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Friday, 26 November 2010 11:41

NBN: recreating Telstra by stealth


Worldwide it has always been fashionable to hate your government-owned telephone company and Telstra has been no exception. Privatisation and regulation has seen the Telstra haters dwindle in number and intensity amidst strong competition. Why then is the Government spending massive taxpayer dollars to buy back the previous government-owned telecoms monopoly in order to create another one?

Putting aside questions of the merits of FTTH just for a moment (we'll come back to that) let's follow the money trail and look closely at what is happening here.

NBN proponents, including the Government, claim that the NBN will no longer cost $43 billion but about $36 billion plus $13.8 billion to buy Telstra's network giving a total of just under $50 billion. Of this, the Government reckons it will need to spend about $27 billion of taxpayer dollars.

Considering most large IT projects, let alone massive infrastructure projects of days gone by, should be enough for most sober minded persons to understand that there is no way to estimate to any level of accuracy how much a project of the scale of running fibre to every home in Australia over the next 10 years would ultimately cost. However, you could confidently bet money that it would be some multiple of the stated figure above.

For arguments sake, though, let's assume the Government for the first time in the history of all governments has hit the mark with its cost estimate of rolling out the NBN. Where is the largest chunk of taxpayer dollars initially going to be spent - in a word, Telstra.

The Government plans to spend $13.8 billion of taxpayers' money to buy back the assets of a company that a previous government sold to taxpayers some years back. What's more, by many experts reckoning it is buying these assets at a considerable discount to their true value.

If you happen to be one of the million plus mum-and-dad Telstra shareholders, the Government plans to use your tax dollars to buy your company from you for less than it's worth

Getting Telstra's assets at a bargain basement price has been made possible because the Government has arguably played a hand in destroying the value of this previously strong company. How has it done this?

Some will argue overly harsh regulation has been the culprit but Telstra was subject to strong regulation through successive governments from the moment it was privatised. In the case of this Government, the main value-destroying agent has been the threats to the sovereignty of Telstra as a corporate entity through punitive legislation.

Telstra was told that it had to structurally separate and (by implication) sell its assets to the Government at a bargain basement price or be forced to spend big money to functionally separate its wholesale and retail businesses, while at the same time being denied access to valuable wireless spectrum and being forced to sell its valuable stake in Foxtel.

Anti-Telstra proponents of the NBN argue that all of the above needed to be done to create a competitive telecoms market in Australia.

But Australia already has one of the most highly competitive telecoms markets in the world. In case anyone hasn't noticed, Telstra's fixed line voice service has been decimated in the wake of mobile and Voip services.

In the mobile space, Telstra is struggling to maintain its market share against two major foreign-owned competitors, both of whom have similar numbers of subscribers, and it is being forced to offer all sorts of inducements to fixed line customers to beg them from disconnecting.

In the Internet space, the story is more convoluted - not least because these days more people connect to the net wirelessly using a mobile device than through fixed lines. Telstra has the best mobile Internet network but the Optus and Vodafone are steadily improving their services and pressuring Telstra by offering more bandwidth for less money.

This brings us back to the question of whether we all need an expensive FTTH network. Fibre to every home in Australia would be great but exactly why we need it is unclear.

At least 80% of the population of Australia living in the cities and major regional centres already have access to fast fixed line broadband. It may not be 100 Mbps just yet but it's fast enough to run a pretty good videoconferencing service if need be - most of us can do full screen videoconferencing over Skype. Most of us can play COD or FIFA from our PS3 or Xbox 360 with someone on the Internet. Most of us can download movies to our TVs over the net.

Aside from this, with the advent of fast mobile access - 3.5G and 4G - and devices like the iPad, fixed line access is being increasingly snubbed. Young people, who like to stay connected wherever they are and who move addresses regularly prefer to stick with mobile access.

What about hospitals, universities and research institutions? Almost without fail, most already have access to super fast internet.

And what of the 20% living a bit too far from major population centres? Their pain is understandable. By all means, the Government should pay to improve services to those areas through the extension of existing exchanges, establishment of new ones, and the implementation of satellite services. However, do we need to spend tens of billions to create a new government-owned monopoly and run fibre to remote farms and up mountainsides to service these areas?

The facts are there for all to see. The vast majority of Australians are already well served by existing Internet services, there is a clear trend that more people are connecting wirelessly than through fixed lines and there is plenty of competition in the market.

Most of us would be hard pressed to remember a time when anyone ever said anything nice about a government-owned telecommunications monopoly. Why on earth then are we so eager to spend a fortune just to create another one?



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Stan Beer


Stan Beer co-founded iTWire in 2005. With 30 plus years of experience working in IT and Australian technology media, Beer has published articles in most of the IT publications that have mattered, including the AFR, The Australian, SMH, The Age, as well as a multitude of trade publications.



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