Possums Pollytics

Politics, elections and piffle plinking

The Telstra Problem

Posted by Possum Comitatus on December 7, 2007

John Howard, not content with his political legacy of turning the Liberal Party into a dysfunctional zoo, also left a charming little economic legacy in the telecommunications sector – it may not be quite as bad as feral tenants leaving raw prawns in the curtain rods upon their departure, but it’s not far from it either.

We are, of course, talking about that giant monopolist sloth Telstra.

Over at LP, they’re having a nice chat with a cup of tea and a few Iced VoVo’s (suddenly the biscuit de jour in political circles) over Telstra’s chest thumping demands regarding Labor’s proposed new Fibre-to-the-Node broadband network. Rather than clogging up their comments section with a vast monologue (and eating all their biscuits) I thought I’d blurt my contempt for this policy mess out over here instead – but I encourage all to go and have a squiz at the LP post.

It’s not like Telstra is asking for much really – they merely want to keep their existing monopoly, they want the ACCC to take a hike so they can extract even greater monopoly rents out of their infrastructure, they wish to make it as difficult as possible for any of their competitors to compete on price, and they have told the Rudd government that they will effectively do everything possible to thwart the building of a new broadband network unless its built, owned and run on Telstra’s terms.

Mind you, this isn’t the only economic policy nugget left in the slippers on the front porch by Howard; we’ll be finding more of these charming little economic legacies of the Howard era over the next few years to be sure.

The Telstra Problem was always going to happen – it’s the great “told you so” issue of national infrastructure over the last decade. Every man and his dog told the Howard government that privatising a public monopoly on an “as is” basis will simply result in a more aggressive private monopoly that will screw consumers six ways to Sunday and basically hamper not only telecommunications development, but economic growth opportunities for those industry sectors heavily reliant on telecommunications price and speed.

Lo and behold, that’s basically what has occurred – and it’s time for Rudd to sort out the mess.

Unfortunately, there is no easy, cheap fix here – such is the size of the pile of policy shit the Howard government left behind over this. To ignore Telstra in building the new broadband network requires duplicating much of the existing infrastructure which significantly blows out the costs of constructing the new network – possibly to the point of making it economically unviable from the outset. To haggle with Telstra effectively means handing over to Telstra some level of monopoly rent and removing a large amount of competition from the system…. forever. Nationalising the so called ‘last mile’ of Telstra – the local exchange to the house, would be enormously expensive.

Regardless of which option is eventually pursued, the public will get screwed – either through nine zeros worth of taxpayer dollars being spent upfront on fixing the mess, or through permanently higher telecommunications charges.

Do you want to be rogered smooth and slow, or hard and fast?”, becomes the key question. There is no escaping the rogering – the question is just how we’d all like it to be done.

Remember – this need not have been the case, a simple split of the Telstra sloth before it was sold, and flogging the retail and mobile phone components off as one company, and bringing new players into joint ownership of the infrastructure side would have prevented all this nonsense from ever needing to be done in the first place.

However, the nationalisation of the last mile might end up being the only way forward if things really turn sour. But the big problem, and it would become the really big problem, would be determining the actual value of the just terms compensation to be provided. Telstra would undoubtedly have the audacity to argue that the compensation would need to be significantly higher than what would be offered because the government would be effectively removing their capability to extract monopoly rents!

If the government acquired the last mile, it could then on sell a large chunk of it into whatever new public/private consortium would be used to build and manage the proposed FTTN network – that would at least partially offset the large total public costs of nationalising the last mile. The beauty of the government being able to bring the last mile to the table for the proposed network would be that there would become no shortage of willing participants in transforming the network into FTTN and later, perhaps, FTTH as the demand required – from existing telcos like Optus and Internode etc through to infrastructure units of companies like Macquarie, especially since the Labor policy is to run the proposed new network as an open-access regime. The more companies you can get in the tent with a stake in the new network, the more likely it would be that the network would continue to develop technologically at the speed of its fastest members, rather than the speed that guarantees the greatest monopoly returns which is the current case.

It would also have the benefit of removing at least some of the monopoly effects that currently plague the system, even if it doesn’t actually remove the monopoly proper. It’s arguable that even though such a network would still be a monopoly, there would actually be some level of competition in terms of competitive effects, but within the organisation between its separate stakeholders rather than between networks as we’ve all become used to analysing.

Whatever option eventually plays out and becomes our telecommunications reality, and whatever the costs will be in fixing this mess – all of the drama and the telecommunications retardation we’ve been experiencing as users over the last decade has been entirely unnecessary. It has been the consequence of gross political and economic policy negligence by the Howard government, a government that seemed to believe that fast, cheap and accessible broadband speeds were all about downloading porn and pirated movies rather than the modern drivers of productivity growth, business development and high paying new economy employment growth – not to mention its potential for enhancing public service delivery.

I’d be interested in your thoughts about this, and the possible ways forward on the Telstra Problem?

UPDATE:

Via a heads-up from Tassieannie, fibre optics via sewer ducts in the UK.

.

AddThis Social Bookmark Button

add to kwoff

112 Responses to “The Telstra Problem”

  1. kwoff.com said

    The Telstra Problem « Possums Pollytics

    John Howard, not content with his political legacy of turning the Liberal Party into a dysfunctional zoo, also left a charming little economic legacy in the telecommunications sector – it may not be quite as bad as feral tenants leaving raw prawns in t…

  2. […] by The Telstra Problem « Possums Pollytics — December 7, 2007 @ 3:09 […]

  3. andrew b said

    Of course Labor could equally roger back, strengthening the requirements under the USO to the point that Telstra and Sol will be bloodied and limping decades from now.

  4. Rate Analyst said

    The Government still owns a large proportion (via the future fund).

