The real reason DSL costs so much?

, posted: 31-May-2006 08:04

Michael Sainsbury writes in The Australian's IT section that telecommunications technology giant Alcatel overcharged Telstra for supplying DSL equipment, by hundreds of millions of dollars.

Although it's amusing to see Alcatel CEO Hilary Mine try to spin her way out of the mess by calling the overcharging a "strategic error", you have to wonder what the long-term effect on end-user broadband pricing and subsequent service uptake was.

Telstra appears to have paid dearly for its relationship with Alcatel for a long time:

Last week, an internal Telstra document outlining 15 years of problems with Alcatel was tabled at a Senate hearing. The document was prepared by senior Telstra executives concerned that Alcatel had been handed the whole of a $3.4 billion deal to build a residential fibre and DSL network. Industry sources said Alcatel's pricing was up to 40 per cent higher than its rivals.

It got so bad, Sainsbury writes, that Telstra in 2003 went to NEC for its DSL supplies and last year, anointed Ericsson as the third supplier.

The whole thing is interesting for New Zealand because Alcatel is in charge of Telecom's fixed line network. This includes the DSL provisioning. Did Telecom pay Telstra prices for the network gear, or was it exempted from that "strategic error"?

Clearly, high prices for the DSL gear would have to be recovered and the only way to do that is by charging customers more. A historical price comparison of what Alcatel charged Telecom for the DSL equipment and what the going rate from other suppliers was would be very interesting to see, given the Australian experience.

Other related posts:
The problem with VDSL2, part 2
The problem with VDSL2
The mysterious Dynamic Line Management on VDSL2

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