owned by Telstra. If anything, Telstra Wholesale only has a monopoly on the connection between your home and the pillar, as well as the connection between the pillar and the exchange (also known as The Last Mile). After these exchanges, giants such as Internode, TPG and Optus operate their own connections back to NSW and Western Australia. After that, they use their own connections to connect us to the rest of the globe. This is where Telstra does not have a monopoly. Furthermore, at about 15% of exchange areas around Australia, Optus has their own Last Mile that makes it way into people’s homes.
In other words, Telstra Wholesale does in general own a monopoly on the very last part of your connection. Aside from that, they have plenty of low cost competition. Each competitor will set up a DSLAM at the exchange, which is a big piece of networking equipment that your individual copper line will get routed to.
The Economic Reality Of It All
DId you know that there are an estimate of about 2000 active exchanges in Australia? Each of these exchanges has been crafted to provide over 20,000 homes with a telephone service which is possible on a copper line up to about 200km. ADSL, ADSL2+ and NBN allows for a digital, broadband internet connection over a copper phone line – but this is only capable up to distances of about 4.5km or so. At many urban exchanges, there are easily over 20,000 residences that are within a 4.5km range, so the copper loop will be able to get an ADSL connection to just about everyone.
However, in many regional exchanges, there may not be 20,000 residences for a wide distance of 200km or more. This is why only a small portion of potential customers in these regional areas will be able to get aa will be able to get an ADSL or NBN connection.
The cost to install DSLAM into an exchange is quite exorbitant, and apart from the cost of the equipment and maintenance, there is also the looming issue of wiring it up to your own network that spans the rest of the country (usually via large fibre optic links).
So if a company such as TPG is looking into your area, they are going to realise that it will cost them over half a million to put in a DSLAM in an area where there are only 2000 potential customers to fight over. Because of this, they probably will not be able to afford to do it. This reality is why out of 2000 exchanges, even big scale competitors such as TPG and Internode only serve 400: of course, these will be the 400 most densely populated exchanges.
When it comes to everywhere else, Telstra Wholesale will offer these companies the ability to rent a full connection from them, since Telstra maintains a DSLAM at just about every exchange as part of their service obligation. And guess what? This is actually a very expensive task - let’s look at a comparison:
Renting a ‘last mile’ connection over Telstra Wholesale’s network costs an ISP about $25 - $30 per month. This is the ‘line rental’ that gets passed on to the customer, and this is why line rental usually costs around the same price as this. To rent a full connection off Telstra costs an ISP $45 per Megabit-per-second (Mbps) which is insanely costly.
Because Telstra Wholesale’s price is so wildly high, competitors will offer re-sold Telstra plans that are significantly higher than the plans offered on their own networks. These are normally known as Off-Net Plans.
So, Why Is Telstra’s Wholesale Price So Darn High?
Telstra’s wholesale prices are so steep because unlike their competition, they can’t just ‘cherry pick’ the exchanges that will offer a great return on their investment. Unfortunately, they are obligated to service all areas, regardless of profitability. Telstra also has to offer uniform prices, so that higher price represents the mediated price between profitable and non-profitable areas.
This also relates to why BigPond costs more than most. BigPond has to charge the same price, regardless of whether you’re in metro Melbourne or in Woop Woop, meaning their prices are rationalised to a higher price than everyone else.
Essentially, you will find that most Off-Net plans are price at around the same cost as BigPond plans. However, the advantage ISPs have is that they can compete on other factors, such as how much data you get for the same amount of money, contract length or other added bundles and goodies that you will receive for your plan.