(Laying cable image by Library of Congress, No known copyright)

Churchill's bon mot seemed apt as Telstra CEO David Thodey and CFO John Stanhope fronted a mob of concerned investors at the company's Investor Day this week. Over the course of the morning, it became clear just how far removed the Telstra of today is compared to the Telstra of a year ago.

Among the revelations at the event: Telstra concedes its pricing is too high and is set to lower broadband prices, uncharacteristically conceding the need to compete on price and value in a market it has so far ruled by sheer size alone.

Also significant: apart from a few choice ADSL2+ upgrades, Telstra is refusing to invest more than the minimum necessary to keep its customer access network (CAN, aka the copper loop or PSTN) ticking over. "We won't be doing anything we don't have to," Thodey said.

Thodey was reiterating a position that more and more seems to suggest Telstra is distancing itself from the contentious network. Indeed, the Thodey-Stanhope show confirmed that Telstra is indeed ready to sell off the CAN if it's offered the right price — and if the government backs down on its demands that Telstra divest itself of its Foxtel stake and HFC network, and lift the ban on Telstra eventually acquiring wireless spectrum to support next-generation LTE mobile services.

The Telstra Thodey presented to investors at the meeting seemed stalwart yet humbled

"If those conditions are met, structural separation appears to be a win-win for shareholders, the government, NBN Co and the nation," Stanhope said with the clarity and confidence of someone who had been saying this sort of thing all along.

But, of course, Telstra has been saying no such thing all along: it has remained vehemently opposed to the idea of separation in any form. Even Stanhope has been party to the FUD campaign against separation, warning in August of the risks of "extreme" forms of separation. This is the same John Stanhope that sat alongside Sol Trujillo at countless events as he railed against separation "stupidity" and said "shareholders should shoot management if they ever agree to something like that".

Draw your weapons, shareholders. A year later, Trujillo is out of the picture and the Thodey-led company is taking a much more conciliatory, realistic posture than ever. The Telstra Thodey presented to investors at the meeting seemed stalwart yet humbled, somehow, as it fights to preserve its dignity and interests while seemingly losing ground in its knock-down, drag-out battle with the government.

It has no other choice: debate over the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009 now seems certain to happen before the year's end, and stonewalling is only going to dilute Telstra's ability to walk away with something it wants. Instead, it seems Telstra now considers the sale of the CAN inevitable; its main concern, in Churchillian style, is how much the network goes for — and how the consideration is structured.

That the dialogue has moved past questions of whether Telstra will part with the CAN, reflects a major shift in posture that Conroy must be credited with extracting, especially given Telstra's previously-staunch determination to fight the current legislation.

Just how things are going to change, however, is still up in the air. There has been rampant discussion about NBN Co buying the CAN — which would give the government access to the infrastructure it needs to make the NBN work — but an investor's question to Thodey made clear that the government and Telstra may still be poles apart on the acceptable terms of such an exchange.

Does the government understand that equity in the NBN is completely unacceptable for [Telstra] shareholders?

"It's very clear that if you do vend assets into NBN Co to enable the build, that you cannot accept equity in NBN Co as consideration," the question went. "Does the government understand that equity in the NBN is completely unacceptable for your shareholders?"

Thodey's answer was measured but firm: "Does the government understand that? Yes, I think they do. But have they accepted that? I'm not sure they've accepted that. I could not come to the board or to the shareholders with anything unless it's very clearly defined in terms of what returns we would get. We've made that point to the government and will just have to see how that plays out."

This puts Conroy in an uncomfortable position: Telstra is willing to negotiate, but is drawing Conroy into a contentious argument about fair compensation for the CAN — in cash, not empty promises about the NBN's theoretical potential revenues. If Conroy refuses to give ground, Telstra will look like the gentle giant and Conroy like the tyrant; if NBN Co pays vast sums to acquire the CAN, Conroy will face the politically unpalatable situation of having paid handsomely to buy a major Telstra asset from its shareholders. Such a move would only compound the NBN's tenuous financial situation, especially if the government can't dangle NBN Co equity to offset the cash outlay.

And that, as anybody can guess, is a far from ideal outcome — especially since by Thodey's own admission the CAN is not being actively updated at any great pace. Such a deal would add a major cost to the NBN's price tag, although just how much that cost would be is up in the air after Conroy's claimed-to-be-accidental-but-nobody-believes-it leaking of Telstra-confidential information finally put the disputed figures into the public forum.

There's a big gap between $8 billion and $40 billion, although Telstra has naturally distanced itself from both numbers. Figures aside, it seems the wheels are now well and truly in motion: despite its initial defiant stance, Telstra is coming to grips with reality and steeling itself — and its investors — for major changes ahead.

Does Telstra's new pragmatism suggest Conroy has won the battle? Or has Telstra just secured the upper hand and cut straight to the chase?

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• Conroy wins battle for Telco Bill debate
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As the incremental cost of carrying a networked bit trends towards zero, carriers could feasibly move towards unlimited, uncapped services and still benefit from ever-healthier profit margins.

So why aren't your stock-standard batteries getting any cheaper? I'd say we've been paying around $1 per AA for well over the past decade, and probably longer.

It may seem like a random point, but in a cosy duopoly where there is a mutual disinterest to lower prices, it seems interesting at the very least to note that batteries are a market where increases in both demand and supply have failed to lower prices appreciably. This result is inconsistent with basic tenets of supply and demand, which assume that increased supply naturally pushes prices lower (as long as demand doesn't outstrip supply, of course). These tenets follow the same basic model as the lottery: if you suddenly won millions in the lottery, after all, wouldn't you share some with friends and family?

Competition and the abundance of cheap wholesale minutes have driven the price of phone calls through the floor, and the same philosophy has been evident in recent data plan changes by Internode — which recently dropped its prices after getting access to loads and loads of bandwidth when Pipe Networks' PPC-1 undersea cable finally went live this month. Internode celebrated by boosting many data plans' quotas by 66 per cent and cutting $10 off the entry price for its SOHO Extreme and SOHO NakedExtreme plans. There's also a plan providing up to 200GB of data per month — generous by most measures.

Behind the changes were a fundamental realisation: major jumps in bandwidth provide cost savings that can be passed on to customers and improve competitiveness. Other ISPs do the same: iiNet, for example, recently boosted its broadband business plan quotas while competition and economies of scale drove 3 Mobile to halve the price of its mobile broadband plans some time back. Just this week, Optus followed suit by rejigging its wireless broadband plans with plans starting at 1GB for $15.

This is how pricing is supposed to work. Wouldn't it thus seem logical that a major infrastructure expansion would drive down the per-bit cost of data carriage, and that those lower costs would push prices down at least a little bit? Heck, as the incremental cost of carrying a networked bit trends towards zero, carriers could feasibly move towards unlimited, uncapped services and still benefit from ever-healthier profit margins.

You might think so, but Telstra doesn't. Some weeks ago, a contingent of journalists met with several key Telstra executives to trumpet the near-completion of Telstra's Next IP network. "Given that your new data core has a substantially expanded aggregate capacity, and that your costs are much lower and trending towards nil, can we expect data pricing to drop?" I asked after a long presentation in which we were repeatedly told how Next IP had opened the floodgates of bandwidth on Telstra's network.

"The unit cost of data will decline," Telstra CTO Hugh Bradlow responded, "but not to nil. Carriers that have uncapped plans are busy bleeding at the moment, and they'll either die or change their methodology. I envision the rest of the world falling in line behind us."

There's truth in that statement, and subterfuge: truth, because previously-uncapped US carriers such as Time Warner Cable and Comcast have indeed introduced capped plans to rein in unchecked data siphoning; and subterfuge, because those caps are so generous — 250GB in Comcast's case — so as to be mainly symbolic.

Time Warner Cable, whose CEO Glenn Britt almost apologetically admitted to BusinessWeek that "we made a mistake early on by not defining our business based on the consumption dimension", charges just $US1 ($A1.10) for each GB customers download past their cap. Telstra charges $150 per extra GB. (To be entirely accurate, customers on Telstra's high-end plans are simply speed-limited; of course, Comcast customers that exceed their quota just get a warning phone call).

Given that Telstra would by all presumption have one of the region's fastest core networks, can its costs really be 150 times of Time Warner Cable's?

Given that Telstra would by all presumption have one of the region's fastest core networks, can its costs really be 150 times of Time Warner Cable's? Of course not. And herein lies the truth of Australian broadband: regardless of supply, bits are worth whatever carriers want them to be worth. This is plainly true because Telstra is more than capable of allowing customers to guzzle unmetered Foxtel content by the gigabyte over its networks.

There's cost recovery, there's justifiable profit margin, and then there's just plain ripping off your customers. When carriage costs drop, some ISPs are rewarding customers with lower pricing and more generous plans; others change their bundles only when their pricing is so out of step with general trends that even their less discerning customers are starting to complain. Others simply charge whatever they need to meet profit objectives, and tell customers to take it or leave it.

As the NBN slowly comes online, these dynamics will be revisited as part of a discussion that is currently manifesting itself in the spurious claims that the NBN will push broadband pricing to $200 a month. While that's as unlikely as claims the NBN should be free, one would hope that the wide range of pricing claims will at least get people thinking about the real value of the NBN's bandwidth – and appropriate costs for accessing it.

What do you think? Will NBN pricing follow the battery model or the phone call model?

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By next year's election, one assumes Conroy will want to be able to showcase his many achievements as minister — and the taming of Telstra would have to be high on his list.

Not only will Telstra not come quietly, it turns out, but the company seems set to throw its weight around in an ever-fiercer wrestling match that could easily drag into next year and taint Rudd's plans for a smooth re-election.

That is not to say Rudd faces much real competition from the Opposition as it is currently operating; Nick Minchin's hollow opposition to the NBN will be as irrelevant during the election campaign as it is now.

However, by next year's election, one assumes Conroy will want to be able to showcase his many achievements as minister for Communications — and the taming of Telstra would have to be high on his list. The Rudd Government has shown itself able to be big on vision when unlimited budgets seem to be suddenly available, but if it cannot deliver a legislative outcome to match, it will face some very real problems next year.

Widely-perceived nice guy David Thodey can only be laughing from his executive chair. Although he has shied away from the belligerent defiance that marked his predecessor's tenure, there was no way Thodey was simply going to hand over the keys to Telstra's empire. The company's submission to the government's legislative inquiry minced no words in proving that Conroy has a long, difficult fight ahead of him in his effort to become a lion tamer — and that Thodey is quite happy to join him in centre ring as the government's nemesis.

The irony: even though Conroy was quick to work the media with his claims that Telstra was welcome to stay the way it is now, he was agitating for change in no uncertain terms — and change of which Telstra was a part. After all, the market may be able to work around Telstra, but it's expensive and time-consuming. Now that Conroy clearly won't get the compliance from Telstra he seemed to think he would, he faces some difficult choices.

Foremost among these, of course, is drafting legislation that will actually freeze Telstra out of new wireless spectrum offerings and divest it of its Foxtel holdings. Although Conroy positioned these two Telstra businesses as tools for forcing Telstra to the table over separation, the reality of the wireless market is that Telstra is just about the only telco with the capital-raising capabilities necessary to buy large blocks of expensive wireless spectrum for nationwide service coverage.

Sure, smaller telcos or consortia may cherry-pick key markets like they did in the 3G auction, but the real-world interest in LTE and the so-called "digital dividend" to be available in 2014 is still anybody's guess. Excluding Telstra from the process may serve political objectives, but it's also likely to hamper competition during spectrum auctions and deliver lower overall licensing revenues to the government once the sale of that spectrum is complete. This is hardly ideal.