    I would re-nationalise the entire company – no need to negotiate the price, the shares are publically listed. It means we know the price. The Government could probably get back above 50% with remarkably few people noticing. Or, if they offered a reasonable value, get back to 75% with little trouble. They don’t need the whole company, just a large chunk.

    Then split up the company properly – but not by fiat, by passing a motion through the shareholders, a la Channel 9.

    Then sell the appropriate retail parts of the business and nationalise the approporiate parts.

    If they did it properly they could even make money on the deal. The Feds are the only Private Equity fund who can still get cheap debt financing!!!!

  5. Scott said

    Government should legislate to split Telstra in two.
    Telecom ended up deciding to split, and BT in the UK has also done the same.

    Our problem is not just open access but the company building the FTTN needing the “last-mile” as it pretty much takes over the whole phone system. Not just installing DSLAMs like currently.

  6. hobosexual misanthrope said

    Cant we just buy it back, fix it then sell whatever?

  7. steve_e said

    Taking a leaf form the book of Rate Analyst above, the process is even simpler.

    The objective is to control 50% of the issued shares.

    Future Fund = 30% or so of Telstra shares. CSS and other Government controlled pension funds hold say 5% or so (total holdings may be more than 5%). These can be purchased at market or exchanged for government securities with an equivalent value.

    The T3 (part paid) shares can be purchased at market or as above exchange for equivalent valued securities and the last capital installment is paid when it is due (this is buying shares on a discounted cash flow basis).

    When 50% of shares are owned, move new Directors on to the Board. The overall process will require a change of senior management.

    Now comes the hard ball option: Operational or physical separation.

  8. zoom said

    This was one of the major flaws of the Howard government – ignoring warnings from reasonable sources that if they did x, y would follow.
    They were warned on GST when they claimed it would get rid of the blackmarket economy that in fact it would only increase it – and tradies today nearly always offer you the option of paying cash and getting 10% off.
    They were warned on Iraq….enough said.
    They were warned on Work Choices that unfettered power to the employers would mean employees being shortchanged…and had to introduce the fairness test and vetting of agreements.
    And they were warned on Telstra….
    I could go on, but I won’t.
    As to the Telstra problem – cut the Gordion knot and nationalise the company. Borrow to do it, if necessary. It’s our future we’re talking about here.

  9. Meself said

    “Over at LP, they’re having a nice chat with a cup of tea and a few Iced VoVo’s (suddenly the biscuit de jour in political circles) over Telstra’s chest thumping demands regarding Labor’s proposed new Fibre-to-the-Node broadband network.”

    You can keep your Iced Vovos, I want my cupcakes de jour on Telstra’s Fibre to the Nude Broadband WotNext.com.au

  10. Rate Analyst said

    Steve_e

    I agree, the solution to this problem lies in the Government behaving as a shareholder – and using the rights available to it that way rather than the legislative route, I believe.

    Governments too often participate in financial markets or in infrastructure projects but behave as Governments – and so get taken advantage of by banks and large companies.

    Governments need to start participating in financial markets as self-interested participants. It’s the only way to avoid being ripped off.

  11. S said

    Nothing says ‘Economic Conservative’ like the first Labor Government in 11 years deciding to re-nationalise Telstra.

    So, when put in that light, you can see it’s not going to happen.

  12. Roger said

    Actually, I wouldn’t do it with Telstra. What’s wrong with the new Govt establishing a new broadband network – for and on behalf of all Australian’s. Getting the infrastructure and service mix right and then offloading whatever parts they want to in the (distant) future. It might take a decade or more but it will have two big benefits. Firstly, it will kill the current monopoly – so Sol will have to work for his living. Secondly, it will give us the services we need. And I suppose it will hasten the demise of the 23 Amigo’s – but that is a pleasant by-product.

  13. Ron Brown said

    Possum, you answered your own question

    The cost of a duplicate system as envisaged by the G9 group is
    $16 billion PLUS the $9 billion for fibre to the node (50% Govt) …G9 do not have & never had that money (it was gamesmanship)

    It is unlikely at that cost vs. return to attract either a European
    or US telecom

    So Fibre to the Node can only be built by Telstra !!!!!!!!!!!!!!!!!

    COMMERCIAL BARGAINING
    Labor threat of Telstra separation & no regulatory concessions
    in exchange for Labor paying 4.7 billion for 1/2 the system and
    Telstra building it

    Politically I expect Labor to concede on regulation to get the system built

    Commercially I would have preferred Labor using its powers & Telstra shares to force a Retail/wholesale separation anyway
    so that Telstra’s monopoly is not enshrined forever

    Further, subject to the Corporations Law , i would prefer the separated ‘Retail” part of Telstra to be floated to the 10 Telecom players to buy/own (Labor can hardly ‘nationalise’ it !)

  14. Ron Brown said

    Of course with $50 billion in the “future Fund” , whitlam would have said to Telstra we the government will build and Government own our network for $16 billion (+ $9 billion for fibre to the node)

    …making Telstra completely irrelevant

    (and because the 3 Amigo’s would know Gough would do it
    the 3 Amigo’s would then capitulate)

    One of the FEW times Gough’s ‘crash through or crash’ would work

  15. Gus said

    Break up Telstra: the network returns to public ownership, the service provision competes with everyone else on the same terms.

  16. Greeensborough Growler said

    It is fascinating to consider that Donald McGauchie was head of the NFF and leading the charge to break the MUA on the docks back in the dark days of Reith. Now as Chairman of Telstra he supports a monopolist trying to entrench its monopoly.

    What an arsehole!

  17. Ronin said

    Telstra won’t be worth much without the ability to extract monopoly rent. Compulsory acquisition of the last mile would be too expensive, and someone has to do the maintenance.

