Michael Sainsbury | June 24, 2008
WHEN Macquarie Group pulled out last Friday from the tender for the national broadband network, which may now cost as much as $25 billion, Communications Minister Stephen Conroy landed pretty much where he started.
Conroy has ruled out structural separation, at least for Telstra's network
That is: with Telstra as a very serious starter and the Optus-led Terria group in the mix as much to help force regulatory changes in the sector as anything else.
Only two months ago Conroy was confident of at least three bids, but unless the secretive Melbourne-based Acacia syndicate has ambitions beyond Victoria he won't get them.
There are two simple reason for this: Telstra and global financial markets. Telstra has gone into overdrive in recent weeks, sensibly putting up chairman Donald McGauchie as its chief bleater. (Sol Trujillo is too busy travelling and hardly anyone listens to Phil Burgess these days.)
It has threatened to take its bat and ball and go home if it doesn't get pretty much what it wants.
Specifically, it doesn't want stronger operational or functional separation. In case anyone didn't get the message the first 60 times, McGauchie used a briefing yesterday to ram home the message.
One of the reasons Macquarie pulled its bid was the continuing difficulty in getting big licks of debt in the market. Telstra is making this harder by jacking up the price about once a month.
Yesterday's figure from McGauchie was as much as $25 billion, yet only 12 months ago Telstra confirmed its 2005 costing of $9 billion. The cost is looming as a problem for Terria unless it brings in financial equity partners or SingTel throws its balance sheet behind the project.
No one is arguing that Telstra is not best placed to build the network, but building, owning and running it are all different things.
For its Next G network, Telstra outsourced the whole box and dice to Ericsson, the world's biggest mobile network builder.
In reality, Telstra is just the master contractor these days. Alcatel Lucent effectively has the contract to supply the plumbing material and companies such as Leighton's will be in line for the construction and plumbing.
All these companies, or others like them, are for hire. Telstra has deep knowledge of its networks and is the logical player to build what is really just an extension of its existing network.
Even the day-to-day running of networks is not sacrosanct. Hutchison contracts that to Ericsson, and Vodafone also contracts out much of its network and technology operations.
As fellow Australian columnist John Durie put it so neatly last week: the structural separation debate is so obvious it's hard to believe we are even having it. It makes sense to have Telstra, or maybe Terria, build the thing and maybe run it, but in an arm's length company with government equity.
Heck, the Government and Telstra might even want to float the thing to release some value for shareholders and taxpayers, not just Telstra's owners. Yet Conroy has ruled out structural separation, at least for Telstra's network.
McGauchie yesterday made noises about "signals" from Canberra. It's unlikely he was making it up, so it's clear the Government wants some sort of separate structure for the new network. Why wouldn't it? The Telstra-induced hiatus - as the Government waits for its network information - in the ridiculously tight politically driven timetable is a good time for it to have a good think about this whole deal.
No one is making light of its importance, but the effect on the industry, choice and long-term pricing will not be apparent for at least three years, which will be too late. It's time for tough decisions - ones the Coalition was too weak to make. The Government must stop dithering and hiding behind gag orders - Telstra certainly isn't - and give all participants a clear idea of the future of the telecoms sector before the FTTN process casts the die. That's assuming Kevin Rudd and his team know what to do.
Your Comments:
12 Comment(s)
Everyone's dreaming. Telstra is not going to be separated. When shareholders buy something they pay for "lock, stock and barrell". And if the governament legislated to separate Telstra shareholders will want what they believe is a fair price. Can you imagine the brokers lineing up to get a piece of that, not to mention the legal fraternity. The Fibre to the Node (FTTN) should be built by governments just like the Opera House, the road highways, etc. the quicker the idiots in Canberra stand up and say so the quicker we get on with life. This whole discussion is getting booorrring. It's been going on now for 10 years. Telstra is a private business let it do what privates do. Get on with the task of moving this country fwded or get out. john
Sean of Sydney makes a good point. The question for shareholders in such a demerger is "is the sum of the parts worth more or less than the whole". I suspect it could be more.
