broadband
16 Dec 2008
Greedy Telstra Shoots Itself In The Foot
As of yesterday Australia's telecommunications bully can no longer dictate the terms of the National Broadband Network, and that's a good thing for us all, writes Paul Budde
After years of bullying everyone on communications policy, Telstra has been told that if it won't play by the Government's rules for building the National Broadband Network (NBN) then the country will go ahead without it.But to understand the exclusion of the country's largest telco from the tendering process, it's necessary to look at the Government's decision in the light of recent history and the international telcoms industry.
Ever since Sol Trujillo took charge in 2005 Telstra has made it very clear that it was not dedicated to the national interest. Its only goal was to maximise the short-term financial returns to its shareholders — and this uncompromising stand has caused disarray in the market ever since.
Around the world we have seen governments changing their policies as they recognise the importance of telecoms infrastructure for the future of their digital economies. The latest information from the Obama Transition Team is foreshadowing similar changes in the USA. Here in Australia the Government also understands how important the role of the telco industry is in kick-starting the economy again.
Telstra's battle against the national interest was aimed at short-term gains, but it now looks as though it has lost the longer-term battle.
On the one hand, Telstra's strategy reflects corporate wisdom that has held true over recent years. It has done what it could to preserve its monopoly in the interests of its shareholders. It is true that if you start treating the infrastructure as a regulated national utility the profits on that element of the market will decrease. This has happened in every country where the government has put limitations around telecoms' monopolies, and it is unavoidable that it will also happen in Australia.
To a certain extent, therefore, it is understandable that Telstra tried very hard to preserve its monopoly. But we can't have the highest financial returns on telecoms and affordable broadband prices for all Australian citizens at the same time.
For three years Trujillo was able to deliver maximum profits, but this was at the cost of the national broadband interest, and the price Telstra paid for this short-term strategy was that they did not take on a leadership role in the development of the future of the telecoms industry.
Modern democracies can no longer support a critical infrastructure like telecoms being subject to a monopoly and it has therefore been clear from the beginning that Telstra was fighting a losing battle. What is unclear is why it didn't start making strategic changes to its uncompromising stand when it became clear that the Government would not give in.
Telstra is no longer involved in the tendering process, but perhaps even more damaging is the fact that it also doesn't have a seat at the table when these regulatory changes are going to be discussed.
Part of the Government's request in the tendering process was that the bidders provide documentation on what form the regulatory framework should take for them to build the network and invest their own money in this project as well.
Interestingly, Communications Minister Stephen Conroy took the wise decision to allow the expert panel to make a decision about the validity of the tender proposals — rather than jumping in before they had done their work — something which he could easily have done as Telstra's letter contained a large number of gaping holes.
It has become clear over the last year that all the other participants fully agreed with the Government's request for open networks, and they all agreed with some form of structural separation between infrastructure and services — one of the big sticking points for Telstra, as this kind of separation would be a serious blow to its monolpoly and therefore profitability.
So the likely outcome of this process is now that some sort of separation will be put on Telstra to prevent it from spoiling the party for the others and putting the $4.7 billion from the Government at risk.
We saw Telstra do this kind of party-spoiling in the 1990s, when it followed Optus street by street as it built its cable TV network. In this process $7 billion of capital investment was destroyed.
I don't think we can afford this sort of waste happening again, and with the lessons learned I am sure the Government will do all in its power to prevent it.
As Telstra has said, quite correctly, no one can build a network without it. The High Court of Australia has also indicated that the national infrastructure is a national asset and not simply Telstra property. The NBN will, of course, be built to link into the national infrastructure that already exists. Some other sections of the network will be improvements of the existing grid, and there will also be some totally new elements. But in the end it remains one large integrated network. Very strong regulations will be required to make sure that this is done properly
As Telstra has been sidelined it will be largely excluded from these decision-making processes, and I don't think that will be in the company's best interests.
Meanwhile, with Telstra out of the way it will become far easier for the other parties to sit around the table with the Government and develop the best possible network for Australia. Up until now Telstra has been the only party that refused to collaborate on this massive national infrastructure plan. The company will now simply be told where it fits in and what it will be required to do.
None of the other players necessarily want to build one national network. Most will be happy to be part of a cooperative model that allows for all the players to participate, based on where their individual strengths lie. Companies such as Optus and the other participants in the Terria bid, for example, are all in it to get the best possible infrastructure over which they can deliver their services. They are not in it simply because they expect to make money building infrastructure
The new environment would also work very well for the regional players (eg, Tasmania, ACT and Western Australia). In a collaborative way they can all participate in building their part of the NBN. The important thing is for it all to come together in the end and operate as a national network. The ACCC and ACMA will both play a key role in this process.
The best outcome for Telstra would be for it to accept the defeat and look to the future. If it is to participate in this project, massive changes are required within the company. The best outcome would be for the board and the executive team to declare their positions vacant and for the company to start with a fresh new team that will face up to reality, change their strategies and become more cooperative and collaborative.
