Ext User(Alan Parkington)
18-09-2008, 07:20 AM
From
http://www.businessspectator.com.au/bs.nsf/Article/Telstras-trump-card-FH3UC?OpenDocument
The argument about structural separation of Telstra reached new heights this
week when the CEO of John Fairfax, David Kirk, joined in and the chairman of
Telstra, Donald McGauchie, gave him one across the chops (verbally of
course) and called on the minister, Stephen Conroy, to end the debate by
making up his mind.
But this issue is nothing but an entertaining sideshow: far more important
is whether the government is prepared to legislate to stop Telstra
overbuilding
The number one priority for the government, and the nation, is to get the
fibre broadband network built. It's clear that for the minister this will
be, and should be, the overriding consideration.
But a far more crucial issue in this than structural separation will be the
question of whether anyone other than Telstra is prepared to bid without a
ban on a Telstra overbuild.
Several groups have paid the $5 million bond to get the tender documents,
including a yapping animal appropriately named Terria, Macquarie and group
called Acacia that apparently includes Solomon Lew, Doug Shears and Leon
Kempler.
None of these groups is stupid, and they know only too well what happened to
Optus in the early 1990s, when Telstra destroyed its hybrid fibre cable
project by following its vans up and down streets duplicating their work
with a Telstra cable.
That means the Prime Minister Kevin Rudd and communications minister Stephen
Conroy will soon have a very big and interesting decision: are they prepared
to pass legislation preventing broadband infrastructure competition? And if
so, for how long? Forever?
Would Telstra really build a second fibre network at vast expense, as it did
15 years ago?
Yes it probably would in my view, but that doesn't matter. The mere risk of
it would probably make the business cases of alternative bidders collapse.
The risk would have to be factored into financing calculations and would
almost certainly make them unviable.
Why would Telstra do it? Because it would remove regulation as an issue.
Telstra and Terria/Macquarie/Acacia would be slugging it out with competing
fibre networks, and Telstra would back itself to win because it still owns
most of the retail customers.
In fact to go further: without a guarantee of carrying Telstra's existing
traffic, no national fibre network would be viable. And without a law that
banned Telstra from building a second fibre network, that could not be
guaranteed.
Even then, Telstra could quite easily decide to stick with a combination of
copper-based ADSL 2+ and NextG wireless at fixed-line rates, rather than buy
access on a fibre network built by Terria/Macquarie/Acacia.
And even less likely than a law banning a Telstra overbuild, is a law
forcing Telstra to use someone else's fibre network against its will. That
simply would not work.
These are major - possibly insurmountable - problems for the competing
bidders, and therefore very difficult issues for the government.
As for structural separation - the hot issue of the moment - it is not,
realistically, going to be forced on Telstra by the government passing a
structural separation law, and it will not be made a condition of winning
the tender for the $4.7 billion broadband investment, unless there is at
least one viable bid from a structurally separated entity (that is, someone
other than Telstra).
And as discussed above, there will only be a viable bid if the threat of a
Telstra overbuild is removed.
If anyone produced a structurally separated bid that was financially and
technically viable, then, and only then, could the minister make structural
separation a condition of winning the tender without risking the project.
Without that, Telstra would be in a position in that event to call the shots
on regulation.
The company has been refusing to build a fibre to the node (FTTN) network
for nearly three years because it is unhappy with the proposed access
regime. The impasse persisted for so long because of a combination of
political paralysis and understandable bureaucratic intransigence.
Then the old Government was thrown out and a new one installed with a clear
FTTN strategy, which involved a commitment to ensuring that a fibre network
is built that connects 98 per cent of Australians to 12 megabits per second
broadband.
It has taken six months for the new political process to crank up to
implement this promise, but now it has.
Underlying all of the argy-bargy about Australia's crucial fibre broadband
network is this obvious fact: the Government has promised the network.
If Telstra is the sole bidder as an unseparated, integrated telco, the
Government will not reject the bid because of its structure. As a result
Telstra will decide how it is regulated and priced.
