Internode suspends business in backhaul capacity pricing protest

Protesting against Telstra's dominance in broadband backhaul capacity across Bass Strait, Internet Service Provider (ISP) Internode will suspend sales in Tasmania from May 6, 2008.

The Australian-owned company will cease new sales of its 8 Megabit per second (Mbps) and Extreme ADSL2+ Home plans in Tasmania until affordable backhaul capacity is made available.

Internode managing director, Simon Hackett, said the decision has been made reluctantly but it will protect service performance for existing customers.

Hackett said Tasmanian customers with existing 8 Mbps and Extreme ADSL2+ Home broadband plans can continue on their current plans but there will be no new sales until transmission costs decline.

From Tuesday, he said local residents can purchase Home broadband plans running at standard ADSL speeds up to 1500/256k.

Business plans, at any speed, will continue to be on offer.

"Currently, broadband backhaul capacity across Bass Strait is limited to a monopoly supplier, Telstra," Hackett said.

"As a result, it is six times more expensive for Internode to transfer data between Melbourne and Hobart than it is to move data between Melbourne and the United States.

"Unfortunately, the cost of bandwidth to Tasmania remains appalling, as often happens under monopoly situations," he said.

"We've recently completed a major upgrade of our link to Tasmania, but continuing to sign up new customers for high-speed, lower-cost Home plans would quickly create new congestion issues.

"While we know this decision will disappoint some people, we need to properly service our existing Tasmanian customers with the resources we have in place.

"Until transmission costs decline, this is the best way of doing it."

Based on past experience, Hackett expects the arrival of infrastructure competition with the eventual launch of the long-awaited Basslink cable to put downward pressure on prices.

He said Tasmanian customers could obtain a new high speed service by selecting a Soho broadband plan, which cost $20 per month more than a comparable Home plan.

"This cost is approximately the additional impost, on a per-user basis, that Internode pays to acquire monopoly-priced backhaul to Tasmania from the mainland," he said.

"This exemplifies the effective 'tax' on retail customer services that is generated when the underlying service economics are the prisoner of monopoly infrastructure.

"It underscores the potential for national retail broadband prices to rise, should Telstra construct a monopoly-owned FTTN network."

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Telstra was not available for comment at press time, but the telco has repeatedly claimed it is the victim of heavy handed regulators particularly from the likes of the Australian Competition and Consumer Commission (ACCC).

A number of senior Telstra executives have criticised the regulator for using the Trade Practices Act "to inflict damage on shareholders and its ability to deliver wholesale services."

However, evidence of the telco's dominance in the Australian market was outlined in a report released last year by telecommunications analyst Paul Budde.

In 2007, Telstra maintained its stranglehold on the wholesale market with revenues of just under $3 billion, which constitutes more than 70 per cent of the $4.2 billion wholesale market.

Budde said demand for broadband remains strong and will cross the five million mark this year.