Telstra Out-Manoeuvred By Conroy

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With a leap as well-timed as a leopard’s pounce, Stephen Conroy has transformed Australian telecommunications policy.

Yesterday’s announcement that Telstra will be broken up, either voluntarily or by government fiat, sent the share price diving. But it’s only what the Hawke-Keating and then Howard governments should have done in the first place.

The media release issued yesterday by Conroy’s office outlines the plan. Telstra will get to choose whether to structurally separate itself or be forced to split functionally by the government.

At the heart of the matter is Telstra’s wholesale telecommunications infrastructure: the fibre backbones, copper wires and exchanges that every other telco and ISP in the country must rent from Telstra in order to deliver competing services. For instance, as Conroy writes in his media release, Telstra will have to "conduct its network operations and wholesale functions at arm’s length from the rest of Telstra," and, if it doesn’t do this, "Telstra will be prevented from acquiring additional spectrum for advanced wireless broadband while it remains vertically integrated; and owns a hybrid fibre coaxial cable network; and maintains its interest in Foxtel."

When Kevin Rudd’s cabinet was first announced back in December 2007, I wrote that Conroy’s two big policy challenges would be to decide whether Telstra would be involved in building the National Broadband Network, and whether to structurally separate the giant telco. "If Telstra is left out of the tent," I wrote then, "Conroy better start manning the barricades. He may eventually need to resort to his ultimate weapon: breaking up the giant telco in the interests of Australian consumers."

Now we know. In a masterful series of tactical moves, Conroy has stunningly reasserted the government’s primacy in telecommunications policy.

First, Conroy feinted with a supposedly good-faith tender for the private sector to build Labor’s marquee election promise of a National Broadband Network. Telstra was completely taken in. After years of trench warfare between the Commonwealth and the Telstra management regime headed by Sol Trujillo, the telco could muster only a desultory bid for the massive contract. So sketchy was the "proposal", the government ruled it out of order, calling it "non-conforming".

Conroy then kept the industry waiting while he cooked up a completely different option. After reportedly convincing Kevin Rudd in a short conversation on the RAAF government Boeing, Conroy made a completely unexpected move, announcing that the Rudd Government would abandon the tender, go it alone and build the National Broadband Network as a nationalised wholesale broadband business.

Conroy has spent the last few months making good on that tactic, appointing seasoned industry veteran Mike Quigley as Chair of the NBN and putting the executive team together, all the while quietly plotting his next move.

Yesterday, he landed the second punch of his killer combination. Telstra will be forced to split itself up, either by divesting its Foxtel assets or by being prevented from bidding for more wireless phone spectrum. Alternatively, Telstra can choose to sell its copper network to the NBN. It’s an offer Telstra can hardly refuse, and the end result will be the Government regaining control of Australia’s largest set of telecommunications infrastructure, including the precious "last mile" of copper wires between the ADSL phone exchange and your home.

It’s a stroke of Machiavellian genius. In one hammer blow, the risk of competing broadband networks will be gone, and the NBN will suddenly become a viable business proposition. Even better, Telstra will be back in the game as a fierce retail competitor, driving serious price competition in the retail end of the market. The irony of it all is that Telstra, newly shorn of its wholesale responsibilities and with a giant war chest accrued through the sale of its old copper network, will be buying its wholesale network access from the Government’s NBN. In effect, the Government will pay Telstra to rent its old wires back. No wonder the telco and the Government are already locked in intense negotiations.

No less an authority than veteran analyst Paul Budde has assessed Conroy’s behaviour in glowing terms. He writes, "throughout the telecoms reforms the minister, his team of policy advisors and the department have demonstrated an innovative approach and at every turn have surprised the market, in a positive way, with their handling of this complex matter."

Like most online journalists, I am no fan of Minister Conroy’s quixotic attempt to censor the internet. But as much as it pains me to admit it, Paul Budde is right about Conroy’s "innovative approach". He’s kept two steps ahead of everybody else, in the process advancing Labor well down the road to delivery of its ambitious broadband promises.

So impressive has been Conroy’s handling of this portfolio, I think Kevin Rudd should promote him.

There’s one area of public policy which is even more beset by vested interests, legislative impasse and vicious political power plays than telecommunications. Step aside Penny Wong, your Government needs a new Minister for Climate Change.

Fossil fuel lobbyists and the big carbon corporations will find Stephen Conroy a far suppler and more dangerous opponent than Penny Wong. As yesterday’s decision on Telstra showed, a government truly prepared to spend political capital can quickly impose its regulatory will on unpopular corporations, even spectacularly wealthy ones.

Indeed, the far-sighted tactician can already see the future shape of Labor’s climate policy, if Rudd and his cabinet are brave enough. Recall that Labor has promised that the CPRS carbon reduction cap could actually go to 25 per cent if an agreement in Copenhagen is reached. If — and it’s a big if — such an agreement can be forged, Labor will be in the perfect position to put the screws on the Opposition after Christmas with a second try at passing the CPRS bill.

The threat of a double-dissolution election is already scaring the pants off Liberal strategists. A double-dissolution election fought on climate change could split the Coalition apart, and would almost certainly be won by Labor to boot. The Liberals could lose perhaps a dozen seats on current polls. They’ll be gone for another two elections.

With the economy unexpectedly coming good at the right time, Labor could be in the perfect position come March to pass the CPRS and bring the carbon lobby rapidly to heel.

In Stephen Conroy, it has the kind of brutal and cunning political operator it will need to achieve this.

Ben Eltham

Ben Eltham is New Matilda's National Affairs Correspondent.

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