Cut up Telstra and cut out its copper, says Optus

Stuart Corner
Tuesday, 09 June 2009 05:23

IT Industry - Strategy

According to Optus CEO, Paul O'Sullivan, to be affordable and financially viable Australia's National Broadband Network will have to become the only connection to Australian homes, and this is best achieved by breaking up Telstra.

Addressing a Trans-Tasman Business Circle lunch, O'Sullivan said: "First we are convinced that the NBN can be economically viable. Second, to achieve this outcome, the NBN must be the only network delivering broadband services around Australia. Third, the best way to get there is to structurally separate Telstra so its access network becomes the foundation of the new NBN...Optus believes that if the NBN is the only network it should achieve commercial viability. But if there are two competing access networks around the country, Telstra's and the NBN, then we think the NBN business case becomes a very challenging one."

O'Sullivan claimed that "If the network achieves penetration of about 60 percent of Australian homes - and a higher take up in relevant businesses - a monthly wholesale price of around $50 for the consumer service would be sufficient to generate the required commercial return." He added: "We think this is a realistic price level – and will allow for retail prices which are not out of line with those paid today."

He did not specify what period for this level of penetration to be achieved had been factored into Optus' calculations, or how long he expected it would take for the NBN to achieve a commercial return, but added: "In Japan and Korea, the two leading markets for fibre to the premises broadband, residential and business penetration on the network reached high levels in only a few years."

According to O'Sullivan, retailers offering services on the NBN would face a tough challenge wooing customers off Telstra copper in the face of aggressive competition from Telstra. "Telstra will have a strong incentive to discount heavily the services it sells from its existing copper network or lock customers in to long-term contracts. It may well even sell services at a loss and upgrade the network in selected areas – if by doing so it can undermine the NBN's viability."

Referring to Telstra's multibillion dollar investment in HFC in the mid nineties to undermine Optus, O'Sullivan said "If the Government does not act to ensure a single network for the NBN, expect to see 'telephony defence strategy mark II' [from Telstra]."

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