Ditto Foxtel: Telstra's warning that divesting the company of its share in Foxtel will see the content provider snapped up (and, by implication, muzzled) by media conglomerates is hardly far from the realm of possibility. Foxtel's ongoing success would make it an attractive target, and the government will have to consider how this scenario would affect its media ownership policies.

Furthermore, and correct me if I'm wrong, but there would seem to be little precedent for mandatorily divesting companies of their assets or shares in joint ventures when there have been no allegations of impropriety. This really is blue-sky territory for Conroy, with ponderous litigation and blown-out time frames a near certainty as Telstra resumes its official policy of foot-dragging and Conroy tries to find the right balance of kindly coercion and hard-nosed legislation.

Conroy can't back down now ... to flat-out cave to Telstra's demands would reposition Conroy as a toothless tiger beholden to Thodey's [whim].

The big problem is that Conroy can't back down now, although as I have already suggested he seems to already be treading that line. However, to flat-out cave to Telstra's demands — even its rather presumptuous attempts to influence the timetable by which government legislation is decided — would reposition Conroy as a toothless tiger beholden to Thodey's lion-hearted resolve.

This outcome would serve nobody but Telstra, perpetuating the status quo and forcing Rudd and Conroy back to the crisis table as they continue to try to deliver their NBN vision without bankrupting the country. Unfortunately, however, as always Telstra retains the power that inertia provides: it is Conroy's job to change the situation, and quick. If anything is actually going to change, it needs to be Conroy with the whip in hand.

Staring down a wild beast always carries risks, and Conroy certainly has his hands full. How well he handles this new challenge will determine whether we're hurtling towards a great new era in telecommunications — or fated to even more years stuck in the grip of Telstra's well-entrenched market position.

Were Conroy's separation terms just empty threats? Could an unshackled Telstra become a key election issue? What should Conroy's next step be?

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• Telstra to fight separation Bill
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And we are most definitely discussing it. Senator Stephen Conroy's recent mandate that Telstra separate, by hook or by crook, not only mentions the copper network, but in a speech Conroy offered some examples of how Telstra might go about it:

Importantly, the government retains an open mind on how structural separation may be achieved... For example, it may involve the creation of a new company into which Telstra could transfer some of its fixed-line assets. Alternatively, it may involve Telstra progressively migrating its fixed-line traffic to the NBN over a period of time and under set regulatory arrangements, and for it to sell or cease to use its fixed-line assets on an agreed basis.

With NBN Co apparently scouring the market for potential infrastructure buys, the former option would suit it to a T. The latter option doesn't really mandate separation, so much as an eviction order forcing Telstra to empty the copper network of traffic and dispose of the physical assets.

As the NBN slowly inches towards reality, how do we explain the government's seeming determination to acquire the copper network?

The government has clearly put a lot of thought into how it might gain access to Telstra's copper network, which is essential for current ADSL services and was crucial to the now-defunct FTTN network but has no actual role anymore. So, as the NBN slowly inches towards reality, how do we explain the government's seeming determination to acquire the copper network? In-ground copper has little to do with the NBN, after all, and the government really should be able to find land for its own fibre exchanges.

Conroy, who I noted last week has backed away from the sledgehammer approach of the initial announcement, is now painting the initiative as a victory for progress — a wake-up call for Telstra that it needs to make some concessions to partake in the "exciting" wireless future. Whatever that means. All Telstra has to do is split its copper network off into a format suitable for easy integration into the NBN.

Little wonder that some are becoming sceptical of the government's magnanimity: Conroy's interest in the copper network seems to be less about the copper itself as the labyrinthine network of underground ducts through which it passes.

Digging these ducts is not only expensive, but introduces complex access issues that will require more than a casual conversation over Friday-night beers to resolve. Conroy has previously conceded that the NBN may involve extensive overhead cabling, which would work in many areas but is hardly universally applicable; the NBN simply must have a significant underground component, and separation legislation so far seems to have been architected with this goal in mind.

Architected how? Well, given that Conroy's department received extensive and detailed maps of Telstra's entire network as part of the original NBN tender last year, it's not a stretch to assume that these maps have guided the design of the current fibre-based NBN. Overlaying the two networks must have produced a lot of overlap and cost redundancies.

Given the cost pressure on the NBN, it's likely that Conroy is counting on Telstra separation not only for its industry benefits, but its ability to deliver a more politically expedient new network. Indeed, many analysts have dismissed the separation pronouncement as nothing more than a negotiating tactic, and both the government and Telstra have indicated negotiations are indeed ongoing.

Why is Conroy proceeding on the apparent assumption that any divestiture must immediately benefit the NBN?

But why is Conroy proceeding on the apparent assumption that any divestiture must immediately benefit the NBN? Why couldn't Telstra spin off its copper network into a joint venture in which it retains a 50 per cent or 49 per cent interest, thereby retaining shareholder value while satisfying the government's desire for it to lose exclusive control over the copper network?

Heck, the other half could go to private investors, an overseas telco — or even Optus. With the NBN looming, the copper might directly benefit them more short term than long term — but if they could gain ownership of the network's rights-of-way, how would Conroy handle the resumption of the network's information highways and byways?

If one is going to poke a bear with a stick, one should make sure one is on the opposite side of a strong cage first. While the separation mandate is long overdue, assuming it's a slam dunk for competition may be optimistic.

The full extent of Conroy's real motivations are only known to him and inferred by those with whom he is negotiating. While some sort of change is now likely, whether this all results in Conroy getting unfettered access to his precious copper — and the underground ducts NBN Co needs — is still anybody's guess.

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• Has Conroy got the numbers for reforms?
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Brace yourself for the inevitable heated debate, Telstra foot-dragging, and possible legal challenges that may shape the eventual separation policy more than anything Conroy says at this point. But Conroy — and the rest of Labor — really could help things along by figuring out how to stay on-message.

In the week since the big announcement, Conroy has hit the media for intensive Q&A about the potential separation of Telstra, which he announced in no uncertain terms last week. But in the intervening time, the nature of his answers to one key question has changed significantly.

That question is a simple one: whether the government is forcing Telstra to separate or not.

Carrot or stick? Stephen Conroy needs to decide how much leeway he'll give Telstra in choosing the manner of its own dismemberment.
(Seppuku image used with permission of Waiapo, public domain)

It seemed to have been answered in Conroy's initial press release, which said the legislation "will allow Telstra to voluntarily submit an enforceable undertaking to the ACCC to structurally separate... If Telstra chooses not to structurally separate, the legislation provides for the government to impose a strong functional separation framework on Telstra."

The terms of mandatory functional separation include the requirement that Telstra "conduct its network operations and wholesale functions at arm's length from the rest of Telstra; Telstra provides equivalent price and non-price terms to its retail business and non-Telstra wholesale customers; and this equivalence of treatment is made transparent to the regulator and competitors via strong internal governance structures".

In other words, the first release leaves no doubt that if Telstra doesn't voluntarily introduce structural separation, the government will pursue the same endgame via a mandatory functional separation. Doesn't sound too voluntary to me.

If you look at the online version, it's right there in black and white: "The government will require the functional separation of Telstra, unless it decides to voluntarily structurally separate."

Fast-forward to Conroy's interview with the ABC's Inside Business over the weekend (or any of a half-dozen other interviews over the last week), when Conroy was asked "what made you remove that choice [that Telstra could remain integrated if it passed on the NBN opportunity]?"

"We haven't removed the choice," Conroy answered. "We've given Telstra a choice... They can stay exactly as they are or they can choose to go down the path of the fibre future and into the exciting new mobile spectrum which will [be] becoming available in the next few years."

Conroy's original position was that Telstra had to separate or it would be separated ... now he's telling the media that Telstra has every right to stay the way it is right now.

By my reading, that's not at all what the original release said. Conroy's original position was that Telstra had to separate or it would be effectively separated by legislation. Now he's telling the media that Telstra has every right to stay the monolithic, non-competitive way it is right now.

So what has changed?
One could speculate about the reasons for Conroy's policy change 'til the cows come home, but one of the most immediate possibilities is that the tone and mandatory nature of his initial pronouncement has been flagged by The Lawyers.

Whose lawyers? Well, one assumes his own department's lawyers went over this policy with a fine-toothed comb before it was issued, so it presumably wouldn't be them suddenly warning him.

Could it be Telstra's lawyers, offering the minister the same gentle reminders about the complexity of government interference in private assets? Or, perhaps, lawyers representing Telstra's shareholders, who were none too happy about the announcement and may be fearing the short-term effects of Conroy's new policy?

Labor has certainly backed down from ambitious reforms before: by some accounts, after all, the entire FTTP NBN as now architected only came about after warnings that mandatory resumption of Telstra's end-mile network would carry a potentially massive punitive price tag. If similar questions were being raised about the policy as initially envisioned, it could certainly have motivated Conroy to repaint the proposed legislative changes in the current more-unctuous language.

Whereas Conroy was initially saying "split or be split", the message is now "please split if you know what's good for you". And what's good for Telstra, apparently, is this "exciting" new wireless spectrum — presumably the 700MHz digital dividend that will be freed when analog TV is shut off in 2013.

Conroy's threat to withhold wireless rights [is] about as effective as telling a 14-year-old that you will take away his car keys as punishment for trashing the living room.

But Telstra already seems more than happy to keep developing its Next-G wireless service; that makes Conroy's threat to withhold wireless rights about as effective as telling a 14-year-old that you will take away his car keys as punishment for trashing the living room.

One wonders whether the language will change even more as debate over the proposal reveals philosophical fractures amongst Conroy's own party. For example, Finance Minister Lindsay Tanner's statement that Telstra's government-OKed investment in Foxtel has been "dreadful" for competition got broad coverage, but Conroy's separation edict allows the minister the discretion to allow that investment to continue should Telstra voluntarily separate.

In other words, Telstra's continued vertical integration is seen as a much bigger threat to competition than its half-interest in Foxtel or its ownership of the fibre-coax network that carries Foxtel into around 1.5 million homes. The government can live with Telstra dominating pay TV if it just splits up its copper local loop monopoly.

Linking these issues to separation may be a bold attempt to force Telstra to choose the manner of its dismemberment. However, Telstra's long-established ability to capitalise upon inertia may well be a problem. If Telstra calls Conroy's bluff and cashes out of Foxtel — or passes on the opportunity for a "exciting new mobile spectrum" — the minister will be forced to act despite his attempts to reshape the new policy as a voluntary choice for Telstra.

And that, if the lawyers have indeed been warning of consequences for government-imposed separation — and if they prove right — could be very interesting indeed. Until then, Conroy needs to decide just how much flexibility Telstra has here, and stick to it.

What do you think? Is Conroy staying on message, or will he have to soften his stance to accomplish Labor's endgame?

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• Tanner: Telstra's Foxtel role "dreadful"
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"You people do this all the time, using my driveway," the very cranky resident yelled at me, rubbish bin in tow and bathrobe flailing in the wind. "I'm sorry, but I'm sure the school was here when you moved into the house," I replied. "This really can't be unexpected."

I had similar feelings as Telstra shareholders went into a rapid panic this week after Stephen Conroy's stunning reversal of Australia's failed telecommunications policy. While the response to Conroy's announcement was overwhelmingly positive, a surprising undercurrent was the annoyance of shareholders — and Liberal politicians — who responded to the announcement as though the Rudd Government has some implicit obligation to Telstra's shareholders simply because they are voters.

