Telstra Fails on Green Light for OzEmail Buy-Out

Telstra
has been left hanging on the decision of the Australian corporate regulator
as to whether to approve Telstra’s proposed take-over of OzEmail‘s consumer ISP operations.

Telstra signed a heads of agreement deal with MCI Worldcom last Christmas Eve to purchase
the consumer ISP division of its Uunet Australia subsidiary, which is the
only part of the company still known as OzEmail after Uunet bought it last
year. The deal would unite Telstra’s Big Pond, the largest consumer ISP
businesses in the country, with the second largest player to create a
single provider with more than 40 per cent market share.

The Australian Competition and Consumer
Commission, the government body which has the power to seek an
injunction preventing corporate mergers if they are anti-competitive, gave
only a preliminary assessment on the matter today. The delay was made
despite pressure from Telstra for a decision before its agreement ran out,
and media speculation that it would decide in the negative.

Professor Allan Fels, chairman of the ACCC, said that the short amount of
time given to examine documents relating to the deal had meant that it
could not give its consent at present, and he made several other comments
at a press conference in Melbourne during the day which were severely
critical of Telstra’s position.

“Based on the information that the ACCC has collected to date, there are
significant concerns that the acquisition will substantially lessen
competition,” he said. “This represents the ACCC’s preliminary assessment,
but it will now consider this matter further.

“With the removal of OzEmail as a separate business entity in the provision
of residential Internet subscriber services, the ACCC is concerned that
there is a danger to competition because a vigorous and effective
competitor to Telstra would be eliminated.”

Professor Fels said that while barriers to entry were low in the ISP entry,
scaling an ISP business to build a national subscriber base was
significantly more difficult, and OzEmail was the only ISP large enough to
compete head-to-head with Telstra.

“It is possible that the proposed acquisition could have a detrimental
impact on the competitive dynamics for Australian online content, online
advertising and electronic commerce,” Professor Fels added. “These Internet
markets are still in the early stages of development in this country. The
emergence of a dominant Australian ISP could retard competition and stifle
innovation in these evolving markets.”