Telstra's network of mobile phone dealers is on the edge of crisis, many believing they are being squeezed to extinction by the telco's drive to slash their commissions and, some darkly allege, poach their clients.

Trailing commission - the percentage of a customer's monthly mobile bill that Telstra pays its 300 or so dealers - is their bread, butter and lifeblood. Without it, most of them could not meet their commitments. It adds up to more than $500 million a year, a cost Telstra wants to cut to help its declining revenue.

Exclusive dealers generate about half of Telstra's mobile business. The corporation has more than 8 million mobile phone customers, of whom about 4.5 million are the most valuable, post-paid (as opposed to pre-paid) customers; a big slice of the lucrative business market. The top three or four companies aside, most dealers could not survive cuts of the size Telstra is imposing as a condition of renewing dealers' contracts.

It was called "12/12" because it began on December 12, 2004, the start of a "refinement" of the commission system, Telstra said in letters to its dealers.

A number of dealers have accepted the new terms; about as many as appear to be trying to sell their businesses to bigger dealers.

While bigger dealers could survive a hefty cut in their commissions by extending their offerings, as companies such as GAP Communications and Crazy John's have done, smaller dealers say they could not.

"The big guys will get bigger and the little guys will go to the wall," is the general opinion across the dealer community.

Comment : At the same time as employment opportunities in areas concerned with the building, upgrading and maintaining our telecommunications infrastructure have been reduced in recent years, the contrived artificial environment of competition has encouraged the expansion of work in largely unproductive areas including mobile phone dealerships. Until recently, this has been very lucrative for the dealers, but, at the same time, costly for the public who have utimately borne the cost of the commissions, particularly the trailing commissions, in which the dealer has a receives a "cut of every call you make, every message you send, every dollar you spend."

This trend, which has not only been confined to the telecommunications sector, was covered in a story, Too Much Choice: Consumers and Competition on ABC Radio National's Background Briefing on 6 June 2004.

Now that many have come to depend on large comissions, Telstra has decided that the costs of commission payments are an obstacle to the imperative for its share price to be raised in preparation for full privatisation, and they have been greatly reduced, making many dealerships unviable.

If the Telecommunications sector were changed back into a natural monoply and run as a public service, as we argue it should be, it is also unlikely that there would be as many business opportunities for mobile phone dealers. Whatever the case, every effort shoud be made by Telstra to provide those dealers, whose businesses are no longer viable, with alternative employment opportunities and retraining. This in line with what was written our submission to the Senate Inquiry into Telstra in October 2003.

related document : Letter to the editor, 30 Apr 05