commentary The Rudd Government's decision to build its own broadband network significantly cranks up the threat to Telstra's dominance in the telecommunications sector.
The review of competition policy ... and the prospect of a government-funded wholesale provider of fibre services in metropolitan areas will have a financial impact on Telstra.
As well as competing directly with Telstra in metropolitan areas, the government today flagged a review of the telecommunications regulations. There was little detail of that review available at the time of writing, but it would be fair to assume that the Federal Government will address a number of wholesale access issues repeatedly highlighted by Telstra's competitors.
Australia's telecommunications regulations have repeatedly come under attack from the United States Trade Representative for being uncompetitive. The USTR has highlighted that Telstra is the most profitable integrated telco in the world. Telstra's competitors have said this position has been achieved through excessive access charges.
A full analysis of the proposed changes to competition policy for telcos will have to wait until later in the day.
The primary threat to Telstra will come from the construction of a fibre-to-the-premises network by the federally funded network company. Prime Minister Kevin Rudd said this would offer speeds of 100Mbps.
The only way that a government-owned network provider can be successful is if it attacks the metropolitan markets where 75 per cent of Australians live. There is not sufficient scale in rural and regional areas for this sort of network to provide the returns that will be required by the private sector.
The original idea for the National Broadband Network was to start building in regional areas and then gradually work towards the cities. That method of rolling out the network will have to be revisited if the network company is to be attractive to investors.
It would appear from today's announcement that the rural and regional piece of the equation will be covered initially by the roll-out of fibre backhual.
Today's announcement sheds light on the somewhat cryptic comments made by Broadband Minister Stephen Conroy over the past few weeks. He had said that Australia was crying out for fibre backhaul but there was no indication from the NBN requests for tender that fibre backhual was the priority.
Conroy can now claim to be solving two problems at once. He will provide backhaul that will encourage competition in rural areas or direct linkages to areas that have no fixed line broadband services. At the same time, the government owned network company will be rolling out fibre-to-the-home in the cities.
It would make sense to roll out the fibre to the premises in the major cities of Sydney, Melbourne, Brisbane, Perth and Adelaide before heading to rural areas.
The six- to eight-month implementation study will coincide with the roll-out of fibre-to-the-premises in Tasmania.
Tasmania deserves to be first. Of all the states it is the least well served by telco infrastructure. It also has inferior productivity, employment and a high age dependency ratio. High speed broadband ought to assist regional development.
The roll-out of a fibre-to-the-home network in Tasmania and the immediate construction of backhaul fibre in rural areas in other parts of Australia do not pose an immediate threat to Telstra.
But the review of competition policy in telecommunications and the prospect of a government-funded wholesale provider of fibre services in metropolitan areas will have a financial impact on Telstra.
The extent of that financial impact may already be priced into the stock. But the negative vibes from the Prime Minister about the company and his comment, in passing, about separation will cause investors concern in the short term.
This article by Business Spectator's Tony Boyd is reproduced on ZDNet.com.au courtesy of a reciprocal publishing agreement.
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