The exclusion of Telstra from the tendering process of the National Broadband Network cannot be looked at in isolation. 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 telecoms 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 also foreshadowing similar changes in the USA. This new government also understands how important the role of the telco industry is in kick-starting the economy again.
Three years of short-term gains
Telstra’s battle against the country was aimed at short-term gains, but it now looks as though it has lost the longer-term battle.
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 the telecoms monopoly, 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.
Going forwards, modern democracies can’t support a critical infrastructure like telecoms being subject to a monopoly and it was therefore 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, the Minister took the wise decision to allow the Expert Panel to make a decision about the validity of the tender proposals - rather than jumping in himself before they had done their work, which he could easily have done as Telstra’s letter contained a large number of gaping holes.
Open access, separation of the infrastructure
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. 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 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 and with the lessons learned I am sure the government will do all in its power to prevent it from happening.
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 will be improvements of the existing grid; and it will also include 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.
New opportunity for industry cooperation
On the other hand, 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 strength lies. 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 for the sake of 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. While Telstra had mentioned timeframes of 7 to 13 years before regional Australia would be fully covered. All the others are giving priority to the regional network, so this is also a good news story for regional Australia.
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.
What’s next?
The best outcome for Telstra would be for it to accept the defeat and look towards the future. If it is to participate 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.
The government will have 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 kafuffle in the Coalition will make Minchin soften his stand and work together with, if not the government, then at least the industry, to get the best possible outcome for Australia.
Paul Budde
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