The NBN is dead - long live the new Telstra powered NBN?

Alex Zaharov-Reutt
Tuesday, 15 September 2009 19:14

Opinion and Analysis

Australia’s federal government has come out with an offer that Australia’s dominant and supposedly independent telco, Telstra, seemingly cannot refuse: structurally separate the company or the government will do it for you.

Australia’s current federal government is run by the “Labor” party, effectively equivalent to the US Democratic party, being left and socialist leaning, and in the current economic environment, prone to borrowing billions of dollars to spend on infrastructure projects in the name of “economic stimulus”.

One of the multi-billion dollar infrastructure project promises is the National Broadband Network, something that morphed from an AUD $4.7 billion dollar “fibre to the node” project into an AUD $43 billion dollar “fibre to the home” project.

Although money is hard for businesses to borrow at the moment, federal governments (aside from Zimbabwe) seem to have no difficulty (at the moment) in borrowing as much money as they want, but it looks like Australia’s federal government may have realised that $43 billion dollars is a lot of money – and there could be a way to avoid spending most of it.

The solution has come in what could amount to a partial nationalisation of Telstra, specifically the part that will own all of the network infrastructure, with nationalisation just the kind of thing left leaning governments love doing, as seen by the Democratic US government taking massive stakes in banking operations and car companies.

Telstra has already internally separated itself for some time, with one part of its business called “Telstra Wholesale”. It sells competitors access to the Telstra network, although in the style of a monopolist, Telstra makes it very difficult for competitors to get easy access, most of whom want to undercut Telstra in some way and make profits from customers instead of Telstra making those profits.

Under a structurally separated Telstra, Telstra’s retail arm would effectively become just another ISP buying access from Telstra wholesale, preventing Telstra as a whole (as it would no longer be a “whole”) from making life difficult for competitors.

Although calls for Telstra’s structural separation have been in place for years, the fact that the previous Federal Government privatised Telstra made unscrambling the privatisation egg a very difficult proposition, guaranteed to hand existing Telstra shareholders a loss as they end up owning shares in a much less valuable retail company, not one that owns physical infrastructure – all depending, of course, on just how the entire structural separation ends up panning out.