commentary Telstra's decision to lodge a "proposal" — rather than a conforming bid — to build the National Broadband Network shouldn't have come as a shock to Stephen Conroy.
The telco has been shouting from the rooftops ever since the government issued its "request for proposals" in April that it wouldn't bid unless it was given regulatory certainty, a plea Conroy chose to ignore.
The Telstra position is eminently defensible. The prospect of structural separation, legal or practical, is so potentially destructive for Telstra and its shareholders that it couldn't be contemplated and Telstra was never going to formally enter a process and hand over reams of its most sensitive (and, for competing bids or any move to impose separation on Telstra, vital) information without assurances about the nature of the regulatory regime and reassurances that it could generate acceptable risk-adjusted returns.
Anointing anyone other than Telstra means an NBN won't be built anytime soon.
Its failure to formally engage leaves Conroy in a difficult position — in fact the same the position his predecessors found themselves in. He does have an apparently conforming bid from Optus, backed by the Terria consortium and four other bids for all or bits of the network. But the one group that can clearly fund and build a NBN — or make it very difficult to fund or build an NBN — is outside the process.
It isn't, however, that far outside. In effect, Telstra's proposal is an attempt to give Conroy a second pathway to a NBN and maintain a dialogue with the government. It also appears designed to introduce some reality into the discussion — an NBN that conforms to the government's specifications would be prohibitively expensive, with the credit crisis and the plunging Australian dollar adding billions to its cost.
It may be that Conroy has received a bid from Optus, or one of the other players offering to build a nationwide network, that is compelling. It would need to be, because Conroy knows that by effectively displacing Telstra's existing fixed line network, the NBN will decimate Telstra's business and destroy a fair chunk of shareholder value.
Telstra would have to be prohibited from building its own fibre network and would have to be forced to hand its customer base over to the new operator for the economics of an NBN to make sense.
Telstra has made it very clear it will fight such an outcome in its trenches and anywhere else it can create a battleground. Anointing anyone other than Telstra means an NBN won't be built anytime soon.
By putting its proposal forward, Telstra is giving Conroy a fallback option. If there are doubts about the quality of the conforming bids or the capacity of the bidders to deliver either financially or technically, Telstra is the government's safety net for a project on which it has staked a lot of political capital.
Telstra's proposal was quite detailed. It says it will spend $5 billion of its own money to build a network, centered mainly on the major cities, with a footprint of between 65 per cent and 75 per cent of coverage sought by the government, which wants the network to reach 98 per cent of the population.
If the government chooses to commit the $4.7 billion of taxpayer funds earmarked for the NBN as a loan at concessional interest rates, the coverage would rise to between 80 per cent and 90 per cent of the population. Telstra says that to get to the desired 98 per cent would be prohibitively expensive — it also says costs rise exponentially as the coverage rises towards that level.
Telstra would be able to get the network build underway next year — it argues it can build the network faster, better and more efficiently than any competitor — which it should be able to, given that the NBN is effectively an upgrade of its existing fixed line network.
It doesn't seek protection from competing infrastructure and is offering an open access network, with competitors buying access on equivalent terms to Telstra's retail businesses. It wants to talk directly to the government, something it hasn't been able to do so far, because of the stringent probity processes surrounding the bidding thus far.
The telco seems to believe that the government, with some bids in its back pocket against which to test Telstra's proposal and provide some negotiating leverage, may now be willing to engage.
This article by Business Spectator's Stephen Bartholomeusz is reproduced on ZDNet.com.au courtesy of a reciprocal publishing agreement.
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Stephen Bartholomeusz I hope Prime Minister Rudd and Senator Conroy read and reread you detailed and informative article.
Australia (and Australian taxpayers) could encounter an exceptional and unpleasant situation if wrong decisions are made concerning the National Broadband build.
After experiencing the sub prime disaster in the United States a sub prime NBN builder here would be outrageous and I do not think our fiscally responsible Rudd Government will allow this to happen.
Finally, how could any Australian Government allow millions of Australians to suffer financial disaster by the confiscation of property, equipment and customers from an Australian Icon, Telstra.