Conroy's decision to force the separation of Telstra — done in suitably circumspect style to avoid potential liability for forced acquisition of private assets — was long-overdue. It was also, in some respects, the inevitable conclusion of a legislative review process over which the prospect of separation had hung like the proverbial sword of Damocles ever since the RFC process began in earnest early this year.

Telstra shares are not government bonds, a lesson that is being harshly learned by those who bought them believing they would provide long-term benefits with no risks.

Whether Conroy was already determined to separate Telstra, as everybody knew he needed to, or whether the idea only firmed itself after industry response was overwhelmingly in favour, is not yet clear. After all, Labor is hardly a stranger to making major and seemingly spontaneous policy reversals (cf Opel, the first NBN tender, etc).

Regardless of how it happened, the rather significant sell-off of shares on Tuesday left no questions as to the overriding sentiment amongst Telstra's shareholders. Even the government-backed Future Fund was bailing on Telstra, ditching shares in a major move that in retrospect seems too conveniently timed to have been just another of the coincidences that lately seem oh so common in this industry.

While their reaction was hardly surprising, it did highlight one of the very significant implications of Conroy's policy changes. Namely, Telstra can no longer claim the mandates of a private company whilst enjoying the benefits of the government-backed monopoly it inherited. Private companies should by design compete on a level playing field when selling identical services, and structural separation of Telstra — while politically unsavoury — was the only way to set things right.

There may be emotive substance in the argument that the government is reneging on an implicit promise it made by spruiking the Telstra float to shareholders all those years ago. The Australian Shareholders' Association, for one, has come out slamming Conroy's plan as "a giant kick in the teeth" for shareholders.

Savvy shareholders really should have seen it coming a long time ago. And — at the risk of sounding unsympathetic, which I am not — less-savvy shareholders should have really worked to understand the market before investing their hard-earned. Telstra shares are not government bonds, a lesson that is being harshly learned by those who bought them believing they would provide long-term benefits with no risks.

The real risks of Telstra's position were apparent long ago — namely, that its house of cards could collapse if its vestigial monopoly position were eroded by policy changes. Now that Conroy has loosed the legislative hounds, Telstra simply cannot continue as it has continued. The resigned and conciliatory response of David Thodey this week suggests that this is no surprise to anybody. I'm sure Telstra already has a strategy in place to deal with this contingency.

While Telstra has been able to beg, borrow and steal its way to deliver a steady flow of dividends for shareholders, its lumbering, heavily-integrated design and contradictory management style have prevented it from innovating in the way a more competitive market would demand. Its slow innovation cycle and combative executive strategies were perpetuated in the knowledge that governmental inertia and a toothless ACCC could do little to touch it. Competition, and customers, suffered as a result.

Conroy's edict ... will force Telstra to innovate, invest and expand its business rather than simply functioning as a massive ATM for shareholders

Conroy's edict — should it play out the way he seems to want it to — will break up that situation and force Telstra to work harder for the custom it has taken for granted. It will force Telstra to innovate, invest and expand its business rather than simply functioning as a massive ATM for shareholders.

Structural inefficiencies tend to mute the effectiveness of any monolithic company, and there's little doubt that Telstra's history of internal cross-subsidisation was obscuring significant declines in some lines of business. In the long term, separation will bring these issues out in the open and force Telstra to do the soul-searching it needs to truly capitalise on its real strengths — the technical skills of its people, its strong brand, and a robust wired and wireless infrastructure that is steadily expanding to meet the increasing demands of the current market.

Telstra has all the makings of a world-class telco, and will steadily find new footing as Conroy's ultimatum pulls it out from behind Trujillo's Great Wall of FUD. And while Conroy's proposal may worry shareholders in the short term, Wednesday's share surge suggests that even this shock may be short-lived as observers recognise the new opportunities a separated Telstra present for the market.

If Telstra can't innovate enough to keep itself in that leading position in Australia's telecommunications market, perhaps it shouldn't have been there in the first place.

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• Telstra chair backs NBN but not break-up
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There, the video for her song "Candyman" that was on endless loop on the flat-screen TV Ericsson had set up, along with equipment including a conventional telephone and several notebooks and routers, to showcase how the NBN would work.

You would never have known that the HD video streaming onto the screen was, in fact, being routed not only via the swag of Ericsson fibre-optic gear assembled in the room, but over Ericsson's global network to a dedicated multimedia switch — which happens to be set up in Sweden. At least that's what they said, and I have no reason to doubt it.

(Credit: fashionfeen)

There were also live phone calls, including a call to Washington DC's weather line to prove the call wasn't prerecorded. Of course, voice consumes so little of the bandwidth coursing through Ericsson's six-figure-pricetag fibre switch that the demo, to be honest, came off as ridiculously over-engineered. My hosts were, to put it simply, struggling to find applications to use up the amount of bandwidth their fibre-optic PON(passive optical network) service was providing.

If you're not up to speed with the lingo, PON is the NBN's version of the copper loop. Basically a fibre splitter that splits a raw fibre-optic cable input amongst dozens or hundreds of premises at ridiculous speeds, PON customer premises equipment (CPE) will soon be making its appearance at every NBN-connected household. Tasmania will be first, thanks to its established role as NBN hothouse, but pretty soon the rollout will lurch and heave its way to a TV near you.

(Credit: Ericsson Australia)

Ericsson's SE400 multi-service edge router — or its equivalent from whichever vendor wins the NBN contract — will live in your neighbourhood, splitting up a fibre-optic trunk feed supplied by the larger BLM 1500(the equivalent of a copper-line exchange; envision dozens of these covering each capital city). Other equipment makers, of course, have similar products, and they will eventually all be pitted against each other in a big RFT free-for-all.

Whoever supplies the gear, the end result will be a network providing, among other things, the ability to access scads of high-definition video content — including Ms Aguilera and plenty of others. There will also be a crystal-clear VoIP telephony service. And, well, other things.

Really, there are many, many other uses for the NBN. Just don't ask Stephen Conroy or his department what they might be; they're making this stuff up as they go, too.

Really, there are many, many other uses for the NBN. Just don't ask Stephen Conroy or his department what they might be; they're making this stuff up as they go, too. DBCDE acting first assistant secretary Richard Windeyer admitted as much this week in conceding that even the department didn't have all the answers.

Eyeing the PON demo, the biggest question I had was not "how will this work?" — the technology behind the NBN is already well-established — but "isn't this overkill?"

Of course it is. The NBN will give us enough network headroom to last decades. Ericsson's technical specialists were talking about the ability for service providers to fence off 20Mbps or larger chunks of a household's incoming pipe as a dedicated service delivery pipe; you could have several of these running simultaneously and still have enough spare bandwidth to watch all of Christina Aguilera's videos in YouTube high-def simultaneously.

But is this — streaming Christina Aguilera and live phone calls to get overseas weather forecasts — the pinnacle of fibre-optic communications as we know it? Are we going to get the NBN in our homes only to find out that it's simply more of the same, from the same people?

(Credit: Ericsson Australia)

Politicians, industry types, and scientific types used to generating terabytes of information per day already seem convinced they can think of things to do with all that bandwidth. But the use case seems to decline quickly after that: so far, the best applications the industry can come up with include smart metering and this vague concept that doctors will somehow be able to treat patients better when those patients have blazing-fast Internet services.

Some might argue that patients would be better served with hospitals that actually have enough doctors to manage them, but far be it from me to cast aspersions on the disgraceful state of healthcare. Or perhaps I just did.

At any rate, these sorts of applications are largely document-based and don't require the kind of bandwidth I saw buzzing around Ericsson Central. Not even the CDM-Net application, a government-backed healthcare initiative to improve management of chronic disease that was announced in 2007 and finally went live this week, requires the kind of bandwidth the NBN will deliver. Neither will the $4m remote diagnosis program to improve collaboration amongst southern NSW hospitals.

The government seems to believe that simply stamping 'NBN' on projects like this will lend weight to the so-far nebulous business case surrounding the network project.

Still, the government seems to believe that simply stamping "NBN" on projects like this will lend weight to the so-far nebulous business case surrounding the network project — the thinness of which was recently slammed in an independent analyst report. The thing is, none of these applications actually require that much bandwidth; even putting a high-definition telepresence system in every lounge room (perhaps a companion stimulus initiative to be announced during Rudd's re-election campaign next year?) wouldn't need this. If Labor really wants to increase utilisation of the NBN, it will legalise movie swapping and add BitTorrent techniques to the primary school curriculum; at least the ISP charges will start to justify the NBN's cost.

No, the most important thing about the NBN is not how much bandwidth it delivers, but the equality of access it delivers. It's nothing but a new baseline communications infrastructure for a country where the status quo is dangerously inadequate. And its value will underscore utility, e-health, and other initiatives made possible not by pushing multimedia at record speeds, but by the simple fact of having nearly every household enjoying a reliable data connection at last.

The "Candyman" demo showed that the NBN can give us in Melbourne equal access to streaming videos from Swedish media servers, but the NBN's ultimate value is something that Conroy — or recently hired commercial strategist Tim Smeallie — can't quite put their fingers on. Nor should they try; who could have envisioned the delivery of ISDN or ADSL way back when the copper loop was being architected half a century ago? Now as then, one thing holds true: If they build it, the rest will come.

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• DBCDE official: NBN a $43bn question mark
• AU$2m broadband plan to help chronically sick
• NSW gets AU$4m remote diagnosis tech boost
• NBN plan too 'risky' for investors

The newly-installed Rudd-Conroy show nixed the previous government's WiMax-based OPEL roll-out, favouring the winding path that has led us to the current NBN process. Critics said emerging 3G networks had the bandwidth and ubiquity that WiMax start-ups lacked. However, it appears somebody forgot to tell Seven.

The announcement that Seven will build its own WiMax network across Perth represents a major step in the network's long-term content strategy. That strategy began last year with Seven's Unwired acquisition, and has gained currency as IPTV gains momentum.

(Credit: Seven)

Rivals may have to wait until the NBN becomes widespread — or until they can access the 700MHz spectrum that will be freed up when analog TV goes dark in 2013 — before they can start broadcasting using IPTV in anger. Seven's privileged access to WiMax spectrum means it can get a valuable head-start. Its experiments in Perth (through subsidiary Vivid Wireless, which presumably has no relation with US adult entertainment giant Vivid Entertainment) will therefore be closely watched by both the internet and broadcast industry as Seven becomes the first network to seriously match online content with the actual delivery of internet services.

Wholesale costs removed, Seven can build a striated service offering ranging from basic Internet access and mobile broadband, to video services with unmetered Seven and third-party content.

The fact that Seven can directly service its customers without relying on Telstra's ADSL services is a significant one: wholesale costs removed, Seven can build a striated service offering ranging from basic internet access and mobile broadband, to video services with unmetered Seven and third-party content such as Foxtel, in which it recently bought a significant interest. Plug a Freeview PVR or TiVo into the WiMax modem and Seven can instantly deliver streaming digital TV and video-on-demand services anywhere across its network. Add VoIP services and you've got an instant triple-play service with no intermediaries. Replicate this in other metropolitan areas in the long term, and you've got a serious contender for cabled and fibre-optic pay TV services.

WiMax has already been shown to work fine in other countries, and a major roll-out in the US is steadily peppering major cities with bandwidth. In Australia, however, WiMax got a bad name after an ill-considered roll-out by Hervey Bay ISP Buzz Broadband and a FUD campaign by carriers favouring the rival 3G broadband technology in which they had invested.