The alternative to this is more court cases, more mudslinging and more destructive behaviour from Telstra, which would benefit neither the NBN process nor the company.
For its part the Government will need to act quickly, with very strong regulations and short timeframes, otherwise the process could easily drag on into 2010/2011.
The other spoiler who has already lined himself up is the Shadow Minister for Communications, Nick Minchin. He has indicated he will fight the Government through every single part of the legislative process when these regulatory changes go through Parliament and the Senate.
Perhaps the recent kerfuffle in the Coalition will make Minchin soften his stand and collaborate, if not with the Government, then at least with the industry, to get the best possible outcome for Australia.
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Sol comes from the same bunch of managers that brought us the GFC. The same tight Republican circles that chases short term gain for themselves. He has a history within telco companies that is not very flattering being that the only improvements he made were to his own renumerations. I wonder why he was chose to run Telstra? Was it a globalisation of jobs for the boys?
Chosen
As always Paul is quick to bash Telstra. The outcome of Telstra’s elimination will be the complete exclusion regional Australia from equitable services. The foriegn owned proposals will ensure only metro coverage with some inadequate government funded add ons. The major question is where these overseas carpetbaggers will get the capital and at what cost. What Paul and Optus want is what the ACCC has already provided on the local loop, below cost access to metro markets where cheap profit an be made and the non profitable bulk of Australia left in the 20th century. Paul actually points it out. Optus in Sydney and Melbourne and Tas and WA left to the respective state governments. No national network no national standards and back to the days of different rail gauges. But hey dont worry Singtel will still deliver a generous dividend to the Lee family.
"Modern democracies can no longer support a critical infrastructure like telecoms being subject to a monopoly "
Nonsense words.
Nothing to do with democracies , any way the form of ours hasn’t changed for over 100 years.
With our tiny population spread over huge distances , monopoly ownership of infrastructure like electricity grids , and telecommunications networks makes sense.
The modernization we were attempting was to have a wholesale monopoly balanced against retail competition.
Telstra never wanted to build the FTN network , they have wireless broadband set to go at far greater speeds through adaptation of existing technology targeted at the most profitable customers.
Everybody forgets that they have near perfect market information , give them your vital statistics and they will tell you the telco product you are going to buy.
We are failing to tackle the issue once again, the copper network is reaching the end of its service life in a lot of areas , who is going to upgrade it ?
Fibre to the node still needs the copper distribution grid.
Although CEO Trujillo appears culpable in this misguided and arrogant Telstra approach he’s only the monkey: the organ-grinder is chairman McGauchie who selected him - reprising his role in the 1998 Dubai vigilante stevedore conspiracy, in league with his (then) monkey Corrigan - and as Paul states their aims are always short-term profit rather than long-term viability of their company or the national interest.
I endorse Paul’s underlined recommendation that both the board and CEO of Telstra should be terminated by the shareholders now - even if they’re going to walk away with bulging wallets. Only then can this company (and our infrastructure progress) start to move forward again.
Chrisd you are correct:
"The outcome of Telstra’s elimination will be the complete exclusion regional Australia from equitable services."
A simple solution for regional folks however would be to stop voting for people who desire nothing more than the complete privatisation of all government services. Guess what bumkins, the Nationals couldn’t give a stuff about you - the "farmers" and producers they advocate for are those like Jamie Packer.
No-one will provide you adequate services if you’re miles from anywhere else if their only incentive is profit.
That might be why those crazy latte lefties kept banging on about public wealth, but hey what would they know - go ahead keep voting for coalition numpties and keep whinning when your services shut down one by one.
You’d have to get rid of a lot more than the ceo, chairman and board of telstra to get anything like there was before the greed fest of the last 30 years or so of "privatization".
Governments have abrogated their collective responsibilities to their communities by selling off their most profitable utilities in ipo fire sales.
For Rudd and co to engender anything like a common sense of purpose in this formerly great country of ours, he will need to purge the ps of bureaucrat fat cats.
Instead of farming all the services out to private contractors, stand up to the big end of town and tell them to come and work for him and the Australian people.
Then and only then will govt have the wherewithall to run these things again.
Don’t think you can legislate some kind of "responsibility" clause into the now share-listed entities.
These guys are’nt doctors, pharmacists or teachers who have some modicum of professional duty, and whom governments have kicked around for ages. They are…well we all know who and what they are.
Shakespeare’s merchant of Venice and taming of the shrew come to mind.
Something tells me it will be Rudd’s behind that gets tanned when it all comes to a head and not big business’.
Gillard might be a bit more able to wield the stick, while Kevin and Wayne continue as the carrot men.
We’ll see, 2009 might be show down time.
Confucius would definitely be smiling.
There is only one acceptable answer to Telstra’s threat to use its ownership of the existing copper and fibre network to thwart the implementation of a truly national and truly broadband network, and that is to take the existing network from them. Telstra must be forced to demerge and then the network part should be re-nationalised. In a country like Australia - small population and large area - there is only room for one network and if we have only one network then it cannot be privately owned.