Telstra gains advantage with fibre proposal

Australian incumbent Telstra and its biggest rival Optus lodged bids on Wednesday for the rollout of a nationwide fibre network designed to bring broadband connectivity to at least 90 per cent of the population.

The bids mark the next stage of a multi-billion dollar investment in the country’s infrastructure that has been continually delayed by political wrangling.

However, more delays can be expected. Telstra has put the ball back in the government’s court by submitting a non-compliant proposal for the build out instead of an official bid.

Under the incumbent’s proposal, Telstra would invest up to A$5bn of its own capital and the government would provide A$4.7bn in the form of a concessional loan. The proposed fibre network would cover up to 90 per cent of the population and would be capable of providing downlink speeds between 25Mbps and 50Mbps in 65 per cent to 75 per cent of the footprint, with downlink speeds of between 12Mbps and 20Mbps in the remainder of the footprint.

This proposal differs slightly from the government’s initial request, which asked for speeds of at least 12Mbps to be delivered to 98 per cent of Australian homes. The original price was expected to extend to about A$8bn, but in the summer, Telstra CEO Sol Trujillo commented that a A$14bn price tag now seems more likely, and in light of the global economic crisis, may be higher still.

But the more controversial aspect of Telstra’s proposal is that the company’s bid is tied to assurances that the government will seek no further separation of the operator.

Telstra’s rivals, including Optus, have been calling for the government to split Telstra’s network business from its retail and wholesale arms in a bid to promote competition.

David Kennedy, research director at industry analyst Ovum, said that by lodging a short, non compliant bid, “Telstra has kept itself in the running for the government’s funding, but at the same time has kept its options open.

“We see this bid as an invitation to the Government to sit down with Telstra and negotiate a deal that will achieve the Government’s political goals while meeting Telstra’s commercial criteria,” Kennedy said.

Kennedy believes that it’s hard to see rival bids being competitive against the strength of Telstra’s financial and technical capabilities in the current economic climate. A scenario which would likely force the Australian government back to the negotiations with Telstra.