Labor's decision to stop the OPEL WiMax contract was a very large coffin nail for the technology, and even a successful roll-out in South Australia has failed to ignite the country's imagination. (Two recent ZDNet Australia podcasts #1 and #2 caught up with WiMax's footprint in this country).

It hasn't taken long, however, for 3G to be exposed as being woefully under-prepared for the demands that triple-play services put on it. All mobile carriers offer 3G broadband services, and none of them can provide more than a few megabits per second despite claims of 7.2Mbps, 21Mbps or more in the future — and that's in best-case scenarios. Repeated outages on the Optus network and an 11-hour outage that hit Vodafone's Perth network this week illustrate the high-wire balancing act 3G has forced the carriers to pull off.

Factor in inevitable interference, attenuation, latency, congestion and handover overheads, and few 3G services are actually delivering even 1Mbps. So while it's fast enough to support delivery of short mobile-sized and mobile-quality video clips (even Telstra's Mobile Foxtel isn't live), 3G just isn't up to the kind of continuous, high-bandwidth usage that Seven's network will enable.

It hasn't taken long for 3G to be exposed as being woefully under-prepared for the demands that triple-play services put on it.

In theory, that is. Because any large-scale roll-out like this is fraught with potential pitfalls. Unwired has already tried and failed to compete against the mobile giants before, suffering the same fate as one-time broadband innovator iBurst, whose proprietary network was shut down last October.

This time around, though, Seven has more tools at its disposal. Its involvement with TiVo and FreeView has provided new conduits for fresh content, while WiMax will provide the crucial last-mile connection. The choice of Perth is an excellent one, since its size and total geographic isolation makes it an ideal testbed for large-scale carriage-and-service deployment.

Taken together, WiMax offers an important new direction for Seven as it and its free-to-air competitors struggle to adapt to the on-demand online broadcast industry. Nine, Ten, ABC and SBS remain beholden to their ISP partners and whatever bandwidth they can eke out of widely variable ADSL services. And while they wait for comparable fibre or wireless spectrum, Seven can serve its customers in whatever way it wants.

Would you buy internet and content services from Seven (via Vivid)? Would your decision be based only on price, or do you see value in the types of novel content bundles Seven could offer?

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• WiMax in Australia: Part one
• WiMax in Australia: Part two
• Intel wants WiMax for rural NBN

That all changed this week, however, as Vodafone officially went live with its latest major network expansion — a fast and furious investment in mobile infrastructure that the company claims has boosted its reach from 80 per cent of the population to 94 per cent.

Signs are that the investment has paid off in some very real ways: a recent anecdotal report I read suggested that the Vodafone network offers "perfect" coverage down in Airey's Inlet, a Great Ocean Road town that has not exactly been an epicentre of 3G. One imagines similar results in many of the places where Vodafone is now introducing coverage for the first time.

(Credit: Vodafone)

As with all things mobile, your mileage will of course vary. But as Vodafone finally gets serious about expanding its network — and uses that network to bolster its merger with Three — the long-delayed upgrade is significant for one very important reason. For the first time, after all, residents in newly-covered rural geographies have a choice of mobile service provider — a concept that has been completely foreign to many in the past due to Telstra's de facto status as monopolist 3G mobile operator.

As I've previously argued, the creation of VHA Australia will be great for mobile competition by finally creating a third carrier of which Telstra will be, if not perhaps mortified, at least ... aware. Even if Telstra doesn't rush into defensive mode regarding Next G, it's going to have to watch Vodafone's subscriber numbers with more attention. Yes, Telstra's coverage by percentage may be higher, but odds are that Vodafone's expanded coverage will tick all the right boxes for a growing number of subscribers. Either way, it is going to help transform a critical part of the nation's mobile infrastructure by providing much-needed choice.

Vodafone's network expansion isn't only about whether rural residents can get phone calls in their houses or across their vast properties; it's also about improving coverage over the country's highways and byways, ensuring that even those who live in the city can pick up their phones with confidence while travelling. In some cases, this may mean there is only coverage on a thin strip of road; while this may be an issue for residents, it's better for casual passers-through than simply getting dead air.

One suspects there may be at least a bit of under-ideal-circumstances loading behind the 94 per cent figure.

Analyst firm Market Clarity pointed out issues with the actual density of mobile coverage earlier this year with research suggesting that carriers' coverage figures are routinely overstated because they count a population area as being covered when only the CBD is covered. There's no real sign yet as to whether this is still the case given Vodafone's newly expanded network, although one suspects there may be at least a bit of under-ideal-circumstances loading behind the 94 per cent figure.

Either way, Vodafone's investment should be great news for rural Australians. Should the real-world coverage and performance of Vodafone's expanded network prove as good as it could be, Vodafone should get a great boost in its 6 million-plus subscriber base as its traditionally good-value mobile and mobile data plans gain currency.

This could propel the company to the kind of growth enjoyed by Optus, which has seen subscriber numbers surge past 8 million thanks to its wholehearted embrace of Apple's runaway hit iPhone.

Should Vodafone's network not prove up to scratch, the company can expect to be lambasted by Telstra marketing, which has pushed the network's purported speed and coverage as its key differentiators. It may also suffer the kind of ignominy that has beset Optus, which has struggled with repeated network outage and seems, with data volumes escalating, to have become a victim of the iPhone's success as much as a beneficiary of it. Customers are sure to weigh in loudly on the results of the network upgrade — but either way, Vodafone has taken a major step towards closing the long-standing mobile divide.

Do you live in a rural area? How does Vodafone's new coverage compare? Have you made the switch?

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• Vodafone coverage hits 94%
• VHA shifts Sydney finance dept north
• VHA picks Tassie for call centre HQ
• October deadline for VHA staff review

Anti-tank Russian cannon(ISU-122 image by Andrzej Skwarczynski, royalty free)

As the announcement of the Tasmanian start date pushes the NBN on its slow, ponderous way towards reality, however, Telstra is investing not in bolstering its existing solutions — but, rather, is easing into an extended waiting period.

At least, that's how it sounded when I sat down with several Telstra executives this week amidst proclamations that the company's robust Next IP backbone is 90 per cent complete and that they're planning big things for their hybrid fibre-coaxial (HFC) network later this year.

Telstra's push to revive its HFC network has been seen as a natural outcome of the NBN's announcement: the company needs a comparable network, everybody says, and existing copper and HFC services won't cut it.

Just don't tell Telstra that; as Michael Lawrey, managing director of Telstra Network Services, pointed out in his PowerPoint presentation: "80 per cent of the Australian population are able to get broadband access at up to 20Mbps using either HFC or ADSL2+".

In other words, you're all set for broadband for now, right? Yeah, right. Asked about this seemingly optimistic statement, Telstra chief technology officer Hugh Bradlow offered a cryptic answer: "Blame our competitors," he said. "We aren't the ones out in the market saying 20Mbps. [Slower speeds] are a simple law of physics."

Hold on: this was said just after Lawrey put up a slide claiming that it was providing speeds of up to 20Mbps to 80 per cent of the Australian population. But Telstra isn't "saying 20Mbps"? Huh?

I don't think I'd be going out on a limb to say that most Australians are getting far less than 20Mbps from their ADSL2+ services, and many still have no broadband access at all. HFC provides more headroom — witness Telstra's plans to upgrade it to 100Mbps in Melbourne before year's end — but that doesn't mean either solution will be relevant to you in the near future.

Given the gap between theory and reality, Lawrey's comments sound ominously like George W Bush's infamous "mission accomplished" back in 2003. Here, the words "up to" are Telstra's hedge against the reality of Australian broadband: even my 2.5Mbps ADSL2+ service would be classified as "up to" 20Mbps, in its parlance.

Telstra's go-slow strategy
Given that the NBN will eventually enable a range of alternative, cost-competitive broadband 100Mbps services, you'd think Telstra would be working hard to capitalise on its HFC network to reach places where ADSL2+ is still slow and substandard.

Short HFC spurs would be an ideal pre-emptive strike against the NBN's promised 100Mbps services — especially for customers stranded in broadband blackspots, potentially winning long-time customers who will be less eager to jump to NBN-driven services down the road since they'd already have their 100Mbps services. Just imagine the marketing: "The NBN promises you 100Mbps in one to eight years, but we can deliver it to you tomorrow."

Asked whether this was actually going to happen, however, Lawrey got cagey. "We're really waiting to see how the [NBN] environment unfolds before we make those sorts of decisions," he explained.

"So we're all in limbo for now?" I asked. His response: "Yeah."

Unless Telstra's HFC already passes your house, and you live in Melbourne, Telstra won't be upgrading the connection to your home any time soon.

Just to recap, Telstra claims its 80 per cent of its customers are getting robust broadband, but they're not. Telstra has no plans to improve its copper or HFC networks to reach the other 20 per cent, nor will it invest in its networks to ensure customers actually get the speeds they're paying for. Faced with the immense challenge and change the NBN represents, Telstra's new last-mile strategy is simply to sit on its hands.

You can look at this in two ways: one, the NBN threat is still far off and Telstra wants to see how it shapes up before investing capital in its end-user network. Or — and this seems more likely all the time — Telstra is leaving its network investment in limbo simply because it plans to be a major buyer of the NBN's wholesale services as they are released.

This makes cold, hard business sense: why invest to expand the HFC network when there's a ready-made infrastructure you can access at the same prices as your competitors? Well, there isn't one yet, but there will be. In the meantime, Telstra will let its copper network rot in the ground, maximise the value of its existing fibre, and wait to buy NBN services heavily as they become available.

For customers, this suffer-in-your-jocks strategy means just one thing: unless Telstra's HFC already passes your house, and you live in Melbourne, Telstra won't be upgrading the connection to your home any time soon. If you have no broadband coverage at all, expect that to continue for years; there won't be any improvement until the NBN comes your way.

For the industry, the situation presents scary reality: the NBN has been seen as a competitor to Telstra's network, but seems ill-prepared to consider the effect if Telstra buys heavily into the same economies of scale on which they are depending.

In an open wholesale market, volume speaks volumes — and Telstra will be able to bring its heavy hand into purchasing negotiations that could spell major problems for competitors. Until then, Telstra's abandonment of the copper loop, and its decision not to expand its HFC network, will indeed leave customers in limbo.

Should Telstra be investing in a pre-emptive defence against the NBN? Or should it go slow and wait like everybody else?

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• Telstra profits head upward
• Trujillo was paid $9.06m in 2009
• Thodey: Shareholders king in NBN talks
• Doug Campbell on the task ahead

(Credit: Woolworths)

It is, then, with great interest that we can welcome the arrival of a Woolworths initiative to bring down mobile calling rates by establishing a mobile virtual network operator (MVNO) arrangement with Optus, whereby Woolworths will buy mobile calling minutes in large quantities and resell them to customers as its prepaid Woolworths Everyday Mobile service.

Woolworths isn't the only MVNO in Australia; Virgin Mobile, which also piggybacks on the Optus network, is among the best-known but others include Austar, Primus and Soul. For the most part, these companies have floated around the market's periphery, cherry-picking a few customers here and there but by and large ceding Australia's retail customers to the big four.

However, with a new offering from Woolworths — a company whose high-tech associations begin and end with the Dick Smith retail chain — the game has changed significantly: new competition will put welcome new pressure on the major carriers and their high-margin mobile businesses. Waiting for telecommunications providers to lower their prices is pointless, since they rely on mobile profits for survival; engendering real competition in the mobile sector requires new, competitive offerings from players outside the market.

