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Australia: Good to be an ISP/bad to be an end user

24 Feb 2016

At the APRICOT conference this week it has been interesting to meet so many people that operate outside of Australia or NZ that have assumed Australia would provide better Internet options for businesses than NZ. This assumption is completely wrong and Australia will be hard pressed to catch up to NZ within the next decade.

The reality is that Australia is a great place, compared to NZ, within which to run an ISP. But conversely, it does not provide end users with anything like the speeds, pricing or contract options that NZ based end users have access to.

Australia is a very different environment within which to provide Internet to businesses.

  • Wholesale circuit charges are higher, that goes for one-off installation charges and recurring charges.
  • Wholesale pricing is subject to volume discounts in Australia, so smaller operators may (if not able to secure a good deal) find themselves at a disadvantage. This excludes which has regulated price points, but NBN services are not focused on business and are not widely available.
  • Contract terms of 36 months are common, as wholesale providers offer free install when this term is selected and retail ISP’s pass this on. Lesser terms attract high install costs, so 36 month terms are widely accepted.
  • Competition with the retail arms of companies that provide wholesale services is common place (TPG, Vocus, Telstra for example). This isn’t always a problem, and operational separation does exist in most cases, however there are instances where access to information on wholesale service availability is withheld due to “commercial sensitivity” which can only mean that releasing it may affect that businesses more profitable retail operations. Looking at you TPG…
  • Access to cost effective high speed services is not a given. If you are lucky enough to be at an address with reasonably priced 100Mbps+ access, you can almost guarantee that you are at a CBD location in a major city.

Compare the above points to the reality in NZ:

  • Wholesale UFB prices are regulated and reasonable. We pay $480 for 100Mbps fibre services that have guaranteed speeds and are multi-VLAN capable, or we pay $65 for 200Mbps/200Mbps best effort fibre. Installation charges are set in stone and usually 2 x the monthly charge with either no term commitment or a 12 month maximum.
  • Regardless of size or number of services purchased, wholesale pricing is regulated and universally consistent.
  • Wholesale providers of UFB services are unable to sell directly to end users, so no retail conflict exists between them and their clients (that’s us).
  • In an ever increasing number, businesses addresses are now capable of getting low cost best effort or guaranteed speeds well in excess of 100Mbps via UFB.

In NZ it is also easier for ISP’s to connect at a tier 1 basis for access to wholesale services. Australia has almost 100 more NBN zones than NZ has UFB zones, making Australia a far more expensive place to gain universal access to regulated wholesale products. The reality is that NBN simply beds in the existing wholesale providers as 3rd party aggregators well into the future.

NZ is a far better place for business customers to purchase Internet services within because:

  • Services are faster
  • Monthly charges are lower
  • Installation charges on 12 or 24 month terms are lower
  • Terms are shorter

Given how much businesses now rely on the Internet to operate effectively, the above points play heavily into the narrative that NZ is a better place to run a business.

As an ISP, the prevailing wholesale market norms make Australia a more beneficial place for an ISP to operate in compared to NZ. We get income locked in for longer periods and the services we sell are more profitable. There are certainly some down sides to operating in Australia, but with business services yet to be as commoditised as they are in NZ, returns are higher.

Brendan Ritchie is the CEO of DTS, a business focused ISP that has been supplying clients across Australia and New Zealand with Internet, voice and tailored WAN solutions since 2002. Tweet him on @bcarmody.

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