opinion


Telstra remains firmly in the driver’s seat in NBN race

Anyone reading the Australian press in the wake of the government’s decision to eject Telstra from the tender process to build and operate the National Broadband Network would have concluded that the market giant had been dealt a knockout blow. The reality is actually very different.

Telstra is the most robust and ferociously competitive players in the Australian corporate landscape, and anyone who thinks that its Dec. 15 exclusion from the NBN tender is a truly significant blow has not been paying attention to how Telstra has come to dominate the local pay TV, fixed-line, broadband and mobile markets.

Telstra knew it was taking a risk when it initially bid to build the network only in major cities, rather than nationwide, as the government wants.

The firm said it was unable to submit a bid to build a full national network because “a number of fundamental issues have not been resolved” by the government. The move was really an effort to force the government to give it the regulatory breaks it has long been demanding before committing itself to a nationwide rollout.

Telstra’s key demands were that there be no subloop unbundling on the NBN, that there be no joint ownership of the network with a third party and that the government agree not to try to break up Telstra into network and retail operations.

As a result of its high-wire strategy, Telstra – and particularly its high-profile CEO, Sol Trujillo – could not have been totally surprised when the communications minister, Stephen Conroy, called their bluff and kicked them out of the NBN tender process, leaving three firms in the running, most notably SingTel Optus and Canadian bidder Axia.

Despite the press hysteria after Telstra’s exclusion – during which time Trujillo became just about the most despised CEO in the country, with one prominent columnist calling him “disgraceful” – calmer heads are beginning to prevail.

A consensus is emerging that Telstra’s exclusion from the tender is just as much a political maneuver from the government as was Telstra’s original decision to propose only a skeleton NBN.

Conroy realized he could not allow Telstra to get away with its attempt to commandeer the tender process and had to attempt to assert his authority – hence the announcement of Telstra’s exclusion and the subsequent two days of saturation press telling the world that Telstra had been firmly put in its place.

However, after taking more than a year to even bring the NBN to the tender process – during which time he assessed the intricate details of Telstra’s nationwide network – Conroy knows that no nationwide NBN can be built without getting Telstra on board. The company is just too powerful and controls way too much.

Despite his political grandstanding, Conroy fully understands this, and you had better believe that Trujillo understands it even better and won’t have minded coping with a couple of days of bad press as long as Telstra gets the NBN deal it is after in the longer term.

Telstra has kept a low profile since being kicked out of the tender process, with its chief PR flak saying to local press only that the firm had “copped it on the chin” and adding that seeking legal redress against its exclusion was “not a priority” – all while pigs flew serenely past his window.

Anyone who has watched Telstra operate in the decade since its privatization – and especially since Trujillo arrived as CEO in July 2005 – knows that the firm, to paraphrase the words of US President-elect Barack Obama, “doesn’t do cowering” and can be expected to come off the ropes throwing heavy legal punches when it deems the time is right.

Telstra has proved time and again in the past decade that it fights harder than anyone when backed into a corner. The problem for the government is that although it might have the morally righteous wind at its back with its determination to have a fair and open tender process for the NBN, the political winds are blowing strongly against it.

Prime Minister Kevin Rudd made the fast-tracking of the NBN a high-profile facet of his November 2007 election campaign and successfully used his focus on providing the country with a world-class ubiquitous broadband network as a key differentiator between himself and the aging incumbent, John Howard, for whom broadband was never a major policy issue.

However, more than a year after Rudd’s election the NBN is still barely out of the starting blocks, and Rudd faces a fresh election in less than two years, so time is running out.

It would be a huge political embarrassment for Labor if it arrives at the next federal election with the NBN still in its infancy, but that is precisely what will happen unless it makes nice with Telstra and prevents the kind of legal impasse that will block the NBN from coming to fruition for years.

In addition, after inheriting a healthy budget surplus from the previous Coalition government, Labor has been forced by the global economic downturn to accept that there will soon be a budget deficit and that it will remain that way for some time – a major political blow.

As a result, political pressures are likely to force the government to deliver an NBN that requires it to spend not a cent more than it needs to in order to get the job done.