Their biggest weakness: prepaid mobile plans. Per-minute rates are the secret weapon of the prepaid mobile market: it may sound great that Virgin Mobile's $75 prepaid cap gives you $650 worth of calls and 50MB of data, but when you're being charged 90c per minute — in one-minute increments — that $650 doesn't go as far as you might think.

Especially when your credits expire after 28 days. Virgin Mobile offers a bargain-basement Bean Counter plan with rates of 10c per minute, but it's only available online and requires a credit card (read: long-term, potentially expensive, committed relationship thanks to automatic top-ups).

Read the fine print on the other networks' prepaid deals, and you'll likely come to the conclusion that Woolworths is offering pretty good value for money. Call rates are just 15 cents per 30 seconds, 15c flagfall, no contracts and 100-day credit expiry. Compare that with Telstra's prepaid Casual plans, for example, and you'll be paying anywhere from $1 per minute and 27c flagfall for $10 minimum monthly spend, down to 36c per minute if you spend $350 per month to get — wait for it — $350 worth of calls.

Engendering real competition in the mobile sector requires new, competitive offerings from players outside the market

Other MVNOs exist somewhere along a spectrum between Virgin Mobile and Telstra, but Woolworths' rates would seem to reflect its desire to launch an aggressively competitive service for its customers. Just why its MVNO deal is important becomes glaringly obvious when you consider the company's reach: with hundreds of millions of customers passing through the doors of its subsidiaries (including Safeway, Dick Smith and Big W) every year, the retail behemoth hardly lacks exposure for its new products.

The company claims its customers already purchase 21 million prepaid mobile recharges annually, so the buying habits are already established; all Woolworths needs to do is get them to buy its own prepaid vouchers instead. Since they're already walking through the door, that battle is already half over. Add the potential for mobile prepaid tie-ins — of the "spend $50 at Woolworths/Safeway and get a $5 mobile recharge" variety — and there are some very powerful forces at work here.

This sort of product will be irresistible to the very demographic that deals like Bean Counter won't: budget-conscious and budget-limited adults and, more importantly, their teenage children, who are too young to have their own credit cards but highly likely to have their own mobiles. These kids are equally likely to pump discretionary cash into buying mobile recharges so they can call and text their friends/significant others until the morning alarm clock rings, and they love prepaid because it leaves no trace of their actual usage on Mum's Visa statement.

Whether that's good or bad I will leave for Mum to decide. In the meantime, Woolworths' entry into the mobile market provides much-needed price competition in a market that seems to have settled around the proposition that mobile customers are there to be gouged.

The best part is yet to come: now that Woolworths has thrown down the gauntlet, we face an inevitable counter-MVNO offer from Coles, which will hardly be left behind should Woolworths' move be seen as successful. That's when the real fun will start, as the two retail giants compete by using discount mobile calling to lure customers into their shops. It's the petrol voucher wars all over again.

With which carrier will Coles partner? I'm tipping Vodafone, which has a smaller network footprint than Telstra but could offer lower prices that would be critical in matching the Woolworths offer; Telstra, by contrast, has little interest in facilitating the undercutting of its own services.

There are obstacles, of course: with more and more people expecting data plans with their phones, data pricing may factor into play — making the relatively generous download-cap plans of many carriers seem more advantageous. Or will it? Woolworths says customers don't want data — and, statistically speaking, the majority still don't. For those who do, many competing plans include unlimited voice calls and generous data allowances, but all require a long-term commitment. This fact should make Woolworths' MVNO move a welcome step for the proverbial unwashed masses who just want to be able to make mobile calls without having to sell their car to pay the bill.

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• Woolies: Customers don't want mobile data
• Woolworths becomes a mobile telco
• The cost of 'free love' net neutrality
• Woolies splurges on $50m datacentre

While some critics were quick to attack Minister Stephen Conroy ... the talent pool of similarly-qualified executives (30-plus years of industry experience in Quigley's case, and nearly 50 years in Campbell's) is relatively shallow.

In a niche field like telecommunications, the situation could not have been too dissimilar as the government narrowed down its list of candidates and eventually chose ex-Alcatel-Lucent executive Mike Quigley as NBN Co's new executive chairman and CEO apparent, at the same time appointing ex-Telstra executive Doug Campbell to head the NBN Co's Tasmanian subsidiary, TNBN.

Make no doubt about it: these guys know their way around Australia's telecoms environment — Quigley as head of a major and long-time supplier to Telstra, and Campbell as a long-time inhabitant of Telstra's senior echelon.

And while some critics were quick to attack Minister Stephen Conroy over the perception that the two appointments were giving Telstra undue influence in NBN Co, the fact is that the talent pool of similarly-qualified executives (30-plus years of industry experience in Quigley's case, and nearly 50 years in Campbell's) is relatively shallow.

Just as we can all predict with some certainty who will headline the next season of Dancing with the Stars, it can't be a big surprise that the few key executives with the expertise to run NBN Co properly have experience with, and in, Telstra.

Given Telstra's long-time and continuing dominance of Australian telecommunications, I'd wager that it's impossible to get anything like Quigley's and Campbell's expertise from anybody who has not had some sort of supplier or employee relationship with Telstra. After all, it was only 15 years ago that Telstra (or, to be more accurate, Telecom) pretty much was Australian telecommunications.

Did Rudd and Conroy choose these particular candidates to placate Telstra and somehow keep it at the NBN table? Given their ongoing rhetoric about independence and their historical standoff with Telstra — and their need to deliver something concrete from their NBN vision — one would think not.

Do the appointees' past Telstra relationships mean the NBN could evolve in a way that is more beneficial to Telstra than it otherwise might be? Possibly; many executives make no bones about pulling out their Rolodexes and getting back in touch with old mates they think can get things done or might benefit from their new position. Even Quigley's Alcatel-Lucent ties could support such allegations: the company, as Telstra supplier, had previously had a significant stake in Telstra's once-presumed ascendancy to the FTTN throne and Quigley himself is on the record as being highly critical of Telstra's FTTN competitors' claims that they could build anything to challenge Telstra's network.

But times have changed. It is with no small irony that Quigley now finds himself charged with delivering what, three years ago, he said couldn't be delivered. A read through his background suggests he is someone who has been through a lot, personally and professionally, and won't want to waste time with petty politics.

He seems to be a can-do person — and that's great, because his job requires engineering a nationwide fibre project to rival Telstra's own Next IP, which Alcatel-Lucent helped it build. Only this time, Quigley and Campbell can apply their intimate knowledge of Australia's telecoms infrastructure to building a converged network unencumbered by the weight of legacy switched telephony services.

In executing on Labor's most important policy, both appointees will be acutely aware that their roles will be under the deepest possible scrutiny, and the government's oversight of the NBN build puts them in a different position of power than they might be in a fully privatised company.

Appearances of favouritism will not be well tolerated, either by an actively interested media or a Labor government that will be particularly aware of the need for proper governance — if only to avoid the inevitable allegations of impropriety that a desperate Coalition would hurl at it during the upcoming election were there even a hint of pro-Telstra bias. This does not, it must be added, preclude Telstra's involvement in the NBN as one of many suppliers and service providers, but it does preclude Telstra having anything resembling influence on the NBN Co board.

Conroy may have been intending to implement a sort of built-in system of checks and balances that would minimise perceived pro-Telstra bias.

It's interesting to note that Quigley is effectively Campbell's boss, even though Campbell has nearly two decades' more industry experience. This can't be a coincidence: appointing an ex-Telstra executive as NBN Co head would have been political suicide. However, in giving Campbell direction over the smaller TNBN but putting Quigley in charge of the bigger picture, Conroy may have been intending to implement a sort of built-in system of checks and balances that would minimise perceived pro-Telstra bias.

Also interesting was Quigley's acknowledgement, in his interview this week with the Australian Financial Review, that his immediate priorities include building a roster of wholesale products and charting a future that includes a focus on digital TV. That may present an opportunity for Telstra, which faces a loosening grip on Foxtel and — with Foxtel or without it — is likely to see the NBN as a way to reassert itself in IPTV-delivered content. But it's also an opportunity for Telstra's competitors to access the same wholesale services in ways that were never before possible.

Specifics will emerge over time, but Quigley seems like a man who has hit the ground running — and already knows the lay of the land. As our experience with Sol Trujillo showed, driving major change in Australia's telecommunications market isn't easy, and gets harder when executives are seen to lack intimate knowledge of Australia's market. Quigley brings a depth of Australian and global market expertise that is shared by few. And Campbell? Well, as head of Telstra Countrywide he has brought internet services to more remote places than Tasmania. Any Telstra predilections he still holds onto, can be safely contained while being tapped into by Quigley and the rest of the board.

Time will tell how the rest of the NBN Co board shapes up, but it's hard to dismiss the credentials of its two most high-profile appointments so far. And with the eyes of the world on NBN Co, both will hopefully share a commonality of purpose and a sense of history that will let them set the NBN Co train in motion — and leave Telstra's influence at the station, where it belongs.

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• Mike Quigley: The background check
• Tudehope pushes Telstra separation
• Quigley's job is straightforward
• Telstra stalwarts to lead NBN Co

TiVo's high price and a wealth of competitors has kept it from becoming the runaway success it has been in the US, although reportedly solid sales and recent distribution deals with JB Hi-Fi and Myer suggest it may be slowly finding its footing.

Yet it now appears TiVo was only the beginning of Seven's fight to climb the broadcasting food chain: Telstra CEO David Thodey was recently reasserting his company's love for Foxtel, the broadcasting monolith that all but owns Australia's pay TV market, after Seven Network boss Kerry Stokes spent $234 million to buy 18.3 per cent of 25 per cent Foxtel owner Consolidated Media Group (CMG).

Although it's hardly likely to wrestle a controlling interest over Foxtel given Telstra's 50 per cent ownership, Seven's mooted buyout of Consolidated Media Group reflects the company's long-running ambition to diversify its broadcasting portfolio from its stable of free-to-air broadcast channels. Cross-over investments like this one seem like a concerted effort to deliver on that ambition.

An eventual position on the Foxtel board would theoretically change the tone of the company's management, opening the door to greater synergies between the FTA and pay TV markets and presenting new opportunities to get a leg up on competitors as digital TV steadily gathers momentum — and appeal for crucial advertisers and sponsors. This would also help strengthen Seven's position with respect to Freeview, the FTA industry's hail-Mary pass designed to counter the growing threat posed by an increasingly high-definition and newly-profitable Foxtel, whose iQ PVR has been a much bigger success than TiVo.

While forging a closer relationship with the dominant pay-TV provider could be a smart defensive move, Seven's long-term game may be better reflected in the opportunities presented by IPTV

Perhaps the most interesting thing about this deal, however, is where it could take Seven in the long term. While forging a closer relationship with the dominant pay-TV provider could be a smart defensive move, Seven's long-term game may be better reflected in the opportunities presented by IPTV — the potential of which Foxtel has already been exploring in the past, and into which Telstra and Foxtel are also reputedly eager to tap.

With a reworked front and back-end content system and avowals that it will offer video-on-demand, catch-up TV and streaming Winter Olympics coverage, Foxtel is counting on a more flexible range of delivery options to consolidate its lead in the broadcast market — particularly as a reinvigorated Telstra explores its options for IP-based content.