    The FTTN network was proposed a few years back, and 12MB is already looking rather slow. Just this year, an Australian mathematician came out with a way to make copper wire run at 100Mb. It is problematic to focus on a technology. Instead, the focus should be on the access scheme and price. Telstra is playing hardball by saying they’ll refuse to build a network unless they can charge prices that will stop competition. There is a counter to that.

    Structural Separation. It can be done.

    The alternative is to give in to Telstra. While we’ll all have 12MB, everyone will only get 10 Gig a month, and it’ll cost $200. What’s worse, you don’t get a choice of ADSL anymore!! Even the status quo is better than this nightmarish future..

  18. caf said

    Possum – while it is true that:

    Telstra would undoubtedly have the audacity to argue that the compensation would need to be significantly higher than what would be offered because the government would be effectively removing their capability to extract monopoly rents!

    It must be remembered that the Government has already taken the profit from selling this highly valuable piece of infrastructure when they sold Telstra. I don’t think this is about monopoly rents by the way – as far as I’m aware it’s about Telstra refusing access.

    It seems to me that requiring Telstra to give access to their competitors to the last mile is similar to requiring BHP to give Fortescue access to their Pilbara railway – and perhaps there is a good anti-competition argument here, but to be fair the principle would have to be extended across all industries and I’m not sure the overall effect would necessarily be a good one. The long term holder of the infrastructure asset is taking some significant risks that the short term tenants they’re forced to accept would be avoiding.

    Additionally, this would seem to be incredibly unfair on those companies that have already taken the risk and started building out a duplicate “last mile” – the one I am aware of is TransACT, in Canberra, which has done so for its own FTTN network that’s been operational for the last 5 or 6 years.

  19. scaper... said

    I just can’t believe this R Sol!

    You employed this clown?

    I’m working on a national infrastructure project that requires high speed broadband and now it looks like I will have to go off-shore to secure the needs.

    It would be cheaper to slowly buy the shares back to secure the controlling interest to ensure the service I will be proposing will be a success.

    Howard’s legacy!!!…One day I will piss on his grave, the traitor.

    scaper…

  20. Tassieannie said

    Or we could do it by inter-poo. See the BBC news site under technology – they’re using the sewers.

    Sort of appropriate for R-Sol.

  21. Rain said

    Ronin Says: “The alternative is to give in to Telstra.”

    I hope the Labor govt doesn’t do that, that is just so depressing.

    What gets me is much of that existing infrastructure was built with tax-payers funds way-back-when. I can remember the massive effort it took for the PMG to lay cables, with the coast-to-coast automatic exchanges being rolled out etc. We had national STD when some other countries were still on WW2-style Party-Lines and manual operator exchanges. The TV ads with the PMG teams were quite inspiring with that “nation-building” theme🙂

    Then for many years after that the tax-payers funded its maintenance and maybe it didn’t keep up as well as we all might have liked, and we all whinged about Telecom, an Aussie cultural tradition up there with vegemite and Tim-Tams (the latter a big improvement on Iced Vo-Vos I might add – where have you been Kevin?).

    Then Howard/Costello just sell it. The people’s money built it and maintained it for decades. After 10 years of some corporate monopoly owning it, we’ve seen prices soar, services deteriorate, corners cut and a workforce badly treated.

    For what its worth, I vote for splitting it, the essential service component should remain public property as it used to be. If that costs us more up-front, then so be it, it will be worth it as Ron Brown says “so that Telstra’s monopoly is not enshrined forever”. Doing anything else at best, can only ever be a quick fix-it ‘band-aid’ just to get it built, and will continue to rip-off the whole country.

    Possum mentioned “..we’ll be finding more of these charming little economic legacies of the Howard era over the next few years to be sure…”

    I suspect CSL is another such legacy, the only immunological manufacturing facility on Australian soil, again built with tax-payers funds and maintained for decades, then sold for practically nothing. Didn’t take long for CSL to start charging outrageous prices with its monopoly on life-saving vaccines etc, or stop manufacturing some low-volume vaccines as not being “economically viable”.

    It was built and maintained for national public health and safety, not to be a commercial venture. It was built after the major global polio epidemics, and smallpox, and measles, and flu epidemics, so Australia (and New Zealand) would not fall to the level of Africa in public health emergencies, and have to go begging to the USA or Europe for aid, or to multinationals.

    To make matters worse, much of what was sold off, was sold for rock-bottom garage sale prices!!
    We sure do need to improve national education, when so many Aussies have been brainwashed by 30-second soundbites, into believing these bozos were “good economic managers”.

  22. Enemy Combatant said

    As Sol lay on a Tijuana beach at sunset all those years ago, he heard a verse with a catchy beat from a passing “transistor” radio that changed his life forever……

    “Los angeles! Give me Norfolk Virginia!
    Tidewater four ten o nine,
    Tell the folks back home this is the promised land callin’
    And the poor boy is on the line”

  23. JP said

    Possum, you’ve hit it on the head here, as have many of the comments since.

    As I can see the only three options are:

    1) forcibly split Telstra, and use the revenue from selling the govt stake in of the retail arm to part offset the buy-back of the infrastructure arm, either by government or an industry-wide consortium.

    2) buy back control of Telstra, then split it.

    3) play hardball on last mile pricing. Give the ACCC teeth to set a cap based on similar networks overseas. If Telstra block access, fine them a billion dollars a day until they back down.

    The first two would allow the Libs to run a scare that Rudd’s and quasi-communist nationaliser, so the third seems to be the go.

    Either that or ask the G9 and Telstra to propose an access price should they control the network. Let’s assume that G9’s is lower. Then announce a buy back of the last mile, and charge each carrier their proposed access price. It’s unfair, but it would be priceless to see Telstra try to wriggle out of that one.

