Wholesale customers will have to pay less to access Telstra Corporation's (ASX: TLS) legacy copper network, which could mean lower prices for retail customers.
The Australian Consumer and Competition Commission (ACCC) has forced Telstra to cut metropolitan prices for broadband to $24.56 a month for access to the network from $25.40 and in rural areas, from $30.80 to $29.81. Wholesalers on-sell access to the copper network to their own retail customers, and cheaper wholesale rates could flow into cheaper broadband plans for households.
"Setting regulated prices for access to Telstra's wholesale ADSL service will assist access seekers to offer a range of competitive fixed-line broadband internet services to retail broadband users," ACCC chairman Rod Sims said on Tuesday.
He added that the price cuts were aimed at fostering competition in retail fixed-line broadband markets, whilst also providing an incentive to transition customers to the national broadband network (NBN).
The changes are fairly minimal and will have little effect on Telstra's earnings, and in any case are expected to only apply in August, when the ACCC releases its final access determination.
For internet service providers like TPG Telecom (ASX: TPM), Optus – owned by Singapore Telecommunciations (ASX: SGT) and iiNet Limited (ASX: IIN), the cuts will be welcomed, although it's uncertain yet whether the cuts will be passed onto customers. Broadband providers tend to offer fixed broadband plans at prices close to the nearest $10 or $5, like $29.99, $49.99 or $75 per month.
According to a World Bank report published in 2012, Australia had more than 5 million fixed broadband subscribers in 2010, although that number has been fairly flat since 2007. The introduction of fast 4G mobile networks and increasing use of mobile broadband is likely to see than number decline, although the NBN may change that – if it goes ahead that is.
The Foolish bottom line
Telstra reported last year that it had increased retail fixed broadband customers by 200,000 to 2.6 million, suggesting it has more than half the fixed line broadband market, and a strong competitive advantage whether the NBN goes ahead or not. The biggest threat to current fixed line broadband appears to be the strong uptake in mobile broadband, smartphones and other mobile devices.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.
