by Byron Connolly

Telstra customers paying $3.1B price premium

Jun 15, 2015
Retail IndustryTelecommunications

Telstra customers are paying a big price premium on services, totalling $3.1 billion a year, new research has found.

The Centre for International Economics (CIE) report claimed that the premium for using Telstra services over other operators offering comparable services, is $20 per month for fixed line and $9 per month for mobile. Telstra customers pay 50 per cent more per 1GB of data than they would with other providers, the report claimed.

CIE prepared the report on behalf of Vodafone Hutchison Australia.

The report highlighted that the premium paid for Telstra services reflects both limited competition and differences in service quality, which have emerged from structural issues within the Australian telecommunications market.

“There are many areas where Telstra is the only provider of services, particularly in regional areas. This means regional consumers are heavily affected by Australia’s telecommunications market structure,” the report said.

The report identified five barriers to reduced prices. These included:

  • Subsidisation of Telstra through the Universal Service Obligation (USO)
  • Regulated transmission prices that exceed costs
  • Disparity in spectrum holdings between operations and lower availability of spectrum in regional areas
  • Insufficient incentives for co-locations of mobile facilities
  • Customer reluctance to move to better value services

The additional price consumers pay for purchasing telecommunications services from Telstra is measured by comparing the prices of otherwise similar services.

For example, the price difference for a fixed line bundle that offers the same inclusions for free calls and same data levels.

Consumers are paying $23.70 more for a fixed line services plan with Telstra than a plan with iiNet, TPG or any other provider except for Optus, the report said. Consumers pay $8 more for a plan with Telstra than a plan with Optus.

Vodafone director of strategy and corporate affairs, Dan Lloyd said the report highlighted the urgent need for accelerate telecommunications policy reform in Australia.

“We have a situation where policy decisions have discouraged competition and protected the incumbent. This means customers in many areas, particularly regional Australia, simply have no alternative to paying high prices because there is only one service provider,” he said.

Lloyd said the report identifies serious structural barriers to competition and reduced prices, it is clear that existing reform programmes need to move faster.

He said there’s an urgent need for a comprehensive review into the way in which existing subsidy regimes such as the Universal Service Fund create serious roadblocks for effective competition in the market.

“We want to see a fairer playing field, one in which Australian telco consumers, particularly those in regional areas, are the ultimate winners.”

A Telstra spokesperson told CIO that the research simply confirms that over several years, Telstra has been attracting more customers “because we offer the things they value most – better network coverage and more innovative products and services.”

“The experience of the Australian market makes it clear, the companies willing to invest in their network are able to attract more customers and drive increased consumption, while under investment results in the opposite,” the spokesperson said.