  24. scaper... said

    JP

    Food for thought and I will take this on board.

    I reckon it would set the R-Sol on his heels, as he would not expect that from us colonials???

    scaper…

  25. Brendan said

    How many rollouts of various cable have we had? We should have bandwidth coming out of our ears. Forget the copper, go wireless and don’t buy off Telstra. Let them make their final profit selling copper for scrap.

  26. Ronin8317 said

    Structural Separation doesn’t require the Government to buy back the infrastructure – the shareholders just receive shares in both company, while the management splits. Government fund will be needed to build the network for the rural areas. In the city, it is already profitable.

    Monopoly in itself is not the fundamental problem – it’s Monopoly + vertical integration. For ADSL, the rate which Telstra wholesale charges for ports is related to speed, even though the cost to service a port is the same. This is because Telstra retail charges more for faster speed, so their wholesale price FORCES the other ISP to copy their plan. When Iinet installed their own DSLAM, all plans becomes 1.5Mb+ (I’m getting about 4Mb right now on ADSL1)

  27. Rain said

    Inter-poo with schools? I can see the headlines now: “No high school without an inter-poo node by 2012”.

    Seriously though, does anybody know the details of Labor’s schools puter policy?
    I only supported it because at least some money would be going to schools, which seemed to be revolutionary compared to the usual tax-cuts, regional pork-barelling etc. But on reflection, I’m confused as to what it might achieve?

  28. ViggoP said

    Rain,

    Like you, I don’t know what Labor will do but I’m feeling so hopeful. They seem to be “heading in the right direction.” What a bloody awful phrase that is. If they don’t deliver I’ll emigrate to Zimbabwe to see what real commitment is like.

  29. Aspirational Aspirationalist said

    “We will never sell the bit we’ve already sold” — A bit of telstra humor from Clarke and Dawe

    Before it was announced that the government would sell its stake and reduce its ownership below 51%, i sent a e-mail to some senators saying don’t flog it off, I got the quickest response i ever got from a politician. 4pm that day they made the announcement saying “were getting rid of the rest of it”. I’m glad they never privatised Snowy.

    If it was me, i’d use some of the hard earnt to acquire through the market, and make an unsolicited offer to Mum and Dad investors, you know , the ones who paid about $7 or $9 a share. Maybe even waive any CGT. When i have enough, i’d put a motion to the board and say, we want the copper, exchanges, couple of towers, and those people who you put GPS’s in their cars for “safety” back.

    But with “Future Fund Board of Guardians” holding about 2.1 Billion shares (17%), and “Telstra Sale Company Limited” holding 4.2 Billion shares (33.9%), any buy back will cost about 20 Billion plus….. I can hear it now “Mr Speaker it was the Member for Griffith who gave us this 20 Billion dollars of debt, He claimed he was a fiscal conservative Mr Speaker.”

    Regardless of what happens, i think the Commonwealth should own the copper, infrastructure etc.

  30. Beach Ball said

    Poss, it’s not the first I’ve heard of internet through the sewer. It’s an urban myth and I’m surprised that the BBC has been reeled in.

    The story is, as they say, full of shit. Pretty obvious when you think about it.

  31. The Finnigans said

    Poss, public opinion and public pressure. Rudd has to mobilise public opinion that will become public pressure. Rudd has to win the public debate and since he has got the mandate, he will win. In addition, Telstra is unpopular with the public, just to be kind. in fact, the public hates Telstra. Howard couldn’t do this because the public hates what Howard did to Telstra as much as they hate Telstra.

    Rudd doesn’t have this baggage. This is a prefect opportunity for Rudd to smash Telstra if he plays it right. If so, Rudd is guaranteed two terms. Go Kev, go.

  32. Aspirational Aspirationalist said

    Instead of the Sewer, Tassie is trying to get Broadband over power lines (Scroll down the page)

  33. Niz said

    Speaking to one of the high up sales managers at Telstra in Perth a few months ago, I got the impression that there is a resentment within Telstra that the government failed to do what it should have before the asset was sold off on the open market.

    It should have either retained ownership of the infrastructure and sold off the services side, or split it into two companies. One being responsible for the infrastructure so that Telstra could compete in the ISP market without having to worry about the pesky copper. This resentment has no doubt bred a board who wants desperately to hold onto any monopoly it has now in order to remain competitive. It now finds itself in a catch 22 situation where it doesnt want the infrastructure overhead, but needs to keep it for fear of competitors swamping them.

    And no doubt some of those competitors that have had to play ball with Telstra all these years would take a certain level of corporate pleasure in doing so.

  34. JP said

    Ronin8317 @ 26 wrote:
    “Structural Separation doesn’t require the Government to buy back the infrastructure – the shareholders just receive shares in both company, while the management splits. Government fund will be needed to build the network for the rural areas. In the city, it is already profitable.”

    So why lock ourselves into a model where the profitable bits are privatised, and the loss makers Government funded? That sort of thinking gave us HiBIS (later Broadband Connect) which was a disastrous waste of taxpayers money.

    On your second point, that monopoly + vertical integration is the root of all evil, I couldn’t agree more.

  35. ViggoP said

    BPL might work on a LAN or in-house WAN. Beyond that, there’s a noise / interference problem that has to be overcome. Low speed, maybe; high speed, no.

    Aspirational, if I’m taking your post too seriously I apologize.

  36. swio said

    The day Rudd announced his broadband policy of building a fibre network I literally cheered. It was the first moment I felt that the do nothing approach of Beazly was behind us and I finally had a reason to vote for Labor and not just against Howard.

    I am sick of hearing from my friends in HK, Korea and Europe how they have not heard of broadband caps and how every apartment block has a direct fibre connection while other friends living in Sydney tell me about their fights with Telstra to simply get ADSL up and running. Its a national disgrace.