"Structural separation is so obvious" but everyone ignores it! Why? Even Telstra tried a management buyout of the pstn but there were no takers, even valued at 0$. Why doesn't the Govt use its remaining equity in Telstra to split infrastructure? Profits arising from administering the public asset could go to the public service super fund. Australia would then at least have a chance at world parity telecommunications.
If you paid some attention to the High Court you would realize that the hope of compensation for telstra is a pipe dream. In April 08 the High Court ruled 7-0 that the government could regulate Telstras copper exactly as it wished without compensation of any sort. More ominously for Telstra, the judges demonstrated a fiercley anti-telstra sentiment in the text of their rulings. The High Court is waiting to hit Telstra with baseball bats should they dare to claim compensation. Telstra list of allies grows thin - State and territory Governments, the ACCC, the high Court, the Liberal Party, The Labour Party and just about everyone else in the sector are out to take down the monopoly once and for all. Structural separation is only a matter of time now...just as well Telstra has Macquarie to be their OpCo if need be.
Michael you are absolutley correct. "The Government must stop dithering and hiding behind gag orders - and give all participants a clear idea of the future of the telecoms sector before the FTTN process casts the die." That is the first thing that needs to be done, and yet it simply seems to get ignored. Once specified though it needs to be locked in stone. To often the goal posts are shifted which introduces uncertainty. Uncertainty = no investment Then you are also correct "That's assuming Kevin Rudd and his team know what to do." Which is what we all doubt very much. What is currently overlooked in the whole debate is that the major cost in deploying FTTH is in the duct installation. If you control the duct space you can control the capital cost of FTTH. Duct costs $50 per meter, the fibre costs $6 to $7 per meter.
I still don't understand why we need a telco to do the plumbing. Most of us don't need faster internet today. Give it to the councils, let them do FTTH starting at the edges of their boroughs and working back in towards the already serviced centres over time. Infrastructure competition.
If Telstra are now saying it'll cost $25b, why are they so keen to get that last $4.7b? Why not just build it on their own now? Oh... I get it. They would rather not play with the toys, but if someone else wants to, they'd better get in and take them. Sounds like they're being run by 2-3 year olds.
I would've thought that an share issue, to Telstra shareholders, giving them ownership of a structurally seperate network entity would solve the problems. Unfortunately, Telstra itself would have to undergo radical restructuring of the retail business arm to make it competitive. And Allen, just because Donald says something, does not necessarily make it right. He expressed an opinion, not a fact. As far as I'm aware, Optus is making great gains in seperating it's businesses from Telstra equipment anyway.
Telstra will build the FTTN network and get a fair return on its shareholders funds that is certain,we are talking about Billions of dollars and millions more to maintain such a Network !Who in there right mind would risk huge amounts of money on the whims of canbera ! Why would Telstra need to beg the government it dont need to its in great shape thanks to its Worldclass American management beware optus your days are numbered your scare campaign isnt bearing any fruit you will need to invest if you really want to be number one.
The FTTN network will just be another Telstra only bid, Terria hasnt got the financial backing, it would be easier if the government created the network themselves, a Telstra only bid requires a end profit for shareholders. The governement should'nt have scrapped the regional network a few months ago because wireless is the only solution for the bush, ao now we havent got a regional solution and stuff waiting for something good to come from FTTN....a very long wait.
As Donald McGauchie rightly says OPTUS are the "Dole Bludgers " of the Telecoms Industry!! What this country needs is "True Competition" not stuff OPTUS can sponge off!!
I am sure Telstra and their shareholders don't mind the Government breaking Telstra up as long as they are compensated by Government. I would think, guided by expert predictions in our Press, $1 per share compensation for shareholders would be an amount for consideration.
Post A Comment
We welcome your comments on this story. Comments are submitted for possible publication on the condition that they may be edited. Please provide a screen name and suburb/location - these will be published. We also require a working email address - not for publication, but for verification. Read our publication guidelines.
Share This Article
From here you can use the Social Web links to save It's back to the future for Conroy to a social bookmarking site.
Email To A Friend