Seven's own ambitions in the carriage space became clear with its late-2007 buyout of Unwired, the spectrum-rich wireless internet provider which now falls under the ambit of Seven subsidiary Network Investment Holdings (NIH). The Unwired buy gave Seven access to a range of wireless spectrum covering 90 per cent of Australia's population, providing a robust data backbone which it could feasibly deliver all manner of video, data and other IP-based content. As I noted at the time, this made it a strong contender to target telecoms markets that have been historically dominated by Telstra.

The only problem with this arrangement is content, and that's where a closer relationship with Foxtel could be of benefit. If it can get cozy with the country's largest supplier of pay-TV content, and maintain its relationship with its Freeview partners-in-FTA, Seven can cherry-pick the best of both worlds and extend its tendrils into a whole range of new areas. This could easily expand to include IP-based telecommunications services, turning the network into a more full-service communications operator.

Seven's endgame, however, may lie even further afield: a shift towards IP broadcasting will be aided by the eventual introduction of the NBN, which — whenever it actually manages to put some fibre in the ground— will present radical new options for Foxtel, whose growth has so far been constrained by the physical limits of its hybrid fibre-coax (HFC) network.

This network offers far more growth potential than Foxtel's second-tier satellite coverage, as illustrated by Telstra's already-announced plans to boost the HFC network to 100Mbps by year's end. Complemented by Seven's respective strengths and united in their access to a whole new range of customers via wireless, HFC and FTTH, the companies could mount a solid, far-reaching and unprecedented market assault based on combinations of pay TV, IPTV content, and telecommunications services.

Seven might not be eating Telstra's lunch just yet, but playing its cards right in relation to pay TV might just yet see that change over time. It may all start with CMG, but where it ends is anybody's guess.

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"We choose to go to the moon in this decade," he said, "and to do other things [in space research] not because they are easy, but because they are hard ... because that goal will serve to organise and measure the best of our energies and skills."

Kennedy's vision breathed new life into the country's scientific and manufacturing industries, employing 400,000 people and 20,000 companies, helping the US assert global scientific and technological strength, and giving NASA long-term gravitas, to the tune of around US$25 billion 1969 dollars (US$135 billion, or approximately AU$168 billion in 2005 dollars).

Given its potential as a lightning rod for massive jobs and investment stimulus, parallels between the NBN and the Apollo project seem apt: the NBN has the potential to do much the same for Australia's telecoms industry and, dare I say, its national psyche. Stephen Conroy knows this all too well, which is why he wasted no time labelling last week's tender for the supply of fibre-optic services to Tasmania's Aurora Energy as stage one of the NBN roll-out (coincidentally, or perhaps not so much, that event came on 16 July, the same day the Apollo 11 mission launched).

Facing great pressure to produce actual results and not to let Labor's broadband vision and timeline slip any more than it already has, Conroy's enthusiasm is hardly surprising; he has to put some runs on the board to support Labor's case for re-election next year. And, to be sure, concrete steps are better than none at all, as I asserted last week after it seemed we were no closer to a Tasmanian NBN than we were back in April when the new strategy was announced.

We still aren't much closer, not in any tangible sort of way. But with the NBN board appointment of Rudd's policy coordinator and one-time ninemsn executive Martin Hoffman last week and full board appointments rumoured to be imminent, we are slowly gaining details of what the Tasmanian NBN — a microcosm of the entire NBN — will be like.

Well, sort of. Because if what Aurora is asking for represents the level of detail that will characterise the rest of the NBN, a telecoms industry stampeding into Tasmania thanks to the new Basslink fibre — and expecting it to herald bigger things for the mainland network — may well be left wondering where the meat of the NBN has gone.

At first glance, Aurora's tender seems imprecise and non-specific, offering little explicit detail about new NBN-related construction. It is, apparently, to be handled as a network upgrade rather than a totally new civil works project. And TNBN Co, the new Commonwealth-and-Tasmanian-government venture that will handle the state's corner of the NBN, will be working to ensure that those parts of the state that don't get fibre, get access to the same satellite services many people are already using to get online.

Facilitating a few fibre upgrades with a well-prepared incumbent is a start, but it's as far away from the full NBN project as NASA's Langley Research Center was from the actual surface of the moon. As an island geography with a heavily centralised population spanning a relatively small amount of space, Tasmania may be a good testing ground for the NBN's technologies — but out on the big bad mainland the real project will face all sorts of commercial, technological and policy hurdles that will make TNBN's work seem like a walk in the industrial park.

Never mind all that for now. A tender is a tender, no matter how small, and a struggling industry has responded with enthusiasm to what may be the first real sign that the NBN is more than a figment of Conroy's optimistic press releases, stultifyingly on-message speeches and over-bland policy declarations.

Peak body the Communications Alliance, for one, last week kicked off its formal NBN Works Program, under which the group is rallying members to work out a unified NBN strategy. As if those members were actually designing the NBN instead of simply being contracted by TNBN Co to build it, the NBN Works Program identifies the NBN Reference Model, wholesale services and early stage deployments as "priority areas ... work on these projects is expected to be finalised before the end of 2009," the Communications Alliance announced in a statement.

That time frame seems optimistically short. Nonetheless, business development managers from Alcatel to ZyXEL are rubbing their hands with glee as they consider the potential windfalls to come. Router maker Billion, in an astounding case of jumping-the-gun, even took $150 off the price of its "NBN-ready" BIPAC 7800N ADSL2+ router. Isn't that sort of like Toyota advertising that its latest LandCruiser is ready to be driven across Mare Tranquillitatis?

Even the divisiveness of partisan politics may be overcome by strong leadership and a shared sense of purpose. This is the challenge, and the opportunity, Labor now faces.

Like the engineers that sat down on day one with an empty blackboard and a mission to get man to the moon and back, building the NBN from the ground up is a daunting and complex opportunity that will present more than its share of challenges.

Many parts of Australia have communications capabilities not much better than those on the barren plain onto which Neil Armstrong stepped 40 years ago. Yet as we commemorate the 40th anniversary of Apollo 11's landing, perhaps we should forget for a moment that the majority of the project still exists in a policy, funding and investment vacuum from which even logic cannot escape. That's politics for you.

Yet even the divisiveness of partisan politics may be overcome by strong leadership and a shared sense of purpose. This is the challenge, and the opportunity, Labor now faces. If Conroy thinks the NBN will happen with anything less, he should perhaps recall Kennedy's words on that day back in 1961:

The opening vistas of space promised high cost and hardships as well as high reward... If [the] history of our progress teaches us anything, it is that Man in his quest for knowledge and progress is determined and cannot be deterred. The exploration of space will go ahead whether we join in it or not. And it is one of the great adventures of all time.... This generation does not intend to founder in the backwash of the coming age of space; we need to be a part of it, and we need to lead it... Its opportunity for peaceful cooperation may never come again.

As it was then for space, so it is now for cyberspace, and the NBN that will get us there. Let the race begin.

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This came after closed-door meetings at the highest level, after which Rudd and Tasmanian Premier David Bartlett detailed the Tasmanian roll-out.

This week, Stephen Conroy showed with great certainty that the NBN remains a touch-and-go affair with no clear timeline, a relatively questionable lack of governance, and lots of unresolved mysteries that would seem to question the contention that the government's pièce de résistance is actually going anywhere at all.

Actually, what he grudgingly said is that Tasmania will indeed have to undergo a tender process for its part of the NBN — seemingly putting an end to rampant industry speculation that the contract would be slipped in the back door as a contract extension.

Call me a pessimist, but given that there are just two weeks left in July, the odds of there being a complete tender process this month — or, dare I say, this quarter — seem quite small indeed. Construction will thus be delayed indefinitely as due process takes its course, as it of course must. Yet for Conroy to take so long to acknowledge that a tender is essential seems, well, surprising — especially since Rudd had seemingly already wrapped up the Tasmanian deal back in April.

Senator Stephen Conroy only conceded a Tasmanian NBN tender was essential after pressure from journalists. (Tasmanian Devil Conservation Park image by Wayne McLean, CC2.5)

Deadlines slip, problems emerge, projects drag on: we all know this, and we expect it. Yet the government needs to show leadership in Tasmania, where the roll-out will set the tone for the rest of this massive project. Conroy's concession that a tender was essential — something even part-time students of government would understand all too well — was only dragged out of him after a presentation in which he asserted the Commonwealth and Tasmanian governments were already near to finalising negotiations.

Huh? How can they be finalising negotiations if the tender hasn't even been issued yet? Or are these negotiations simply reinforcing the understanding of the NBN's policy goals within Tasmania? And if the latter is true, what of the statements back in April, when Rudd and Bartlett — whom Conroy yesterday labelled, presumably affectionately, as "a geek" — stood up with great conviction to say they had worked out all the details?

That statement, made on the day after the NBN announcement, was always to be taken as grandstanding intended to show that the process had legs and would quickly deliver benefits for Australians. But now it appears to simply have been inconveniently-timed enthusiasm, lost in the dust of history — suggesting that the Labor party has an increasingly tenuous grasp on time lines, due process, transparency, and the other things it will need to deliver the NBN.

It's all part of a strategy in which hard fact is at a premium and empty political gamesmanship the order of the day. Conroy seems determined to build the NBN by press release

It's all part of a strategy in which hard fact is at a premium and empty political gamesmanship the order of the day. Conroy seems determined to build the NBN by press release — such as the release he promised, in lieu of straight answers, "which will be able to identify some of those issues you've raised soon". That, of course, is code for "I don't have a well-considered answer for you, but I'm happy to go back to my office and consult with my policy advisers to work out a terse, vaguely-worded statement that I hope will placate your journalistic hounding for a few days".

Now, we cannot overestimate the work involved in getting the NBN project off the ground: this is complex, laborious, expensive, difficult stuff. Yet while nobody expects Labor to build this Rome in a day, being deliberately vague at this point is hardly reassuring to an industry that — judging by the landslide of 120-plus submissions to the telecommunications regulatory reform discussion paper — has quite strong opinions about the need for real, progressive change in an area that's crying out for direction.

Setting (and missing) vague deadlines, waffling on critical issues of policy, and avoiding direct questions are hardly ways to inspire confidence. Delivering real, concrete steps — such as kicking off the NBN implementation study, or actually issuing a tender for the Tasmanian NBN component rather than simply admitting under pressure that it's inevitable — have a much more significant benefit.

Rudd was happy to dangle Tasmania's promised NBN as an example of his telecoms policy prowess, but so far the only thing that has changed on the Apple Isle is the commissioning of the long-delayed Basslink. Sure, that's a big step and will provide critical supporting infrastructure for the NBN — but it's only the beginning of a very long process that seems to already be dragging compared with the government's optimistic early predictions.

Whether these predictions were borne out of sheer optimism or bald ignorance is yet to be seen — but unless he and Conroy can show more clarity and proactivity around the process they're managing, they risk shrouding the rest of the NBN ramp-up in confusion and disarray.

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Seeking profitable niches outside the mainstream, many of those were small operators who hoped to cash in on what seemed to be a surefire recipe for success: buy international calling minutes in massive quantities, then on-sell them to customers as prepaid calling cards offering dirt-cheap rates to specific countries or regions around the world. Some tried the different "callback" approach: you dial your number, and the service calls the number and rings you back from a country where it costs next-to-nothing to connect the call.

The calling card market has turned into a solid money-spinner for a few companies: market leader gotalk, for one, reported last year that it is pulling in around $100m a year from prepaid cards, understandably leading other players to try new angles.

