NBN: Competing with customers is bad for business

Canadian next-gen network CEO labels Telstra’s vertically integrated monopoly a “relic” that wont work for the NBN.

Canadian next-gen networking company, Axia NetMedia CEO, Art Price, has offered a simple message to whoever wins the tender to build Australia’s National Broadband Network: Competing with your customers is bad for business.

Price told attendees at the Broadband World Australia conference in Sydney this week that next generation networks perform most efficiently for the owner/operator, its wholesale customers and retail consumers when there is no vertical integration of the incumbent, as exists in Australia where Telstra competes with its wholesale customers for a slice of the retail pie.

“Any vertically integrated customer who says ‘I’m going to wholesale to my competitors and I’m going to compete with my wholesale customers’ – that has never worked in any industry anywhere,” Price said.

“There is no high performing customer service orientated industry where the mainstream supplier chooses to compete with their customers – that just doesn’t happen. It doesn’t work, it is a relic in telecommunications and in any other industry sector.”

Axia NetMedia plans, designs and operates no conflict, open access, next generation networks and is responsible for creating the Alberta SuperNet in Alberta, Canada. The company also leads the consortium for Singapore’s FTTP network and is exporting its open access business model to France.

“Axia is a company that only does next-generation networks. We take the fibre as far as it will go, and then we operate it with a business model that we call a ‘no conflict network’, so we don’t compete with our customers; we don’t do that at the services layer beyond transport, and we don’t do it at the local access layer,” Price said.

Price said Alberta is geographically alike to Australia with its two one-million person cities surrounded by vast regional and rural areas, and encountered similar difficulties in suiting a business case for a next-gen network (NGN) to a small market.

“We found that if you create a high performing NGN that makes it look like a point in that community is actually at the global gateway, and you don’t compete with your customers, then you create a marketplace that functions and is sustainable even in a smaller market,” he said.

“These principles have been proven. The key thing in smaller markets is don’t compete with your customers, because as soon as you do you marginalise your customers.”

Much debate has surrounded the issue of whether Telstra, who is in the box seat to win the NBN tender, should undergo some form of separation to remove any incentive to favour itself.

Telstra’s opponents, including Optus and the Competitive Carriers Coalition, argue that Telstra’s vertical integration has stymied innovation and driven prices up for Australian consumers.

Former federal opposition broadband minister Bruce Billson, said in late August that he supported calls for structural separation of Telstra. His replacement, Nick Minchin, said this week it was too late to go down the separation path.

Telstra rejected Billson’s comments as “totally irresponsible” and gave the government an ultimatum that if any form of separation is entertained it will pull all investment from the NBN.

Price stopped short of offering an opinion on whether Telstra should be split in two, citing the argument that it simply doesn’t make good business sense to compete with your customers.

“Structural separation here has a Telstra ring to it. What I would say is it’s about not conflicting with your customers – pick your customer groups and then don’t conflict with them," he said.

“I wouldn’t say structural separation because that starts rolling into other issues. I would say the most basic principle in a small market, if I was competing with my customer then that customer is already marginalised by the size of the market in the first place, so if I cherry pick that market and take three or four of the big customers then all business is less viable.”

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