  37. angry bob said

    Poss

    structural separation is what is required. however the politics of renationalising telstra is very messy.

    if buying the last mile from the exchange to the home is the stumbling block and telstra refuse to negotiate meaningfully another option would be to build the FTTH network. the government could fund it, get contributions from private and effectively build another telecom. major infrastructure for the next century. as all the telcos could compete equally and freely on this new network and be able to provide all their telephone and other services telstra would be left with their legacy network. I know that this is way ahead of what we need now but this is all about the future. I really think FTTN is old already.

    i know that this would be a very expensive option and this is why telstra get away with extortion. i would think that rudd could get public support for such a system and telstra would have to rethink their strategy if the government was serious about building such a modern network. of course it would be easier, quicker and cheaper for telstra to build it if they behaved reasonably

    i dont know why the government wont just use their shareholder rights to kick out sol and put in people who will negotiate and split up the system

  38. Aspirational Aspirationalist said

    Viggo P, it was meant as a serious post, though i havent had any experience with BPL. I’m sure your right, fast speeds, to everybody, not going to happen.

  39. Aspirational Aspirationalist said

    Angry Bob @ 37, says

    i dont know why the government wont just use their shareholder rights to kick out sol and put in people who will negotiate and split up the system

    This is because the Commonwealth doesnt own enough of telstra now, the part it sold as T3 warrants are beneficially owned by T3 purchasers and they’re the ones that now have voting rights for the share.

  40. smokey said

    I would like to be rogered very quickly thank you Possum, preferably using the hallowed Future Fund to do so🙂 You know, that great investment in our future that the argument is whether taxpayers will be able to confidently fund latte drinking public servants in their retirements by about 2015 or 2020.

    But first on the wish list is the sacking of that stupid American ideologue Sol, who seems to be here not out of concern for Australians but only to shaft us with the highest net prices on earth before laughing all the way to his golden handshake. Another Howard failure in delivering an integral part of our infrastructure to a stupid American loudmouth who doesn’t give a shit about us.

    I have no idea how to fix this mess of biblical proportions BTW, other than at least we have a gov that can think now. Rudd has his work cut out for him on this one.

    Oh, nearly forgot, Telstra broadband is way overpriced as it is. I was considering it, but even with a Telstra home phone the tin pot ISP I’m currently using is now offering nearly double the info limit per month for $15 a month less without having that ISP as a home phone provider either.

  41. ViggoP said

    Smokey,

    Keep passin’ the droll.

    In serio, you’re absolutely right.

  42. Grey said

    So we have basically one guy, an american, holding Australia to ransom?

    Maybe they should make some laws that carry a prison sentence if not adhered to. This is the problem – no matter how badly these guys behave, even if they destroy Telstra’s share price – they can still walk away with a bucket of cash in their pockets.

    Make laws that would penalise Telstra and its board members into oblivion if they don’t play ball.

    I don’t think most Australians are in the mood for some septic tank to play around with our country and would generally support a Rudd govt run in with them head on.

    Telstra better learn fairly quick that they are not up against Howard but a Rudd govt with popular support. Sol will end up very quickly making himself the most hated man in Australia.

  43. Kina said

    Reading Trujillo’s comments today’s The Australian and, observing the way he has talked to the government in the past only invokes deep hatred of him. This person is talking to the elected government of Australia which, is us. If he treats the government like rubbish he is treating me like rubbish. If he were in Singapore they would probably publically cane him.

    Howard’s total incompetence has left us a total mess in Tesltra. Labor should use every legislative tactic in the book, even taking it down to the personal level.

    I would love to see Sol Trujillo totally smashed by the government.

  44. JP said

    Kina, you’re so right.

    Trujillo seems to have forgotten one small, but important thing. He’s in a fight with the *national government*. If he takes a position that is against the national interest, such as blocking access to the last mile, or making what are essentially blackmail threats that Telstra must build FTTN, the national government can make laws that ensure it wins this fight.

    It’s stupid to pick a fight with the people who make the rules. All Rudd needs to do is realise that passing a law that says, in effect “Australia wins, Telstra loses” will not be unpopular, even with Telstra shareholders, most of whom (hopefully) still see themselves as Australians first, and Telstra shareholders second. Then it’s game over, Sol.

    The most obvious way to end Telstra’s flagrant abuse of it’s market position as last mile owner is through the ACCC, amongst whose existing tasks is to prevent flagrant abuse of market dominance. Give them the laws they need to do their job. In this case they should be able to set a standard of corporate behaviour that is acceptable (open access at a fair price) and a deadline for Telstra to implement the ACCC model. After that, massive fines for non-compliance. No appeals, no compensation for being forced to be fair.

    We already have fines for illegal strike action. How is Telstra blocking competitor access to the last mile any different?

  45. scaper... said

    Do you guys think this could be a solution?

    The government could write to all shareholders to seek their proxies and if they could secure over 50% then they would be able to influence decisions at minimal cost.

    Just an idea.

  46. scaper... said

    I forgot to add get rid of the R Sol.

  47. Rod said

    I wonder how long it will be before a genuine technical solution arrives that makes the “last mile” pretty well redundant and Telstra’s current quasi monopoly completely obsolete.

    Locally based encrypted wireless or something similar would seem to be a possible domestic option without too much additional technology and probably far lower costs than duplicating phone lines.

  48. GrannyAnny said

    I think some people are overlooking a few facts. Rightly or wrongly, the Australian Government sold Telstra. If the Government could easily unscramble this egg they could just as easily force fuel companies and supermarket chains to stop ripping us off. Trujillo is just doing what he is legally required to do – look after the interests of those who now own Telstra.

