[LINK] Choose your battles

[David Boxall]

Maybe Telstra has decided that content is a battle that's easier to win.

<http://www.smh.com.au/business/content-is-king-even-if-there-is-not-yet-a-network-to-deliver-it-through-20100613-y612.html>
Content is king even if there is not yet a network to deliver it through
COLIN KRUGER
June 14, 2010

THE battle of wills between the federal government and Telstra over the 
national broadband network has not ended, but the company appears to be 
preparing the groundwork for its next choke-hold on the competition: 
content.

Mark Blackwell of Morgan Stanley said: ''The key to Telstra's long-term 
value is retaining customers at premium prices. Method No.1, owning the 
local access network, is more difficult today and impossible post-NBN.''

Method No.2, he said, appeared to be ''exclusive content''.

With this in mind, you can understand why Telstra's rivals were furious 
when news emerged recently that Foxtel had applied to the Australian 
Competition and Consumer Commission for permission to offer an internet 
pay TV service exclusively through Telstra's internet provider, BigPond.

But the threat of this service is not so straightforward. As it stands, 
Telstra BigPond customers will not have access to the service.

According to what little information has been made available on the 
Foxtel-Telstra proposal, BigPond would in effect act as a channel to 
expand on-demand services to Foxtel subscribers using its iQ2 digital 
video recorder.

In return for exclusivity, BigPond is offering Foxtel clients unmetered 
downloads for the service.

In this regard, it is a different proposition to Foxtel's tie-up with 
Microsoft, which will offer a separate web TV service to anyone with the 
software company's Xbox game console, which will act as the set-top box.

But for Foxtel subscribers using the broadband services of Telstra's 
cheaper rivals, the unmetered service from BigPond could be the 
enticement they need to jump ship.

No doubt this will be the point they will make to the ACCC, which is 
accepting submissions on the proposal until the end of this week before 
deciding whether to exempt the deal from provisions of the Trade 
Practices Act.

''This proposal from Telstra is about as arrogant and anti-competitive 
as it gets,'' the head of corporate affairs at Optus, Maha 
Krishnapillai, said. ''It's a brazen attempt to win customers not by 
competing like everybody else on matters of price, innovation and 
customer service, but by shutting out competition altogether.''

Mr Krishnapillai is not the only one sceptical about the motives behind 
the proposal.

Fat Prophets, which looked at the deal from the viewpoint of another 
Foxtel shareholder, James Packer's Consolidated Media Holdings, said in 
a recent report: ''Considering Telstra owns 50 per cent of Foxtel, this 
move is commercially logical from Telstra's point of view, but not 
necessarily Foxtel's.

''In this context the deal is more about shoring up Telstra's BigPond 
broadband service than enticing new subscribers to Foxtel.''

But the broker did concede that - besides the issue of Telstra's 
exclusivity - ''it is a logical and overdue move from Foxtel''.

Telstra would not comment on the proposal.

The federal Minister for Broadband and Communications, Stephen Conroy, 
told BusinessDay that ''it is a matter for the ACCC''.

Foxtel referred to the statement it presented to the ACCC, which said 
the pay TV provider ''will benefit from reduced excess carriage fees''.

Some aspects of the statement to the ACCC last month were kept confidential.

This includes Foxtel's reply to the commission's query asking if the 
''exclusivity condition is necessary for the introduction of the 
proposed service, or just the discounted/unmetered downloads''.

Foxtel did say it ''faces existing and imminent competitive threats 
from, among others, services providers who plan to supply

video entertainment services to television in conjunction with or via IP 
connectivity''.

It said that TiVo already had partnerships with local service providers, 
FetchTV had planned services, and Sony PlayStation was also offering 
video content.

Foxtel also said service providers could aggregate content themselves, 
citing iiNet as an example.

An obvious example missing from its submission is that Telstra's 
upcoming T-Box will have access to BigPond's content, YouTube, the 
free-to-air TV channels, and a movie rental service.

But what will be missing from all of the rival services is the sport 
broadcast rights that Foxtel holds exclusively.

Fat Prophets said: ''Sport is the single biggest driver of subscription 
television, and as such Foxtel will maintain a substantial advantage 
over all other internet TV services as a consequence.''

-- 
David Boxall                         | "Cheer up" they said.
                                     | "Things could be worse."
http://david.boxall.id.au            | So I cheered up and,
                                     | Sure enough, things got worse.
                                     |              --Murphy's musing