Rudd’s bold plan for a broadband nation

What a monster! The Australian Government will build a $43 billion FTTH (Fibre to the Home) National Broadband Network after terminating the bidding process for a Fibre To The Node network.
Calling it “the single largest nation-building infrastructure project in Australia’s history”, and comparing it to the Snowy Mountains Hydro Scheme, Prime Minister Rudd announced it would establish a company with 49 per cent private equity to complete the network over the next eight years. Only 90 per cent of the country would enjoy 100Mbps FTTH speeds (we expect it will be faster by the time it’s in place), with the holes being filled by ADSL, wireless and satellite. There’s a discussion paper on the project here.
It’s a bold, visionary plan that deserves the highest praise. In taking this path, the Rudd Government has called Telstra’s bluff and set the clock running for an end to its price-gouging.
We haven’t yet read the discussion paper for regulatory reform of the communications industry, but our immediate reaction is that this move is the very worst of results for Telstra, and a just reward for its spiteful tactics.
Others see it as a victory of sorts for the gorilla. We see it as a well-earned drubbing.
Telstra completely sabotaged the National Broadband Network by threatening legal challenges which would have allowed the legal fraternity to build small cities on the fees, and by beefing up the speed of its HFC cable network to hack into the commercial underpinnings of the proposal. As the extract from the evaluation report indicates, the global capital squeeze also helped create the perfect storm which (thankfully) sank the original plan.
With FTTH, it looks to us inevitable that in the span of a few years, Telstra’s local loop monopoly becomes completely worthless, and their ability to hold the nation and their competition to ransom disappears. We wonder what Telstra shareholders will have to say about this.
Typically, Telstra’s propaganda site was busily reshaping the facts.Telstra chairman Donald McGauchie claimed the company “welcomes the opportunity to engage the Government on broadband” and declared the move “will have little short- to medium-term financial impact on Telstra’s business as it would take at least eight years before it is completed”. We imagine the share price will reflect the true situation. UPDATE: Well, we obviously know nothing about share prices, because Telstra has posted significant gains. Obviously that’s a reflection of the perception that the Government will allow Telstra to become involved in the new network if it wishes. So the Government spends all that money, then allows Telstra to dictate terms? Seems unlikely to us. Re-UPDATE: Some support for our Telstra share price prognostications from Elizabeth Knight. She thinks the Australian sharemarket got it wrong too.
Crikey makes an interesting point. They see the new high-speed network as spelling the end to free-to-air TV. The big proviso to that is that the data charges would have to drop substantially, but that, surely, is the entire point of building the bloody great thing? Crikey says Kerry Packer would have stopped it because of the effect on the Nine Network, but James’ idea of getting some other mob of dills to pay a fortune for Nine was surely the smarter idea. The writing has been on the wall for quite a while now.
It’s got us speculating on the business case for the new network. The fact that every multimedia content owner is going to be clamouring to board the fast train will add to the bottom line – we expect new models for the delivery of movies and music too – as will the fact that huge chunks of the money that Telstra has been earning from its PSTN network will quickly shift across to VoIP providers who will at last be able to compete fairly with the gorilla. The margins for the wholesale network won’t be anything like Telstra’s 60 per cent, but they’ll be sweet enough.
Then there’s the public interest applications including tele-medicine, and possibly a fast knowledge network based on our libraries.
What’s your view?
UPDATE AGAIN: Our reading of the discussion paper suggests even more ominous tidings for Telstra. Senator Conroy says the paper formally commences the review required by section 61A of the Telecommunications Act, and says the government will consider key options for reform, including:

  • Streamlining access regulation processes, by allowing the ACCC to set up-front
    access terms for companies wanting access to Telstra and other networks
  • Strengthening the powers of the ACCC to tackle anti-competitive conduct by allowing it to impose binding rules of conduct when issuing competition notices
  • Promoting greater competition across the industry, including measures to better address Telstra’s vertical integration, such as functional separation
  • Addressing competition and investment issues arising from horizontal integration of fixed-line and cable networks, and telecommunications and media assets
  • Improving universal access arrangements for telephony and payphones, and
  • Introducing more effective rules requiring telephone companies to make
    connections and repairs within set time-frames

Any Telstra executive reading that list must surely be feeling a little queasy.
Worse, the Government is also clearly looking at the possibility of forcing Telstra to divest itself of that HFC network that it planned on using to undermine its competitors.
If you had any Telstra shares, we do hope you took advantage of that odd surge this morning to get rid of them, because it’s beginning to look like Telstra will pay a high price for the Amigos’ hubris.

5 Responses to “Rudd’s bold plan for a broadband nation”

  1. Stephen

    For a bit more reading from what has been a hot topic this morning here are some more links:-
    ABC News – Rudd redraws broadband landscape (With reader comments)
    ABC Unleashed – No more ‘business as usual’ Michael de Percy
    Senator Stephen Conroy – New National Broadband Network (Media Release)
    Simon Hackett – Internode
    ZDNet Australia – NBN is Telstra 2.0, says Turnbull
    ZDNet Australia – Optus: NBN deal makes ‘absolute sense’
    Core Economics – The Telecommunications Revolution
    Crickey – Bernard Keane – Huge, historic and nationalised: broadband goes ballistic.
    Crickey – Chris Berg – The winds of change will not wait for Rudd’s broadband.
    Crickey – Mark Pesce – 100 million bits per second: you call that fast?

  2. Dale

    The Age is reporting that Telstra prices have plummeted on NZ markets today. Canny sheep farmers that lot…

  3. Dale

    And a NZ share price update. The sheep ended up following the Aus market with a 6% gain after 11:00 am NZ time.


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