    I don’t know what the final solution will be, but whatever it is, we as tax payers and/or consumers will pay dearly. Thankyou John Howard.

  49. janice said

    You cannot blame Telstra or its three Amigos for doing what private companies do – that is to make big profits for shareholders and big remuneration packages for CEOs. Howard and his mob were warned what would happen if Telstra was privatised and advised to split the company to retain the infrastructure. Most Australians were against the privatisation of our national carrier but nevertheless voted in the economic wreckers time and again, therefore the voters must take some responsibility for the absolute horrific mess the Howard Govt has created. The thing that irks me personally is the fact that although these vandals were unceremoniously chucked out of office, the taxpayer is obliged to fund the lifetime golden handshakes such as free travel etc. etc – as if the multi million dollar super payments are not enough to keep them in the manner to which they became accustomed while stuffing up the country.

    The only solution I can see is that we have to get the infrastructure back into public hands, whether by fair means or foul. In the meantime, those voters who were wooed on the myth that the Coalition were/are the best economic managers might reflect on the folly of believing propaganda and ignoring the blatant trampling of our social structure and neglect of the nations infrastructure.

    My long departed mother was so right all those years ago when she said “Australians will rue the day if they ever let that mongrel get his hands on power”. We will be continue to rue the day for many years.

  50. scaper... said

    Janice

    Why don’t the government just bite the bullet and withdraw the 31 billion dollar tax cuts and buy back control of Telstra.

    After all, you don’t need to be an economist to see that these tax cuts won’t achieve anything but inflation and a raise in interest rates.

    scaper…

  51. zebbidies spring said

    This is all a bit old-fashioned. Three has mobile broadband (around 1.5 Mbps in reality) on sale at 2G for 24.95. A USB modem thrown in. Only the cities though (and some other bits) so not a rural solution.

    Wireless is the future.

  52. Neocom said

    Doesn’t the immigration minister still have the right to deport foreign nationals who threaten our government. (damn we voted that mob out!)

    Seriously though, there are some great ideas running here.
    Kudos to Rates Analyist @ #4
    My 2 cents worth:

    Toughen up the Competition laws and screw em in the courts, anti-monopoly laws will sort this moustached bandito out!

  53. jonbe54 said

    Agreed Janice the dance must stop. Telstra has in effect defied the national government and the Australian people in pursuit of it’s legally enshrined right to provide profit for shareholders. It is however standing in the road of a vitally needed infrastructure project and is acting against the national interest. If there is a state of national need proven it is possible for the government to acquire the necessary assets for the meeting of that national need. I know of the war time version of this personally through my grand uncle having his aerodrome and three biplanes confiscated in the national interest and himself conscripted into the air force – he was later shot down and lost over the German lines in France and the family never received a penny in compensation other than a telegram advising of his loss and an admonition to be proud of his sacrifice!

    I’m not sure of the peace time status of compulsory acquisitions but am wondering if it would be possible to apply a modified version of this government power in this case. Does anyone have information relative to this?

  54. David Richards said

    I am with Virgin wireless broadband. Sol doesn’t get 1c from me.

    Janice – your mum was indeed a wise woman. Having observed the rodent from the time he entered Parliament, I knew he’d be an absolute disaster if he ever got to be PM.

    Unfortunately, most of his damage is like trying to unscramble an egg. Thankfully, WC is not fully entrenched, so it is easier to dismantle. Telstra – compulsorily acquire all the shares at issue price, resume control of the infrastructure and deport the carpetbagger Sol Trujillo.

  55. Rain said

    I don’t support Sol either, I’m with TransACT for landline phone & cable broadband, but hasn’t stopped Telstra from harrassing me with “special deals just for TransACT clients” every other week, including offering to pay out existing contracts and drop landline phone rentals, must be desperate to bring us lost sheep back into the fold.

    Janice – as much as I agree with you, whats done is done, unfortunately. I been whingeing about it since 1996, and one of those minority who never believed for a moment that Liberals were “good economic managers”. But the majority did, and still do, according to polls.

    But no matter how soul-satisfying it is to whinge and feel ourselves proven right after all, it wont solve the problem.

    Personally, I would support by ‘fair means or foul’ too, even if it meant greater public purse expense up-front, and was locked in so it wouldn’t happen again – but would the electorate?
    Nationalising the essential service infrastructure, may very well be the “right thing to do” but is politically messy. Rudd, so far anyway, has been taking great pains to foster trust and probity, he may be bound to using fair but expedient means. I’d rather the govt buy back the shares though to force it into splitting, with the double whammy of tightening the ACCC’s powers at the same time to make it go quickly. We need to *move on*!

  56. Let’s not personalize this. Sol is clearly doing exactly what the board of Telstra wants him to do, and presumably what the shareholders of Telstra want him to do.

    Sol is a symptom, not the cause.

  57. scaper... said

    Sol is a symptom, not the cause.

    I strongly disagree.

    This person is treating this nation with contempt!

    He has no interest in this nation, he’s just being obstructionist in our development to service his own agenda!!!

    What has been the movement in the share price and the growth since he and his posse blew into town???

    The sooner they are sent packing, the better.

    scaper…

  58. El Nino said

    I say re-nationalise the infrastructure wing of Telstra. Do it by legislation. Sharp short pain for long term gain. Compensate the retail wing of Telstra for the amputation to blunt the effect on mum and dad shareholders. And leave note for future governments – never EVER sell off critical national infrastructure.

    If mum and dad shareholders need someone to blame, direct it to the Telstra board for bloody mindedness and trying to stare down the elected government on a critical nation issue.

    I change my recommendation on Telstra to SELL NOW…

  59. El Nino said

    Oh, and limit by legislation the amount of compensation that Telstra can get with the “Forks to Telstra” bill. We could learn a thing or two from Hugo Chavez.