Telstra is fully aware of this and is already deploying its substantial PR resources into getting the message out that it can build the NBN far more cheaply and with way less reliance on the public purse than any of its rivals … if only the government would give it the regulatory breaks that it wants.

Despite the furor over its exclusion from the NBN tender, Telstra remains firmly in control of the process, given its dominant position as an infrastructure owner. The pressure is on Conroy to broker a deal with the firm that brings it back into the fold to make sure the NBN becomes a reality.


25 comments

  1. Bruce from the north 12/01/2009 @ 11:21 pm

    Meh. Nice try, but i’m not buying it. I will admit, Telstra are best placed to deploy a national network – however they are far from the best choice for the consumer, and pretty much anyone aware knows this.

    For my two cents – If Docsis 3.0 et al threats to the NBN are sooooo amazing, why didn’t Telstra just propose that in the first place? They don’t have enough money to upgrade 6 million more customers to cable. It’s a bluff. And for all the Telstra ranting about how no one else can get funding? Joke.

    Who is going to fund Telstra, if the govt. has the cajones to pick another horse?

    $15 billion for FTTH – a far, far, far superior solution for the Nation – doesn’t need to be raised in one hit. You know just as well as i how capital expenditure happens. Financing can be taken over the life of the project. It’s a great investment, especially if the government were willing to put up bonds for the loans. And why wouldn’t they?

    The boost to the entire nation’s economy, across all levels, of a FIBRE TO THE HOME network, even for 80% or so, would be massive, long term, and return a significant long term income to a govt with equity. Why wouldn’t they go this way?

    The more Sol threaten’s legal punches, the more he backs Conroy into the thinking man’s network. Keep it up Sol and co – no, i’m not a Telstra hater – i’d really love to see them build an open access, future proof network, and show everyone they can be a proud Australian company again.

    At this time of economic crisis, there is no room for “screw the consumer, let’s milk this for all we can” thinking. In times of war or other crisis, this kind of thing would get you accused of treason. And really? Economic blackmail/treason – is exactly the way Telstra under Sol T have been acting. Shame.

  2. myne 13/01/2009 @ 12:04 am

    No.

    Telstra should stay out.
    There are plenty of other options when it comes to purchasing existing fibre and ducting to each home.

    Axia’s bid is FTTH. Fibre doesnt suffer issues whether it’s put in stormwater drains or electrical conduit. I’ve been told that every single electrical substation in Australia has fibre running to it. These substations are owned by the various electrical trusts.

    Axia’s historical deployments have involved purchasing fibre where it was available. 30% of Alberta Canada’s fibre was already in the ground, and was purchased after the bid was won. It was not for sale before the bid was won.

    Now, because our electrical distribution, sewerage, and stormwater systems are controlled by the government, it should be a cakewalk to negotiate access to ducting, fibre, even space on the various utilities’ land.

    Dont think that Telstra are the only option. They’re not. They’re the worst option because they will continue to rip off their retail customers, and cause headaches for their wholesale customers.

    It’s no surprise that EVERY SINGLE telco/ISP in Australia wants ANYONE BUT Telstra to win the bid. This is the industry speaking. The government also appears to be fed up with Telstra’s poor value, poor cooperation, and excessive litigation.

    It’s time for a change. I can only hope that labor arent so short sighted that they can only see as far as the next election.

  3. Matt 13/01/2009 @ 12:09 am

    I wouldn’t say “In the driver’s seat”, but they may well have a secret strategy.

  4. Mathew 13/01/2009 @ 12:18 am

    What I don’t understand is why if Telstra can build the NBN far more cheaply why their prices for access are double the competition proposals. I don’t care how cheaply (or even how fast since I’m on ADSL2+) the NBN network will be built. What I care about is price.

  5. AliG 13/01/2009 @ 12:25 am

    Telstra has “come to dominate the local pay TV, fixed-line, broadband” not because it is ferociously competitive, but because it is ferociously UNCOMPETITIVE and because of its monopoly status. Get your facts straight before you print this BS

  6. Adam 13/01/2009 @ 12:30 am

    Tony,

    I think it is time that telco journalists like yourself gave up on promoting Telstra as a saviour for Australian communications.

