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Telstra backs off « Previous | |Next »
April 14, 2009

So the gorilla of the telecommunications marketplace is starting to sing a different tune. Previously it was hostile to the prospect of even a mild form of further separation. It will now consider a voluntary separation of its wholesale and retail arms, as well as the sale of some assets to the federal Government's proposed $43 billion broadband network in exchange for a minority stake in the new majority government-owned broadband company.


So the Rudd Government's plan to use its resources to undertake the rebalancing of a strategic industry to create a more open competiitive market is having the desired effect. Telstra is taking the necessary steps to head off the forced separation of its wholesale and retail arms.

| Posted by Gary Sauer-Thompson at 9:17 AM | | Comments (10)


NBN sounds like a great idea, however $43 billion is a lot of money, lets hope they know what they are doing. :-)

The Rudd Government did say that it would make key decisions on approving and financing infrastructure projects within specific guidelines.

However, as Paul Kerin observes in The broadband betrayal in The Australian:

Rudd raved about the guidelines, saying it was critically important that decisions be based on objective analysis and evidence. He insisted that "there must be a serious cost-benefit analysis" and warned that guidelines aren't "much use if they are not implemented". Six months later, he completely ignored them.

No cost-benefit analysis was done. They will produce a business case by year's end, even the guidelines require that the business case precede the approval decision.

The other line of criticism is the forecast that the NBN would not make money unless subscribers paid up to $150 or $200 a month--double what we pay now.

the conservatives criticism is that Rudd is using the global market failure to prove his long-held opinion that governments should play a very active role in the economy. Hence the continual reference to Gough Whitlam who stands for bad economic management.

"Faint heart never won fair lady".
"Nothing ventured, nothing gained."
I'm sure there are more old hoary adages in the same vein, and probably several that counter them but I won't go there.

The point of the above is that it seems that the ALP has, for once, taken the bull by the horns [oops yet another pithy saying], challenged Telstra and wrestled the gorilla to the ground in a submission hold.

Wouldn't it be nice to see the government face up to a few other gorillas around the place?
I suspect the apparent and perceived strength of some of our 'untouchables' would disappear in a puff of smoke and they would roll over like submissive puppies if actually confronted.
I'm thinking of the irrigators and the Murray for example. Sorry folks but you can't have all the water you want at the expense of the river.
And the coal industry.
Start at 10% and go up from there faster than you want. No choice.
And the media.
Sorry Rupe you have to sell several papers, you're not allowed, along with Fairfax, to have an oligopoly. It's undemocratic.
And the ABC.
Bye bye, Janet and Keith whoever. Wrong people in the wrong place.

Lots of examples where courage and principle may prick the bubbles of perceived invulnerability.

We can but dream.

Unlike Optus, AAPT and Nextgen who have expressed their interest in selling assets into the new network in return for a stake in the majority Government-owned company that will build and operate the wholesale network Telstra has made no decision on whether to sell its assets in return for a stake.

The cost to consumers argument neglects to point out that phone, pay tv and who knows what else will all share the same tube. You won't be paying that magical $200 just for internet.

Will they have any choice in the long run?

Neil Fletcher at New Matilda says that Conroy had three options late last year in deciding how to arrive at the ideal market structure:

first, choose one of the proposals from Acacia, Axia or Optus to build the network; or second, abandon that tendering process and negotiate a better deal with Telstra whereby Telstra builds it but they accept the Government's regulatory terms; or third, abandon the process and take the big stick to Telstra via new legislation.

He adds that if taken at face value, the decision to go with fibre to the premises — and to spend enormous sums of public money — certainly is surprising. The price tag is enormous — and the likelihood of significant private sector involvement is probably quite low. It is simply too hard to estimate the probability of getting a payback on the investment. He adds:
Perhaps the real intent of the decision is to shock Telstra back to the bargaining table — in other words, the Government is still covertly following the second option which I identified. It will certainly work to get Telstra talking — although any serious discussions will be delayed until after the new chief executive is appointed.

a tricky play.

Can a deal be done?

On a previous thread Gary said

"No it wasn't Conroy. He has little command of policy detail and so it is difficult for industry representatives to have a conversation with him about capital, networks, core technology issues, content or the delivery of public services. That is the view of industry insiders.

The big idea probably came from Tanner and the expert panel."

I don't think Conroy has the mental or other equipment to have thought of options, then go with the hard one in order to play tricky games later on.

With Tanner and Rudd, on the other hand, there's a very strong possibility that they intend for things to turn out exactly as they've stated re Telstra. If any deals are done they will be done on the government's terms.

If you think about what the final product could mean, the private sector would be mad not to get involved. Unlike a lot of other infrastructure, this will pay. And depending how they roll it out it could start paying long before it's finished.

Conroy's role would have been to brief Rudd on the options outlined by the expert panel once the failure of failure of the Government's $4.7 billion tender for a fibre-to-the-node network was apparent. The decision to go for a NDN does not appear to have gone to Cabinet for a decision, and the NDN increasingly looks the result of a back of envelop judgement, akin to Howard's Murray-Darling takeover: a decision taken in haste and then announced as a fait accompli.

The problem for Rudd and Tanner is that, as Kenneth Davidson points out in the Age

Arguably, Telstra has already cornered the market for high-speed broadband: it has the majority of high-speed customers. Institutions such as hospitals and universities already have access to private networks supplied mainly by Telstra and as much speed as they want.

So Telstra must put that into the NBN in return for part ownershsip.

Davidson misses the point when he goes onto say that:

Premium household customers who live up to two kilometres from exchanges can get high-speed broadband (ADSL2) services for a premium price of $50 a month and Telstra's competitors can rent Telstra's lines. Neither the arbitragers nor their retail customers have any incentive to shift to the parallel Rudd network, where the wholesale cost of line rental would have to be about $150 a month just to cover the cost of capital. And for what? To get download or upload speeds 10 times faster than they need?

I'm one of Davidson's premium household customers who live up to two kilometres from exchanges can get high-speed broadband (ADSL2) services for a premium price of $50 a month. Only I pay $70 a month and the speed is just enough to do my work. It is not fast enough to download movies, which still come from Quickflix through the post as a DVD, or to conduct a telepresence with my health carer or photography collaborator.

Davidson does not see that fibre will be at the heart of future telecommunications networks for all kinds of premises, but especially households. He doesn't seem to have learned that new opportunities and new services arise when the capacity to support them is made available. It looks as if he is willing to call a halt to further improvements in network capacity because all of the valuable services have already been invented”.

He is looking backwards into the future.

The bluff Telstra scenario--- negotiate a better deal with Telstra whereby Telstra builds it but they accept the Government's regulatory terms--- is limited because of the way Telstra has played ball. Alan Kohler points out in Business Spectator that:

Telstra’s price for using its old, paid-for, copper wires to get signals to everyone’s homes was always set at about $40 a month per customer, or a total of about $25 billion, and the company wouldn’t budge.

He says that in the end, Telstra overplayed its hand and the expert panel that had been appointed to assess the latest efforts to finance an FTTN, that is lay optic fibre up to the last mile and then use copper, said: “Just bypass the copper – it will cost about the same”.

So we have a 100Mbps fibre network, in which NBN Co will be probably selling wholesale access to other ISP's for a rate that may be cheaper than what Telstra is charging for the old copper wire from exchange to premises.

Telstra has little choice but to participate as one of the potential private partners in the NBN.