  60. Ronin8317 said

    Compulsory acquisition of asset is a bad idea. It would be terrible to live in a country where the Government will confiscate your asset on a whim. See Zimbabwe as an example.

    I would respect Chavez a lot more if he didn’t try to become ‘president for life’, and spent more money fixing up his own country before propping up Cuba.

    Look at things from Telstra’s point of view : it’ll cost them about 10 billion dollars to install a FTTN network. To borrow the money to fund the network will attract capital cost of at least 8% in the current market, but they’ll be capped by ACCC to make < 10% return on capital. See the problem? It makes sense for them to wait for cheaper technology to come along. The other ISPs is also happy with the status quo right now with their own DSLAM investments. Switching to fibre will benefits the consumer, but not the companies in the industry.

    If you look at overseas, most of the network in Asia is built during the “dot-com” era, and the company that built them has gone bankrupt.

    This is why you need structural separation. Once you split Telstra into 2 entity, the Government can subsidize the new infrastructure company via cheaper financing and grants without destroying competition in the market. Nationalization would just take money away from Government spendings with little real benefit.

  61. scaper... said

    This is why you need structural separation. Once you split Telstra into 2 entity, the Government can subsidize the new infrastructure company via cheaper financing and grants without destroying competition in the market. Nationalization would just take money away from Government spendings with little real benefit.

    I most definitely agree on the two entities, but the nationalisation issue, I disagree.

    When we owned this it was generating profit and now it is still generating profit, I believe.

    Infrastructure owned by the people is to offer the conduit for other participation of corporate entities to grow and hence a bigger dividend is derived to further improve the infrastructure to meet the future needs of the twenty first century.

  62. Rod said

    Again OT, but I can’t resist mentioning that Fran Bailey, former Howard Minister, claimer of credit for many other’s endeavours, prominent figure in the Auditor G’s pork barrel report, and my local member, has succumbed to the ALP candidate , Rob Mitchell, by 7 votes at the conclusion of the count.

    THis is the last H of R seat to be decided. No doubt we will hear more by way of court challenges and the like, but for the moment life is sweet as we contemplate the major dependence of Mitchell on Green preferences and our own tiny part in getting some of them flowing!

    So, another Howard Minister bites the dust, another Liberal member voting for Nelson as leader proves subsequently not to have been eligible.

    Bye Fran! I for one won’t miss you! Hey! Local school events and the like will be safe to visit again without having to survive those self aggrandising , less than honest, claims about how you did it all for us despite abundant evidence to the contrary!

  63. David Richards said

    When all this privatisation mania started – I said there will come a time when the various governments would be forced to buy them back. This has already happened with the SA government having to regain control of the rail/tram assets due to private sector incompetence or laxity.

    This makes the unfortunate government at that time have to wear the criticism for incurring debt or some other perceived negative from the process of buying back the farm.

    This was also the reason why bank deregulation AND the sale of the Commonwealth bank was not a good idea. One or the other may have valid arguments in their favour, but both together meant the Government lost any capacity to control the banks in a meaningful manner – especially when it came to reducing the SRD.

    It’s not going to be easy, but privatisation will eventually have to be reversed.

  64. scaper... said

    Sheesh!!!

    It’s frustrating trying to engage with debate with you guys!!!

    So what are you going to do about it???

    We all know what the problems are, but we are not working in a positive way to offer the option of solving the issues at hand.

    Give it a go…no harmin contributing to the collective wisdom of our nation…..

    This is the medium of the future.

  65. Ferny Grover said

    Good afternoon all. The tender process for the new broadband infrastructure will indeed be fascinating. Sol is just doing the corporate dance for his shareholders. Being all hairy chested and making loud noises about protecting shareholder profits is what CEOs are expected to do. Will Telstra really refuse to take part? Will they run the risk of the G9 mob pulling the rug from under them thus allowing them to control the telecommunications agenda into the future? Labor, I’m sure, will not want Australia forever held ransome to Telstra’s monopoly and self-interest. The idea is to have an open competitive system that delivers world class services at competitive prices. This, however, is not Telstra’s stated agenda. As I say, the tender process will be fascinating to watch in the first few months of 08.

  66. scaper... said

    Ferny Grover

    This is the cornerstone of our long term future.

    We will see.

  67. janice said

    I have never forgiven Labor for selling off the Commonwealth Bank, David Richards. And having seen the results, I was absolutely anti the sale of our national carrier. The pity of it is that the Howard Govt was hell bent on privatising everything it could get its hands on. Fixing the Telstra mess is going to be a costly exercise for the Rudd Government but it is imperative that we buy it back….To be fair though, I cannot blame Sol Trujillo. The blame lies squarely with the Howard Government, it’s media supporters who spread the myths and misinformation, and we, the people, who ignored the warning signals of a dictator agenda and voted accordingly.

  68. Ferny Grover said

    Hi Scaper,
    Yes it is, which is why the Government can’t afford to dance to Telstra’s tune. If it caves in on this it will lose enormous support from its own and may well be a one term government. I don’t beleive Telstra has Rudd by the balls. It will be a test of Rudd’s political acumen, his courage and his commitment to a real telecommunication revolution if he can turn it around and end up with Sol’s small bits in a sling. Australia needs Rudd to win this.

  69. scaper... said

    Ferny Grover

    I’ve been agonising over this all day!

    Tomorrow I will action my sentiments to the appropriate people.

    Wish me luck.

    scaper…

  70. El Nino said

    NZ re-nationalised their airline (important national infrastructure when you are NZ) and guess what? The world didn’t stop turning. The international market didn’t treat NZ as an economic pariah. Nationalisation is a serious step and should only be considered when the future prosperity of the country is at stake. I’m sure the markets will be OK with it if there is a sound reason for doing so.