    Telstra is not the right choice to build a broadband network. The only model that is appropriate is one that is ‘wholesale only’ and tesltra will not do that…it would mane seperating their organisation.

    The NBN needs to operate as a type of utility to encourage competition and to foster innovation. If telsta were to build an NBN it would focus on increasing it retail dominance and price out it’s competitors…this would create an even bigger monopoly…this is not what we need….we need a utility type model that is wholsale only…the provider will only provide the bandwith to retailers (like Telstra, Optus, other ISP’s…)

    Telstra has decided not to play by the rules…it must suffer the conequence….this is about a fair and equitable NBN for all Australians…not just Telstra shareholders..

    Furthermore, please keep in mind that there are more than two bids in the running for the NBN – Acacia has been mentioned often here by media commentators as a potential builder of the network (was backed by Alan Kohler – KGB(Business Spectator)I think it is shortsighted that you dont focuse on the capability of the remaining bidders but more on Telstra’s inability to respond fairly like all others…

    Thanks.

  7. Doug 13/01/2009 @ 1:13 am

    Interesting thoughts Tony, do you have many shares in Telstra? Actually you’re probably fairly close to the mark with your review. Telstra is certainly still in the picture despite their official exclusion and are saying more by their silence than any litigation would achive at this time. Personally I hope there is some way to ensure Telstra doesn’t gain yet another monopoly over the Australian public however I expect this will not be the case in the long term.

  8. Damien 13/01/2009 @ 1:24 am

    Get out from under your Telstra Owned rock and face realilty. The monopoly of what Telstra demands is now a thing of the past. To think that Telstra will have to be involved in any part of the NBN is just shear lunacy. If Axia wins the Tender we will have Fiber to the Home not the so called Fiber to the Node that Telstra is offering. The Network will get rolled out to Regional Australia unlike Telstra who have time and again been given funding from the government to build Regional Infrastructure and have never delivered. Whats more who needs Telstra infrastructure when you consider that the average Exchange and Copper cable is at least 25 to 30 years old. What you will see is new infrastructure and a network that everyone owns not just a single monopoly. Thus meaning that future improvements are prompted by all and dictated by a Single Monopoly that feels it can provide what it wants when it feels like it. Just check the Press Statements that a certain CEO of a Monopoly stated in Las Vegas recently. It when along the lines of we can offer more but why bother when no one can compete. So is that really benefiting Australians?
    It is now time for change. It is now time to Break Up Telstra and create a new beginning for all with a pathway to the Future. Not live in the past and artificially restrict customers just to make a profit for a shareholder. At the end of the day if Telstra get direct competition as is likely, Telstra will be a dead duck.

  9. Justinq 13/01/2009 @ 1:40 am

    “Telstra is the most robust and ferociously competitive players in the Australian corporate landscape,”

    You sir are a funny man. Telstra are not competative. A company that holds an effective monopoly and abuses it like telstra doesnt need to be so it doesnt.

  10. simon 13/01/2009 @ 2:34 am

    I hope you are dead wrong.
    Telstra has only ever demonstrated contempt for the consumer. The only way they will change their stance is if they are forced into a competitive market. This is a shining opportunity for the Government to demonstrate it is acting in the interests of the public.
    I personally feel the tender should have been only to build the NBN which the Government would retain ownership of. It could then wholesale out to telco’s. This would put telsta on par with it’s competitors and result in true competition.

  11. Darian 13/01/2009 @ 3:59 am

    Your an idiot !

    It was obvious from the get go months back that telstra was never going to build the network, all the analysts that kept insisting they are the only that can and will build it – are also idiots, The whole plan is cheap,fast internet access, I think Conroy always knew it wasnt going to be telstra as they simply want to charge too much.
    When it comes down to it the Government are the ones that make the laws,
    In the end Telstra will do whatever the government tells Telstra it has to do.