One of the reasons the calling card market has been able to thrive is that it has grown outside the ambit of Telstra, Optus, and their brethren, who have been far more focused on rolling in the money generated from exploding mobile call revenues. More than a decade into the mobile phone revolution, Australian customers are still routinely paying up to nearly $1 a minute for mobile calls, while calls to mobiles have failed to fall below 30¢ a minute thanks to stubbornly high interconnect fees.

Two recently launched efforts, however, could change all that — and while carriers may not be shaking in their boots, they're going to at least want to sit up and take notice.

The key differentiator here is the smartphone, which forms the launch platform for local start-up BigTinCan. BigTinCan has written applications for Windows Mobile, BlackBerry, iPhone, and Google Android-based smartphones — as well as a PC client — that lets you make calls at discount rates straight from your smartphone.

(Credit: BigTinCan)

Start up the app, dial the number you want, and your phone shoots off a tiny packet of data to BigTinCan's servers. Using the call-back approach, the servers dial the number, call your mobile and conference you in; you get a mobile voice call at a fraction of the normal price. Because incoming calls to mobiles aren't charged, you get a normal voice call without paying your mobile carrier for the privilege.

Your outlay: 30¢ a minute to most anywhere in the world. Right now, you'd probably pay more than that to ring your next-door neighbour on your mobile, and even unlimited-calling mobile plans exclude overseas calls. BigTinCan also carries MMS and SMS messages for 10¢ each, and can be used to forward video messages and large files as well. And, unlike the VoIP applications inching their way onto smartphones, this approach doesn't consume customers' precious data allowances.

But will these sorts of capabilities be enough to earn BigTinCan long-term relevance? Given the proven appeal of calling cards, CEO David Keane is naturally excited about its prospects, citing more than 100 new sign-ups per day after just a few weeks in business: "we think of ourselves as an overlay telecoms service provider," he explains. "The traditional calling card market remains strong, and we're going to be adding interesting new things into the service."

Certainly, the company's cost of entry is relatively low: by aiming for maximum reach with minimal physical infrastructure — costs that proved fatal for many would-be Telstra slayers — BigTinCan can theoretically keep its costs in check as it builds up its customer base. Whether this translates into a game-changer or not, time will tell; certainly, it can't be long before card-based call-back operators pick up the concept as well, and it will be easier for them to push existing customers onto the service than it will be for BigTinCan to lure completely new customers.

Potentially more threatening for carriers is Google Voice, a full-featured voice service from Google that will put the company in competition with telcos on a number of fronts.

Currently in invitation-only beta, the free Google Voice service bundles a host of features including call screening, free calls within the US, free voicemail — including a voice-to-text transcription service very much like the cool-sounding Voice2Text service for which Telstra now charges between 25¢ and 55¢ per message. There's also conference calling, call recording (subject to legal limitations, one assumes), personalised greetings and more.

(Credit: Google)

Wrapping it all in a dedicated phone number, Google is basically combining its broad infrastructure with its experience in voice and messaging to spawn a totally free, full-service telco. Google basically wants to add your voicemail, contacts and other calling-related information to its Great Big Database Of Everything. And while the service is only going to be available in the US when it initially launches, success there could presumably see it replicated in Australia and other markets with relative ease.

These sorts of services reflect the continuing commoditisation of voice calling — and while carriers have already ceded much ground in this space, their stranglehold on mobile calls has kept profits high in compensation. It might be some time before the big carriers notice the edict that BigTinCan has nailed on their front doors, but moves like this by an operator as big as Google are another story entirely. And if carriers' grip can be loosened by sneaky operators that can put their services right on customers' smartphones — well, to where will the carriers retreat then?

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Initially, the Howard Government's assumption was that competitive forces would spur private-sector investment that would generate untold momentum for technological progress. While the cities ended up awash in bandwidth, however, many rural areas were only kept online at all thanks to the pressure of the Universal Service Obligation and related Digital Data Service Obligation, and their paltry 64Kbps minimum connectivity standards.

Did rural Australia fall behind in Australian telecoms as a result? Does a bear do his business in the woods? With 12 years of deregulation having delivered minimal investment into areas including Emerald, Longreach, Geraldton, Darwin, Broken Hill, Victor Harbor and Victoria's South West Gippsland region, the government is finally picking up the baton where the private sector dropped it — not back of Bourke, but somewhere well short of it.

This is the sort of discretionary investment that only the government can justify, and it's a surefire sign that a government-backed NBN was the only way to recover from the deficient and disastrous state of Australia's rural telecoms

This is the sort of discretionary investment that only the government can justify, and it's a surefire sign that a government-backed NBN was the only way to recover from the deficient and disastrous state of Australia's rural telecoms. This concession is borne out by the cautiously positive initial responses to the tender.

It's also one of the first firm commitments made during an NBN process that has proved to be as ponderous, vague and non-specific as Parliamentary Question Time.

Even Tasmania, which was supposed to have fibre going into the ground by now based on the PM's original schedule, is still wondering what the heck is going on. The situation is hardly helped by delays in switching on the Basslink fibre-optic cable, which are contributing to time slippage that's making the Apple Isle look like it may be related to the island in Lost.

The conspiracy theorist in me would like to believe the government is working with Aurora Energy to introduce the NBN in secrecy — flipping the switch in some large-scale ceremony like Telstra did with its Next G network, ideally (for Rudd) about a fortnight before the election. The realist in me is pointing out that delays are business as usual when it comes to government, and is currently beating the conspiracy theorist over the head with a fresh salmon.

The sceptic in me, meanwhile, has latched onto the suggestion that these rural areas were simply a bald-faced play for votes: four of the six regions in Coalition electorates and the other two in marginal Labor party seats. I've questioned the NBN as a political stunt in the past, but in a pragmatic sense can we really expect anything less from Labor or, indeed, from any government?

This line of thought seems supported by the fact that neither Emerald, Longreach, Victor Harbor nor Gippsland were named in the government's initial April announcement about the funding. Rather, they were added in at the expense of independent-leaning Mt Isa, Liberal-leaning Mt Gambier and National Party-leaning Mildura, all of which were named in the April list. Make of this what you will.

If we really thought Labor was digging for votes, we might expect the NBN Company headquarters to be put not in Sydney or Melbourne or Brisbane, but in a Coalition-leaning rural centre that's also well-serviced (or is soon to be) with competitive fibre backhaul. Time will tell

If we really thought Labor was digging for votes, we might expect the NBN Company headquarters to be put not in Sydney or Melbourne or Brisbane, but in a Coalition-leaning rural centre that's also well-serviced (or is soon to be) with competitive fibre backhaul. Time will tell.

Politicking aside, Rudd and Conroy need to deliver this initial rural broadband investment as quickly and efficiently as possible — and to bring it live as soon as practicable, so that rural Australians can progressively benefit the fibre as it comes online, rather than waiting until some arbitrary date when the whole thing can be switched on. Rural areas have already suffered the damage of 12 failed years of infrastructure policy, and the most politically astute thing Rudd can do now is to make sure they don't wait much longer.

There are concerns, however, even now: it has already taken the Rudd Government nearly two years to get to this point, after it was elected on a platform of revolutionising Australian broadband. In rural areas, this has so far been limited to the piecemeal programs like the Digital Regions Initiative and the provision of pay phones — yes, pay phones — to 300 remote Aboriginal communities. Now that's progress.

The government's track record in delivering this rural backhaul investment will be a much bigger test, particularly as it is challenged with the distractions of a looming election. This distraction will either sideline the NBN process as politicians get caught up in the usual sniping and character assassination, or it will bring the NBN to front and centre as a concrete example of Rudd's ability to get the job done.

And when it comes to the NBN, as we've seen, rural Australians just need to get the job done. If Rudd and Conroy can avoid getting caught up in a massive regulatory, broadband and political fiasco, perhaps the NBN can be their shining glory. The current rural contract will be their biggest test so far — and if they can deliver with something resembling timeliness, they might just prove that this NBN thing is more than a politically convenient pipe dream.

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(Credit: Apple)

Nowhere has this been more evident than with the launch of the iPhone 3GS, which has had carriers on both sides of the Pacific up in arms as hordes of subscribers begin demanding access to basic services such as MMS, video transmission, and tethering.

Witness AT&T's foot-dragging over MMS, which is still not available to US customers of the iPhone as the much-criticised carrier is presumably still building up backhaul capacity to support the expected influx of pictures and videos. Witness the massive and inexplicable delay in introducing the iPhone's visual voicemail feature, which was only brought to Australia in the last month — nearly a year after the iPhone was first launched here — and is still only available from one carrier, Vodafone.

Tethering — using the phone not as a device to access carrier services, but as a conduit to connect a computer to the internet — raised an even bigger stink, inexplicably because it has been possible on other smartphones for years. Depending on your carrier, tethering was to be either banned (as at Telstra), allowed for a monthly surcharge (as at Optus), or allowed for free (as by Vodafone).

Optus eventually backed away from its tethering surcharge, sort of, but Telstra's representation of its position over tethering were even more noteworthy. Asked by journalists why Telstra wasn't allowing tethering, a company spokesperson initially said the ban was Apple's decision; Apple quickly turned the tables, saying that the ban was a Telstra decision, a position that would seem to be supported by the fact that other carriers were allowing tethering. Customers were left wondering who was actually in charge of Telstra's strategy.

The thing that's different about the iPhone, of course, is its mass-market consumer popularity: in selling by the millions, the multiplier effect means even one additional feature can significantly alter the make-up of the industry. This is not only in terms of increased capacity — as with AT&T's fears that millions of MMS-using customers will flood its networks — but also in terms of the iPhone's substitution effect.

If anybody can tether their computers to their iPhones — and not just a few scattered tech die-hards who have been doing it for years on iPhones and other devices — those devices threaten the viability of the stand-alone broadband modem business that carriers have worked for years to build up. And, just when mobile broadband was taking off — ITU figures note massive increases in demand for mobile broadband through 2007, when penetration of mobile broadband was pegged at 14 per cent in developed countries.

It would seem that carriers can no longer afford the contradiction of offering ever more-capable smartphones with ever more-crippled features.

With carriers grossing $30 and up per broadband subscription, it's hard to justify providing the same functionality to iPhone users without getting something back. This puts carriers in a tricky position: they're trying to push smartphones to encourage customers to use more data-intensive services, but trying to hold back use of those smartphones at the same time so they don't throw the proverbial baby out with the bathwater.

Telstra has the most to lose here: it remains almost painfully on-message about the capabilities of its Next G network, which it is positioning as a landline replacement as much as a mobile platform. That whole business model is predicated on selling fixed Next G modems as wireless versions of the copper local loop — but customers will lose the incentive to shell out for those services if they can come as part of a capped plan on iPhones or anything else.

Where, then, is the compromise that empowers consumers while saving carriers from outdating their own services?

Vodafone's model would seem to be the most reasonable compromise: customers can use as much of their mobile data allowance as they want via tethering, and will — from August — be able to buy additional blocks of data as they feel necessary. This not only paints Vodafone as being a smartphone-friendly carrier, but softens the sting that will come as its mobile broadband services become functionally redundant for many customers.

But what of Telstra, Optus and 3 Mobile (which has already indicated it won't charge for tethering when it launches the iPhone this month)? Time will tell whether consumers see these features as deal-breakers. However, with smartphones in general — and the iPhone in particular — now comprising an ever-greater share of the market, it would seem that carriers can no longer afford the contradiction of offering ever more-capable smartphones with ever more-crippled features.

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Network engineers have been engaged in similar efforts for decades, working long nights and days to figure out how to push data down a wire or fibre-optic cable at ever more-dizzying speeds. They may not have the live-fast-die-hard character of your average Bonneville revhead, but these information-age Burt Munros have flirted with the laws of physics and wracked their collective brains to get data from point A to point B faster than ever.

