Hidden cost of Australian telco market exposed

Telstra price premium = $3.1 billion

Thursday, 15 June 2015 – An independent report into the cost of Australian telecommunications released today shows Telstra customers are paying a premium equivalent to a 15 cents per litre increase in petrol prices across Australia.

Vodafone Director of Strategy and Corporate Affairs Dan Lloyd said the Centre for International Economics (CIE) report, whose research put the Telstra price premium at $3.1 billion, highlighted the urgent need for accelerated telecommunications policy reform in Australia.

“This independent report has highlighted a commitment to real and rapid change in telecommunications policy in Australia is required,” Mr Lloyd said.

“It’s clear that millions of Australians, especially those in regional areas who have no effective choice, are getting a raw deal from the telecommunications market structure in this country.

“To put the $3.1 billion a year premium into perspective, it’s more than one week’ s worth of household groceries.”

“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.

“At Vodafone, we believe that competition and consumer choice are key. When customers have choice, they pay fair prices but this simply isn’t an option for many Australians today.

“In metropolitan areas, Telstra customers are also paying a high price premium but the good news is, they do have choice and we encourage them to look around for the better deals already available from other providers.

“When you look at mobile data to download and stream content, Australians are paying 50 per cent more per gigabyte of data with Telstra than they would with other providers.”

Mr Lloyd said the market structure issues identified were having a substantial detrimental effect on the Australian economy.

“The CIE’s finding that the price premium is costing $3.1 billion a year is extraordinary. That’s $3.1 billion which could be driving growth in other areas of the economy, boosting productivity and improving our living standards,” he said.

“We are encouraged by the Federal Government’s interest in getting it right when it comes to the telecommunications market, and congratulate it on progress to date. However, the CIE Report identifies serious structural barriers to competition and reduced prices, and it is clear that existing reform programmes need to move faster.

“There is also 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 Australian telecommunications.

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

Notes to editors:

The Centre for International Economics (CIE) is a research agency which provides independent analysis of domestic and international policies and events. CIE was commissioned by Vodafone Hutchison Australia to prepare an independent analysis of Australia’s telecommunications market structure. The CIE’s report, ‘Australia’s telecommunications market structure. The price premium paid by consumers’ was released on 15 July, 2015.

Approximately $225. Average Australian household weekly spend for food and drink. Money Smart, ASIC 2014.

Key CIE report findings:

• Premium for using Telstra over other operators is $20 per month for fixed line services and $9 per month for mobile services, totalling $3.1 billion per year.
• Additional cost to Australian households of telecommunications services per year from this premium compared to other providers amounts to $3.1 billion per year.
• Telstra customers pay 50% more per 1GB of data than they would with other providers.
• Premium paid by each Australian household per year to Telstra is equivalent to:
  • A 15 cents per litre increase in petrol prices
  • Each Australian paying for an additional 3GB of mobile data each month
  • More than twice the electricity price impact for households of the carbon tax
• Five barriers to reduced prices were identified in the CIE report
  • Subsidisation of Telstra though the Universal Service Obligation (USO)
  • Regulated transmission prices that often exceed costs
  • Disparity in spectrum holdings between operators and lower availability of spectrum in regional areas
  • Insufficient incentives for co-location of mobile facilities
  • Customer reluctance to move to better-value services

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