In other words, the Labor Party's decision to intervene in the market and to
promise that a fibre network will be built must result in one of two things:
1. The ACCC being nobbled to suit Telstra, or
2. Telstra being nobbled by legislation to suit everyone else.
In my view it is more likely to be the former than the latter.
http://www.businessspectator.com.au/bs.nsf/Article/Telstras-trump-card-FH3UC?OpenDocument
The argument about structural separation of Telstra reached new heights this
week when the CEO of John Fairfax, David Kirk, joined in and the chairman of
Telstra, Donald McGauchie, gave him one across the chops (verbally of
course) and called on the minister, Stephen Conroy, to end the debate by
making up his mind.
But this issue is nothing but an entertaining sideshow: far more important
is whether the government is prepared to legislate to stop Telstra
overbuilding
The number one priority for the government, and the nation, is to get the
fibre broadband network built. It's clear that for the minister this will
be, and should be, the overriding consideration.
But a far more crucial issue in this than structural separation will be the
question of whether anyone other than Telstra is prepared to bid without a
ban on a Telstra overbuild.
Several groups have paid the $5 million bond to get the tender documents,
including a yapping animal appropriately named Terria, Macquarie and group
called Acacia that apparently includes Solomon Lew, Doug Shears and Leon
Kempler.
None of these groups is stupid, and they know only too well what happened to
Optus in the early 1990s, when Telstra destroyed its hybrid fibre cable
project by following its vans up and down streets duplicating their work
with a Telstra cable.
That means the Prime Minister Kevin Rudd and communications minister Stephen
Conroy will soon have a very big and interesting decision: are they prepared
to pass legislation preventing broadband infrastructure competition? And if
so, for how long? Forever?
Would Telstra really build a second fibre network at vast expense, as it did
15 years ago?
Yes it probably would in my view, but that doesn't matter. The mere risk of
it would probably make the business cases of alternative bidders collapse.
The risk would have to be factored into financing calculations and would
almost certainly make them unviable.
Why would Telstra do it? Because it would remove regulation as an issue.
Telstra and Terria/Macquarie/Acacia would be slugging it out with competing
fibre networks, and Telstra would back itself to win because it still owns
most of the retail customers.
In fact to go further: without a guarantee of carrying Telstra's existing
traffic, no national fibre network would be viable. And without a law that
banned Telstra from building a second fibre network, that could not be
guaranteed.
Even then, Telstra could quite easily decide to stick with a combination of
copper-based ADSL 2+ and NextG wireless at fixed-line rates, rather than buy
access on a fibre network built by Terria/Macquarie/Acacia.
And even less likely than a law banning a Telstra overbuild, is a law
forcing Telstra to use someone else's fibre network against its will. That
simply would not work.
These are major - possibly insurmountable - problems for the competing
bidders, and therefore very difficult issues for the government.
As for structural separation - the hot issue of the moment - it is not,
realistically, going to be forced on Telstra by the government passing a
structural separation law, and it will not be made a condition of winning
the tender for the $4.7 billion broadband investment, unless there is at
least one viable bid from a structurally separated entity (that is, someone
other than Telstra).
And as discussed above, there will only be a viable bid if the threat of a
Telstra overbuild is removed.
If anyone produced a structurally separated bid that was financially and
technically viable, then, and only then, could the minister make structural
separation a condition of winning the tender without risking the project.
Without that, Telstra would be in a position in that event to call the shots
on regulation.
The company has been refusing to build a fibre to the node (FTTN) network
for nearly three years because it is unhappy with the proposed access
regime. The impasse persisted for so long because of a combination of
political paralysis and understandable bureaucratic intransigence.
Then the old Government was thrown out and a new one installed with a clear
FTTN strategy, which involved a commitment to ensuring that a fibre network
is built that connects 98 per cent of Australians to 12 megabits per second
broadband.
It has taken six months for the new political process to crank up to
implement this promise, but now it has.
Underlying all of the argy-bargy about Australia's crucial fibre broadband
network is this obvious fact: the Government has promised the network.
If Telstra is the sole bidder as an unseparated, integrated telco, the
Government will not reject the bid because of its structure. As a result
Telstra will decide how it is regulated and priced.
In other words, the Labor Party's decision to intervene in the market and to
promise that a fibre network will be built must result in one of two things:
1. The ACCC being nobbled to suit Telstra, or
2. Telstra being nobbled by legislation to suit everyone else.
In my view it is more likely to be the former than the latter.