re: taking offffffff Analysts warn on Telstra broadband plan...

re: taking offffffff Analysts warn on Telstra broadband plan

April 20, 2006 - 5:14PM

Telstra Corp Ltd may not get much extra benefit from the $3 billion roll-out of a new broadband network in the long run, analysts warn.

The analysts from investment bank Merrill Lynch suggest the gains from installing new fibre cables in Australia's major metropolitan areas would eventually be "more than competed away" as rival telcos become more aggressive.

Telstra last year unveiled a plan to build a higher-speed broadband network, known as fibre-to-the-node or FTTN.

The roll-out - costing an estimated $3 billion over three to five years - would put new fibre cables between the telephone exchanges and local "node" cabinets in five capital cities, capable of reaching four million people.

Currently, only houses within 1.5 kilometres of the local exchange are able to get top broadband speeds through the copper phone lines.

Telstra put the plan on ice, saying it will only make such a huge investment if it is granted reasonable regulatory protection.

But the company recently said it was making progress in its talks with the Australian Competition and Consumer Commission (ACCC) on the matter, raising hopes that the plan will finally go ahead.

But Merrill Lynch says Telstra is unlikely to make much extra money from the higher broadband speeds it could offer to its customers.

"Given video revenues seem very small, we conclude that the main revenue opportunity in our view is clearly defensive," the analysts said in a report.

Specifically, they say the network would give Telstra the opportunity to limit the expansion of rival companies offering customers cheaper phone calls over the internet.

Internet calls threaten one of Telstra's most lucrative business: home phones and the monthly line rentals customers pay to have a phone line plugged into the wall, known as the PSTN network.

"In our view, the main rationale for a FTTN network rollout would be PSTN protection," Merrill Lynch said.

At the same time, other telcos would step up their competition, with wireless operators becoming more aggressive in encouraging consumers to abandon their home phones altogether.

There would also likely be appeals to the Australian Competition Tribunal if rival telcos are shut out of the new network for a period of time.

And there's the risk that the new network won't be able to reduce costs as much as Telstra hopes.

"Collectively, these factors will likely lead to the market (in time) to feel the gains from the FTTN are by no means bankable," Merrill Lynch said.

© 2006 AAP
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