Greedy Telstra Shoots Itself In The Foot


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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