  12. Richard 13/01/2009 @ 6:08 am

    Spot on Tony. When Telstra was ejected from the bid the others were not running around going woo hoo, more like oh shite we might have to build it ourselves

  13. Michael 13/01/2009 @ 10:37 am

    For the sake of Australians who are waiting for speeds and pricing that can compare to the rest of the world (including so called “3rd world” countries) I can only hope that the author either
    – Has financial interest in Telstra and writing such an article)
    or
    – No idea.

  14. Craig 13/01/2009 @ 11:34 am

    Here here, this article is disturbingly unbalanced, and reads like written by someone that has a financial interest in Telstra, or who is unaware of just how damaging Telstra is to Australian internet competition, both consumer and business.

    Very few educated IT people in Australia want Telstra to get the bid. It would be the worst outcome. Fibre to the home would be an ideal solution because for once, Telstra would have real competition on the “last mile”. The fact that there is fibre to most houses would be a significant bonus on top of that fact, but the competition with Telstra copper and HFC is the real winner with the Axia bid.

  15. Cary 13/01/2009 @ 12:17 pm

    Yes, with DOCSIS 3 of course they can provide it, they choose not to, because there is no other competitor that does it.

    It is no longer the 80’s Telstra, it is time you just come to terms with the fact it is the year 2009.

    Bring it on! Just not with Telstra.

  16. FrankK 13/01/2009 @ 12:36 pm

    Telstra’a Rules …

    1. Are we making money? If yes go to #5.
    2. Will #1 continue if we don’t do anything? If yes go to #5.

    3. Uh oh – best do something … sorry, make appearance of doing something.
    – deter, delay, destroy competition
    – provide substandard offerings
    – claim ‘first rate’ performance but provide third world delivery
    – provide no new technology or better value UNLESS no other option to counter opposition
    4. Try to twist the environment (government) to change the ‘rules’ to suit Telstra reality.

    5. SWEET deal. Do nothing, deliver even less, gouge consumers.

    Telstra spin – have claimed to have provided superior services for consumers that is competitively priced.

    (closer to) Truth – they have only been innovative when pressed into a corner. If they could they would claim two-tin-cans-and-string is ‘world class broadband’.

    For years they have dragged their heels in ungrading broadband options, etc. If they remain ‘locked out’ of the NBN process watch how fast they suddenly come to market with ‘new’ or improved offerings.
    They will have a couple of years to quickly do so, to lock in customers (and hence lock them out from the competitors).
    Suddenly the years of “can’t, not possible and too expensive” will become “easy and market leading”.

    So why not before now ??
    Watch this space to see what happens.

  17. morphix 13/01/2009 @ 2:15 pm

    I actually happen to work for an ISP that has to constantly put up with Telstra and their pathetic wholesale prices & poor promises to upgrade old infrastructure.

    I say, ditch Telstra, keep them out and finally we may actually be able to provide a service to our customers that is reasonably prices without Telstra’s hefty BS pricing and lack of infrastructure upgrades.

  18. Max 14/01/2009 @ 1:40 am

    I think the real question here is: what’s more important to Rudd, staying on budget in times of global distress and minimizing the deficit, or providing the best outcome for the country? The former will make him look good in the short term and help him win the next election with the short sighted, uneducated general public. The latter will see him possibly fail in the next election, but would have a lasting legacy of infrastructure which would actually benefit the nation. Unfortunately that’s a foregone conclusion for a politician – they will choose power over the good of the nation every time.

  19. scarlet 14/01/2009 @ 3:34 am

    To myne (January 13th, 2009 at 12:04 am )

    Very good call. There is more dark cable out there than is realised. Not only the electricity companies …. but every major and quite a few minor train lines have fibre running right alongside with enough spare bandwidth for the next century.

    Forget Telstra; they’ve taken on board the maxim that they are beholden to their shareholders, but they’ve forgotten that the customer also has a role in the equation. If they build the NBN, we get more of the same.

    Besides, we don’t need fibre to the node, we need fibre to the home so that customers can choose one supplier for data and voice without the ludicrous situation we have now. I pay Telstra $21-odd per month for a piece of wire that runs 20 metres to my house. I’d rather give that to my ISP, at least they provide a service.

