Telstra's artful fawning

commentary Reading Telstra's submission to the government on NBN regulation is a bit like reading a combination of Dicken's David Copperfield, specifically the simpering character known as Uriah Heep, and Shakespeare's The Merchant of Venice.

Much of the paper is written by Shakespeare's Shylock and is dedicated to a mercenary discussion about the access regime for the copper network...

The submission is almost cloying in its sincere recognition of the need for competition and its willingness to help the government achieve this through a fibre NBN. "Master Copperfield," it says (just kidding), "Telstra believes that the government's NBN announcement is the critical circuit breaker that will enable a move to a principles-based approach to the regulation of the Australian telecommunications sector." (Hands wringing and head bobbing).

However, much of the paper is written by Shakespeare's Shylock and is dedicated to a mercenary discussion about the access regime for the copper network and the need for a "process to come to a fair and reasonable estimate of the cost of the copper network".

Yes, indeed. That's what it's all about. The Postmaster General's copper wires were sold to the public for billions, enduring heroes were made of the politicians who did it and paid off government debt as a result, and a board of directors was put in charge of the PMG, now known as Telstra.

Those directors then refused to share it. "It's ours, bugger off," they said.

As a result a great many people now want to dismember the organisation and burn the pieces. The directors, in response to clamorous threats from all sides, have executed their most disagreeable members, and begun bleating: "Oh please don't kill us! We'll share and be nice now."

But it's too late. The die is cast ... or is it? Actually the whole process has reached a most interesting and delicate point.

The government is now looking for a sharing board of directors for the National Broadband Network Company and the new agreeable and compliant Telstra board is deciding whether to share with whoever is chosen.

The NBN company currently has no assets. Therefore if Telstra offers to sell any of its existing network assets into it in return for equity, and that offer is accepted, it would own all of the company.

I don't think Telstra has any real alternative to this — staying out of the NBN and keeping its copper and HFC networks separate would condemn the company to gradual irrelevance.

Yes, Telstra's ADSL could effectively compete with fibre-to-the-home for a while, but there would be no future. And its wireless business would depend on government allocation of spectrum — and Sol Trujillo and Donald McGauchie have ensured that this government, at least, now hates Telstra.

If Telstra does what I believe it must and offers to sell its fixed-line assets into the NBN Company, then to keep Telstra to the proposed 49 per cent maximum, the government would have to put in an equivalent amount of cash — either into the company or paid to Telstra.

Alternatively they could artificially value the company at twice the value of Telstra's assets, perhaps on the basis of the intention to build a fibre NBN and/or a claim on the assets of the Building Australia Fund. That would be an interesting conversation with an auditor at accounts time.

In any case, in 2010 the NBN Company, with its own board of directors, would consist of nothing but Telstra assets and, in reality, would have only one shareholder — Telstra.

Structural separation would thus have been achieved and Telstra, as we know it, will have been destroyed. Minister Stephen Conroy and ACCC chairman Graeme Samuel could sneak off for a quick, private high-five.

Shareholders will probably benefit, not lose. After all, investors love demergers these days — for example, CSR's shares have jumped sharply since announcing its own demerger this week.

And the NBN Company could immediately set about providing fixed-line wholesale access while building a new fibre-to-the-home network in the pipes and ducts that it has acquired from Telstra.

The cash flow could help fund the build, and there would be no access charges for the ducts, so the cost of it would be reduced. Moreover since the company would also own Telstra's fibre to the nation's 5000 telephone exchanges, as well as in CBDs and backhaul to regional centres, the NBN Company would only have to lay fibre over the last mile.

It would also get Telstra's network engineers and IT systems, which are in the process of being expensively upgraded.

It would, in fact, be the PMG from which Telecom, and then Telstra, sprang.

This article by Business Spectator's Alan Kohler is reproduced on ZDNet.com.au courtesy of a reciprocal publishing agreement.