Another grim week for telecoms

THE past few weeks have been ugly for Australia's telecoms sector, although much of it has been a strategic triumph for Telstra chief Sol Trujillo - which should be a stark warning to Communications Minister Stephen Conroy that he needs to swallow his pride and firm up his policies.

Telstra chief Sol Trujillo can boast a strategic triumph

Front and centre have been the technical problems that continue to beset Optus, particularly in its most profitable business - mobile. In the past week the situation has got worse for Optus, with new outages on its 3G network.

There's also the now regular tale of woe from Australia's third-biggest fixed-line player, AAPT, which continues to cost its shareholders pain after its parent, Telecom New Zealand, handed down its full-year results.

Even worse was the collapse late last week of small business specialist telco Commander in a steaming heap of more than $300 million in debt. Barely 18 months ago Commander was the third-biggest listed telecoms group. Its fate, most likely by way of break-up and an asset fire sale, lies in the hands of administrators.

Telstra's removal of many tens of millions of dollars of discounts to its wholesale customers has forced its competitors to overhaul their businesses. It is a very strong use of market power. Twelve months ago Optus stopped selling new services using Telstra's last-mile access and the new management at Soul/TPG has followed suit. A badly run company such as Commander, loaded with debt and struggling to integrate an inappropriate acquisition, was always going to struggle.

Commander's troubles began when it couldn't pay its banks before the credit crunch kicked in.

Trujillo's strategy of squeezing already thin reseller margins is working in spades and his business is picking up the pieces. This is clear evidence, if more was needed, that Telstra should be split so wholesale services can be sold at arm's length.

Then there's the grandly named National Broadband Network. If you want some insight into the emerging chaos that appears to be the Rudd Government, look no further than its biggest election infrastructure promise: a $4.7 billion taxpayer kick-start to get better broadband to more people. The Government foolishly thought they could get the thing started in a few but the timetable is shot by at least six months and is in danger of being an election issue in 2011.

Conroy's convoluted process and policy tail is wagging the dog. Industry structure and regulations must be clear before billions of dollars are spent.

It's worth going back to the skinny little policy's origins. Communications minister Stephen Conroy cooked it up in early 2007 to take advantage of the Howard government's disfunctional relationship with Telstra.

Conroy has confessed that he used Telstra's August 2005 back-of-the envelope bid to squeeze a few billion from John Howard to extend its planned metropolitan fibre-to-the-node network into outer-metro, regional and rural areas. We know it was dashed off because since then Telstra has readjusted, ever upwards, the cost of the network. From $8 billion to cover 98 per cent of the population to Trujillo's latest estimate of $25 billion or more.

The right way to spend taxpayer funds to build the NBN is to properly scope the problem by starting at the outside, in the most under-served areas, and building in towards the big cities. But that smells far too much like good public policy.

sainsburym@theaustralian.com.au