  20. Terry 14/01/2009 @ 5:35 am

    “anyone who thinks that its Dec. 15 exclusion from the NBN tender is a truly significant blow has not been paying attention to how Telstra has come to dominate the local pay TV, fixed-line, broadband and mobile markets.”

    Telstra dominate those markets because they are the incumbent carrier with infrastructure built while under government control for around 100 years. It’s false to proclaim they reached that spot by direct competition, in fact you’d find their market share has actually gone backwards due to competition, all the benefit they maintain is the aging copper network and the fibre routes that other carriers haven’t covered yet.

    Telstra holds no dominate position in the process, there are bidders who don’t need to use Telstra infrastructure, as well as the possibility of the government forcing a split of Telstra regardless like what happened over in New Zealand.

    The power right now is with Conroy, any one of the remaining bidders can build the NBN, it’s up to him and his team to decide which one of them will be best long term for Australia.

  21. AG 15/01/2009 @ 4:00 am

    you all should remember that no other bidders have assured that they can invest the rest 5 billion in building the NBN.

    Hence I don’t believe that the power is right now with Conroy.

  22. Victor 16/01/2009 @ 2:12 am

    I can’t see who would want to build the NBN. Just have a look at how the Government restricts Telstra’s current infrastructure. Who ever owns and maintains the NBN will have to provide use of its infrastructure to its competitors at less than maintenance cost, going by past Government policy on competition. The NBN is a pipe-dream for those that believe innovation can be fully inspired by profit restricting regulations. The Government needs to prove its commitment to a NBN by removing restrictions that impact on corporate profits and investment decisions.

  23. Andrew from the north 16/01/2009 @ 4:06 am

    Bruce from the north I couldnt agree with you more, you hit the nail dead on its head.

    I am well aware of the anticompetitive, litigious, self-interested milk australian consumers for all they are worth way telstra has conducted itself since privatisation, but Im not a Telstra hater. They are a company and its in their interests to do the best thing by their shareholders – what they fail to realise though is that their shareholders are Australians too, and getting the regulatory regime they want may suit their shareholders in the short term, but what good will it do for the country and economy in the long run?
    Fibre to the Node is just another way for them to protect their last mile monopoly – A MONOPOLY THAT WAS HANDED TO THEM BY THE GOVERNMENT WHICH THEY HAVE NO RIGHT TO PROTECT SO LITIGOUSLY.
    The NBN needs to be FTTH all the way, otherwise Australia will continue to be the pariah, laughing stock, whipping boy and suckers of international telecommunications.
    I’d love to see Telstra build the NBN, but only if its truly open access and their wholesale arm is separated from retail – they have shown over the past ten years they cannot be trusted to provide equal access. And if they wont, well, I’d rather take the risk of competing next-gen networks than another guaranteed Telstra monopoly that leaves us in the telecommunications dark ages.

  24. Iluvatar 17/01/2009 @ 8:43 am

    FIBRE TO THE HOME !!! WHO ARE YOU GUYS KIDDING ??

    Do any of you people know how much FTTH costs to deploy for a “greenfield” project? I suggest you all go and look at the mountains of reasecrh conducted by the Europeans on this matter (e.g. the ACTS, TITAN, TERA projects – also have a look at ECOSYS, TONIC, CELTIC and the EURESCOM P614 project for starters)

    Then come back and stop making STUPID, unresearched comments !!

    Australia has one of the lowest density populations in the world with one of the greatest divergence beteeen urban and rural distributions. Tell me how you will get fibre to the rural properties which are around 100 – 200kms to the local telephone exchange ??

    Some people are TRULY CLUELESS !!!

  25. Iluvatar 17/01/2009 @ 8:50 am

    correction:

    which are around 100 – 200kms to the local telephone exchange ??

    Should be:”100 – 200kms to the local township and main switching telephone exchange” ??

    Unless you ARE TELSTRA, it is a loooooong dig and fibre run to a few dozen cattle and wheat stations !

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