Burt Munro's modified Indian motorcycle set a land speed record in 1967.
(Burtmunro1920indian image by Daniel O'Neil, CC3.0)

Their success has pushed networking to new speeds with regularity. It was just over a decade ago that carriers were using asynchronous transfer mode (ATM) technology to link cities with blistering 622Mbps trunk networks to carry unprecedented volumes of phone calls and a little bit of internet traffic. It was expected to last years, but exponentially increasing demand for data services has kept carriers investing furiously in anything they can find to boost their networks' bandwidth.

ATM quickly became irrelevant as carriers turned back to Ethernet to deliver first 1Gbps, then 10Gbps, 40Gbps and — as evidenced by a recent news announcement from Juniper Networks — 100 gigabits of data speed. And that's 100Gbps per fibre-optic cable; bundle a dozen or five-dozen fibre-optic lines together, as is commonly done, and you're talking about some serious bandwidth.

Cisco Systems demonstrated working 100Gbps technologies a year ago, and US carrier Verizon last year pushed data 73km at 92Gbps using gear from Nortel in a controlled test environment that was recently bettered in a 103km Nortel-Verizon test over UK research network JANET.

There was a time ... when they said it couldn't be done at all ... "they" were already calling time of death for Ethernet ... citing the laws of physics.

There was a time, not too long ago, when they said it couldn't be done at all. In fact, "they" — analysts, technicians, and so on — were already calling time of death for Ethernet before gigabit Ethernet had made its debut, citing the limitations of the laws of physics. Ever-smarter ways of squeezing bits onto fibre-optic cabling, however, have hushed the naysayers and kept the networking industry topping its previous achievements with impressive regularity.

Juniper's release of a commercially available 100Gbps router officially raises the bar, boosting capacity per fibre by a factor of 10 compared with the technology most carriers are using now.

Blah, blah, blah, speeds, feeds, geek talk, blah, blah, blah. This sort of stuff may make your eyes glaze over, but in the world of telecommunications it's exciting news: without this kind of technology, there will be no way to deliver projects like the NBN. It's one thing to deliver 100Mbps to every home and business, after all, but add that all up and you need a heck of a lot of bandwidth linking it all together.

Just two years ago, Telstra's Next IP network was implemented using cutting-edge technologies that push 10Gbps of data over a single fibre. Sydney and Melbourne, for example, are linked with two bundles of four fibre-optic cables each, providing 40Gbps between our two most populous cities. That's a lot of bandwidth, but replacing the 10Gbps boxes at either end of those cables with 100Gbps-capable gear would boost the Sydney-Melbourne link to 400Gbps.

These sorts of upgrades are becoming de rigueur investments as FTTH takes hold. Juniper's announcement quotes Verizon, which is especially desperate for something like this because providing its FIOS FTTH service to hundreds of thousands of homes has taxed its core networks like never before. Expect carriers around the world to quickly follow suit as a proliferation of gear from Cisco, Nortel, Alcatel-Lucent and other core network suppliers floods the market by year's end.

For network engineers, 100Gbps Ethernet is reason to break out the champagne — and cause to start working on terabit Ethernet (actually, they're already working on it). For carriers, it's another way to keep up with the ever-greater demands of ever-more-bandwidth-hungry customers. And for customers?

Well, nothing yet. But this could change quickly: the NBN will deliver fibre-optic cables running directly to a huge number of homes. Initial speeds of 100Mbps are hardly a technical limitation, but rather a convenient, round figure about which politicians can blather on and network planners can do easier back-of-the-napkin calculations when planning the NBN's design.

Building the NBN correctly will be critical if it is to be the future-proof infrastructure it can potentially be... Done right, the NBN can bring loads of bandwidth to every corner of the country and provide decades of headroom.

With the fibre in place, these fibre-optic cables could theoretically be expanded indefinitely into the future. After all, many businesses are already using 1Gbps Ethernet connections to link their various branch offices. Supporting millions of households at gigabit speeds would be technically difficult/impossible/expensive (choose your option) but with new core network equipment enabling a tenfold boost in carriers' capacity over existing fibre, it could very well be done.

That is, it could be done as long as the NBN is built correctly. And building the NBN correctly will be critical if it is to be the future-proof infrastructure it can potentially be. Yet there is a real risk that the NBN's value proposition may be undermined by cost-cutting and compromises: Stephen Conroy this week admitted, for example, that the NBN cables may run overhead instead of underground where they rightfully belong.

Ongoing dramas with Telstra's RIM-based PSTN roll-outs, which can limit access to ADSL services, have already shown the dangers of compromising on network design.

One hopes that cost limitations and pressure to deliver the NBN quickly won't compromise its underlying technical credentials. Done right, the NBN can bring loads of bandwidth to every corner of the country and provide decades of headroom.

While the Bonneville speedsters may be limited by the forces of friction and air resistance, the coming glut of 100Gbps Ethernet shows that the potential growth of the NBN is limited only by the laws of physics — and the laws of Parliament.

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Given that the new iPhone 3G S is rated at up to 7.2Mbps, you'd think Telstra would be all over it as a potential show pony for Next G's purported high-speed performance.

Australia's mobile carriers, predictably, converged on the enthusiasm for the launch, launching pre-registration sites and loudly trumpeting their readiness to put the new iPhone 3G S into our hot little hands when it becomes locally available on 26 June.

Correction: Optus and Vodafone have announced their plans for the 3G S, which even gets a mention on Optus' main page. Telstra, on the other hand, seems to have missed the announcement completely; its iPhone page remains unchanged and its home page continues to trumpet the Next G compatible handsets it offers from other makers. It is, in short, business as usual at Telstra.

I've previously taken Telstra to task for its antipathy towards the iPhone, which has been an unmitigated success all over the world by wrapping all the features you know and love in smartphones (and, in the new iPhone 3.0 software, including conspicuously-absent things like cut-and-paste and MMS) into a gorgeous, easy-to-use interface that solves many of the problems that made early smartphones such as the touch-and-go proposition. It is not perfect, but I don't think I'm going out on a limb when I say the iPhone is setting the pace for mobile innovation.

Given that the new iPhone 3G S is rated at up to 7.2Mbps, you'd think Telstra would be all over it as a potential show pony for Next G's purported high-speed performance. Yet the iPhone seems to have barely registered on the radar of Telstra, which as recently as a few weeks ago was still playing its own hand in the user interface stakes. That hand is the basis of TelstraOne, a new branding and software development exercise in which Telstra has partnered with Victorian start-up SurfKitchen to take over the home screens of many of its mobile phones using the company's SurfKit foundation.

The basic premise of TelstraOne — sorry, it's technically called the TelstraOne Experience, perhaps in a nod to the late Mr Hendrix? — is that each phone gets the same standard Telstra icons — for Mobile Foxtel, email, Sensis properties such as the Yellow and White Pages, and so on. The goal is to unite Telstra's various online smartphone-compatible services under a single banner that's easy to reach.

TelstraOne users can also mix and match their own widgets for things like Facebook and Twitter from a Telstra-maintained selection. It's kind of like the iPhone's App Store, just without most of the apps. Your personal mobile home page is stored on a central server, so if you switch from one Telstra phone to another, your heavily customised mobile phone environment goes with you.

Telstra's mobile executives were talking up the TelstraOne concept at its launch a few weeks ago, and there is certainly some appeal in the idea of simplifying user interfaces. They also like TelstraOne because its various modules can be mixed and matched to reflect the various customer personalities that have been identified in Telstra's targeted marketing strategies.

The interface seemed like a way for Telstra to solve the issue I pointed out at the iPhone 3G's local launch last year — that the iPhone presented a major problem for Telstra because it didn't tie in with Telstra's various content services. TelstraOne, of course, does exactly this, and could easily spearhead the company's efforts to develop One Interface To Rule Them All. Just consider Telstra's plans to work with SurfKitchen to port it to other platforms other than the Sony Ericsson W705 and Motorola MOTOSURF A3100 devices demoed at the launch.

Which other platforms? "Symbian", a Telstra mobile bigwig explained. "And, of course, Windows Mobile. And, to be honest, you could roll it out on other devices: bigger-format PDAs, for example, or anything you might look at."

Bigger-format PDAs? What is this, 2002? And wasn't the MOTOSURF already running Windows Mobile?

"You're not mentioning the iPhone," I interjected, because he was clearly working hard not to mention the iPhone. The response: "We'd be happy to roll it out over the iPhone, but I think Mr Jobs has probably decided he's already got the best thing in the world so far."

What about developing a TelstraOne-like application that could be delivered onto the iPhones of Telstra customers over the App Store? Surely, I asked, it couldn't be that hard to get the big T onto the home screens of the iPhones that Telstra sells, even if Apple would never-not-in-a-billion-years let Telstra stamp its logo on the physical phone itself?

"It's not something we've actually explored," he said, with an expression that suggested he'd bitten into a clove hidden somewhere deep in his entree. He quickly turned to someone else whose question took the conversation to a more comfortable place.

Just in case you missed that: for all its billions and its dominance of Australia's mobile market, Telstra has apparently not even considered how it might deliver its content to iPhone customers.

Which explains why there was no iPhone support for Telstra's Beijing Olympics coverage. Or why Mobile Foxtel doesn't work on the iPhone. Or why Telstra seems more than happy to let Optus and Vodafone lap up the country's iPhone-using customers (and their voracious appetites for mobile data). This is somewhat surprising for a company that regularly touts the capabilities of its core mobile network.

The iPhone wasn't the only seemingly verboten mobile platform; Research In Motion's BlackBerry OS wasn't mentioned, nor was the new Google Android, onto which there would seem to be no philosophical obstacles, at least, against the introduction of a new front-end to Telstra's emerging media empire.

Telstra's continued cold shoulder to the iPhone confirms that the company is only interested in those mobile devices on which it can own the interface completely.

Telstra's continued cold shoulder to the iPhone confirms that the company is only interested in those mobile devices on which it can own the interface completely. It's a strategy consistent with Telstra's long history of branding and interface control, and may well continue to pay off in the short term; after all, for all the flash and glamour around the iPhone and its ilk, smartphones are still a relatively niche product that only recently passed into double-digit portion of the overall mobiles market (largely thanks to increased awareness of the iPhone).

In the long term, however, does Telstra really believe this is sustainable? Because with all due respect to Sony Ericsson (whose slider-phone W705 I have enjoyed playing with) and Motorola (whose A3100, not so much), conventional phones have really reached a plateau of sorts; all the innovation these days is in the smartphone space.

It seems hard to conceive of Telstra capitalising upon its mobile market dominance without at least trying to extend its content strategy onto the market-leading iPhone and BlackBerry. Android-based phones would seem to be a particularly appealing target, since Google has not tried to dominate the interface as Apple does, and Telstra wants to. Telstra needs to get its head out of the sand and figure out how to use the current enthusiasm over smartphones to its advantage — so by the time the iPhone 4G debuts next year, it doesn't look like it has been caught out sleeping.

What do you think? Is it more important to have a consistent, carrier-owned interface or to give customers access to the latest-and-greatest features? Can Telstra ever reconcile its mobile strategy with Apple's?

Also, on a more general level, this is my 100th Full Duplex column since I took up the mantle in 2007; it seems as good a time as any to request feedback, good and bad, and requests for particular topics you'd like to hear more (or less) about as I look towards the second century.

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