McGauchie mocks any telco break-up

DONALD McGauchie is determined not to be caught out by any sudden shifts in the political terrain when it comes to the Rudd Government's promise to deliver a national broadband network.

The Telstra chairman launched a scathing assault on any suggestion that the Government might even contemplate the separation of the existing Telstra retail services from the proposed new fibre broadband infrastructure.

Given that Communications Minister Stephen Conroy has already explicitly ruled out the idea of structural separation of Telstra, Mr McGauchie might be accused of jumping at political shadows.

But Telstra is clearly concerned that the demands of its competitors for such an approach are gaining political traction in some Canberra circles, particularly given the Rudd Government's obvious predilection for populist moves.

Senator Conroy has maintained that if the wholesale broadband network provides open access to all competitors and is properly regulated, there would be no reason for structural separation.

However, the concept of enforced separation has appealed to some Labor figures in the past, including Finance Minister Lindsay Tanner. Telstra's competitors, in the form of the SingTel Optus-led Terria, are hoping to make a coherent case for it to increase the pressure on both the Government and Telstra.

Mr McGauchie insisted that the debate was being muddied by those seeking to delay the rollout of a broadband network in order to protect their existing investments in what he called old, "redundant technology". He told a media lunch in Melbourne that Telstra was receiving mixed signals from the Government and warned that any shift away from full vertical integration would produce nothing but chaos.

"We want structural separation off the agenda as soon as possible," he said. "The dismemberment plan is a risk-management nightmare.

"It is completely unprecedented internationally and could not be done without huge cost, massive disruption and unending litigation.

"It is not a plan any responsible Government could sensibly contemplate, let alone endorse."

According to Mr McGauchie, recent conversations with the Government to try to clarify this had still left him unclear on just what was intended for the telecommunications giant.

Mr McGauchie's comments reflect the uncertainty and confusion over just how the Rudd Government will manage its popular election commitment to deliver high-speed broadband.

Telstra's competitors have grouped together to form what is now called the "Terria" consortium to bid for the rights to build the fibre network with the aid of $4.7 billion in government funds.

Mr McGauchie cited analysis that the Government's commitment of providing at least 12Mbs per second to 98 per cent of the population would actually cost between $15 billion to $25 billion.

While Telstra has always been dismissive of its competitors' ability to deliver what they promise, its full-scale attack yesterday demonstrated it was taking even the possibility as a serious threat.

Should Terria ever be chosen to build the network, this would also automatically lead to a huge legal brawl with Telstra and de-facto separation of the wholesale and retail networks.

This result is actually considered extremely unlikely by the market given the difficulty in getting attractive debt funding as demonstrated by Macquarie's decision to pull out in favour of becoming an adviser to Telstra.

But in practical terms, Telstra is also deeply concerned that the Government will try to enforce a much stricter form of operational separation on Telstra as well as try to make the wholesale price too low.

Mr McGauchie argued that countries which had tried to regulate for this separating and pricing model had only produced dismal failures in terms of investment, innovation and benefits to consumers.

He derided the frequently used example of Britain as a mode of telecommunications separating out wholesale and retail services as providing "equality of terrible service and said it had totally discouraged investment in fibre". "As for British telecommunications - it is simply put, a basket case," he said. He is clearly warning the Rudd Government that is the alternative it is facing.