The Broadband Deal Everybody Loves


How much is access to some pipes and conduit worth these days? About $9 billion, according to National Broadband Network Company boss Mick Quigley.

On Sunday, Quigley, Conroy and Telstra boss David Thodey announced a deal had been cut to decommission Telstra’s old copper network and give NBN Co access to Telstra’s massive stock of telecommunications infrastructure. The deal, worth $11 billion, includes $9 billion for access to the pipes and plumbing, and $2 billion of sweeteners for Telstra in terms of its universal service provision and money for employees made redundant by the transition from copper to optical fibre.

In return, NBN Co removes a major potential risk to the network: the possibility that Telstra would leverage its vast existing asset, knowledge and customer base to try and out-compete the publicly owned network. Instead, Telstra is now effectively a partner in the NBN roll-out, saving NBN Co billions in extra costs in the process. As Telstra and Optus found to their cost during the cable wars of the 1990s, digging thousands of kilometres of trenches doesn’t come cheap. And it’s not just the cables and ditches: Telstra also controls essential telecommunications "street furniture", like the phone boxes still found on many a residential Australian laneway and cul-de-sac.

The deal ends the stand-off between the Government and Telstra, still the largest player in Australian telecommunications. Investors loved the announcement — Telstra’s share price bounced as relieved shareholders realised the war with the Government might finally be over, and some analysts speculated that Telstra could end up bagging a major part of future contracting work to roll out the broadband network.

In contrast to recent Government announcements, nearly everyone is pleased. Telstra has dealt itself back into the NBN game. Telstra’s competitors are cautiously optimistic about competing on a level wholesale playing field. Analysts are lauding the decision as an effective strategy for the structural separation of the vertically integrated telecommunications giant. Unions are pleased with the money for redundancies. Consumers like you and me can also look forward to radically faster internet speeds, as well as an improvement on the currently frustrating process of connecting a new ADSL service when you move house.

And the Government can point to another major milestone in its efforts to move ahead with the broadband network — a key election pledge. Compared to the emissions trading debacle or the ongoing struggle over the Resource Super Profits Tax, it’s a model of how to undertake significant industry reform.

The question must therefore be asked, how can the Government get it so right with the NBN, and so wrong on home insulation, Fuel Watch, Grocery Watch and all the rest? The answer is that Stephen Conroy is a much smarter operator than his ham-fisted attempts to censor the internet would suggest.

The legacy of John Howard and Peter Costello’s privatisation of Telstra was that the public monopoly was sold off while still a dominant player in the Australian telecommunications market. Telstra started life as a listed company with the kinds of advantages other phone companies could only dream of. It quickly diversified into cable television, media and wireless telephony while retaining its monopoly on the "last mile" of copper cabling, becoming a 900-pound gorilla that stifled competition and sluiced in rivers of free cash-flow every month.

The Howard government soon came to regret Telstra’s dominance, as imported US CEO Sol Trujillo exerted every effort he could to subvert regulators and exercise Telstra’s market power to crimp competitors. Internet service providers keen to offer broadband to their customers were routinely denied entry to Telstra exchanges, and there were all sorts of other dirty tricks. Meanwhile, Trujillo’s right-hand man Phil Burgess fought a long and bitter anti-government campaign in the media, to the gratification of communications journalists but the long-term cost of the telco’s share price.

Trujillo’s intransigence did not long survive the Howard government. With the NBN as one of Labor’s most prominent election promises, the job of cajoling and corralling Telstra was given to Conroy, who up until then had been known as a numbers man for the Victorian ALP. It was Conroy’s idea to cut Telstra out of the NBN altogether, by announcing that Labor would abandon its tender for the construction of the network and instead go it alone with a public fibre-to-the-home network. Worse, from Telstra’s point of view, the company would be forced to cooperate, or else the Government would legislate to deny it access to extra wireless spectrum or divest its media interests in Foxtel.

Once Conroy made that announcement, in September last year, Telstra’s bluff had been called. The negotiations retreated from the front pages to the back-rooms, where the only real issue was the price Telstra could extract for the use of its network infrastructure.

As John Durie observes in The Australian, "Payment for Telstra assets was just compensation after previous governments failed to take the chance to restructure the industry before it was too late and the company was fully privatised."

For his part, NBN boss Mike Quigley now has most of the tools he needs to go ahead and build the network. Stephen Conroy has another feather in his cap after effectively managing one of the biggest policy challenges facing his portfolio. And Kevin Rudd has another achievement he can sell to Australian voters. That is, if they are still listening.

Ben Eltham is New Matilda's National Affairs Correspondent.