    Because we have the Reserve Bank and monetary policy, I don’t see a need for governments to be in the business of banking but water, electricity, health, education, telecom – they are a different story. Privatising these is like privatising the Reserve Bank – economic insanity.

  71. scaper... said

    El Nino

    It would indeed be the right direction to reclaim the mechanisms that will determine our long term sustainable prosperity.

    If applied wisely…..there are no losers.

    scaper…

  72. Cat said

    Off topic but if anyone lurking lives in Fran Bailey’s former seat🙂 could they please go out and find 7 people who voted Labor and kiss them for me.

  73. Ferny Grover said

    Renationalising Telstra….or at least its telecommunications infrastructure …. would cost a motza and would lead to some very interesting court cases which would go on for years. I wonder which way the High Court would jump? Maybe Kevin should wait till he has appointed the new Chief Justice and Kirby’s replacement before attempting that course. It’s really fifficult to unscramble that egg folks and Kevin won’t want to upset too many shareholders when he has such a modest margin. As I said earlier, I think there is a way to go around Telstra, which would leave them languishing in the slipstream…grimly hanging on to the past while Kevin steers Australia’s telecommunications at high speed into the future. The tender process is where the action will be.

  74. Rod said

    Hi Cat,

    Just given wife, daughter and 86 year old mother a kiss for you. Had a look at myself in the mirror but couldn’t quite come at it. Tomorrow I’ll add our best friends in the electorate and the next door neighbours (making 7 in all – excluding myself)

    Now, I must confess we all voted Green first pref, but we all gave our next pref to Labor, so we are part of Fran’s demise.😉

    Given the way we are all feeling here at present we might just all start trying random kisses in the street too, to add to the local euphoria in Hurstbridge at the departure of Fran!😉

  75. Cat said

    Rod that tingle on your cheek? I just air-kissed you.🙂

  76. Ferny Grover said

    Oi! We’ll be having cyber sex next!! Wots this blog coming to??!!

  77. Cat said

    Apologies Ferny. I will take my irrational exuberance elsewhere before my broadband drops out.

  78. Ferny Grover said

    Well Cat….I didn’t say I was completely opposed to such exuberance (and reason is so overrated)…in the greater cause of Labor celebration of course.

  79. Rod said

    Ah Ferny, you have to consider the delayed gratification aspect here! Most of Oz has been celebrating the big picture win, while we’ve all been sitting on a knife edge, gritting our teeth, taking the highs with the lows, watching and wondering and every other cliche you can think of for the last fortnight on this one!

    Cat, left cheek is still tingling!🙂

    Cheers

    Rod

  80. Ferny Grover said

    Fair enough Rod….cyber shag away!

  81. Ferny Grover said

    ….so long as the kiddies aren’t watching….

  82. Ordem e Progresso said

    The big screw up here is that the private sector’s been crap in establishing a decent broad band network. Opening up the sector to the private market was supposed to deliver the goods.

    Rudd’s plan to build the network himself shows Australia is a country that still believes in the state. Howard and his ilk can cop that for a rogering.

  83. Ferny Grover said

    True Ordern. I don’t thin there’s any need to re-nationalise Telstra to do that and, in fact, to do so would simply bog the whole thing down in years of litigation. The Government will have to go around Telstra.

  84. JP said

    Ronin8317 Says @ 60
    “Look at things from Telstra’s point of view : it’ll cost them about 10 billion dollars to install a FTTN network. To borrow the money to fund the network will attract capital cost of at least 8% in the current market, but they’ll be capped by ACCC to make < 10% return on capital. See the problem?”

    Nope.

    Firstly, I challenge you to back up your assertion that the ACCC would insist on < 10% return. I bet you can’t. Telstra’s ADSL rollout was done on the basis of 40% ROI required before an exchange would be upgraded (capital returned within two years) according to our local Telstra Countrywide office. And the ACCC didn’t stop that, and probably fair enough given the lifespan of an ADSL DSLAM.

    Secondly, even if you are right, a 2% margin on $10B is $200M per year. That would increase Telstra’s profit of a bit over $3B by about 6%.

    Go and read
    http://www.abc.net.au/news/stories/2007/11/01/2078578.htm
    for an account of how great Telstra thinks a profit increase of this size would be.

    The only problem I can see with the scenario you outlined is that it has Telstra owning the network, which given their track record of anti-competitive behaviour, is not something we should aspire to, or even contemplate as an option.

  85. scaper... said

    Hey guys, it’s great to see you engage with each other…..but this is turning into a love-in!

    Oh well, I suppose we are still in the honeymoon period.

  86. Neil Cammack said

    “So we have basically one guy, an american, holding Australia to ransom?”

    No, no and no again. Indulging in Australia’s favourite sport of Yank-bashing is a product of our national inferiority complex and distracts from the issue. The best CEO of Telstra ever, still remembered with great respect inside Telstra, was Frank Blount, also an American.

    Sol Trujillo, patently, is doing exactly what the board wants him to, which is why they hired him. And the board has to dance to the tune of institutional investors (e.g. your super funds and the managed funds they put your money into) always seeking another ounce of blood.

    If Trujillo was terminated out of some sense of perverted patriotism and replaced with an Australian, nothing would change unless the environment shaping Telstra’s behaviour also changed. I assume it’s common knowledge that company directors are legally bound to act in the best interests of their shareholders. So let’s not get sidetracked by Sol-bashing.

    When I worked for Telstra I reluctantly came to the conclusion that full privatisation was the only way out of a Howard government policy cockup which required the company to serve shareholders in a competitive market while functioning as a political tool of the government – witness the unprofitable investments poured into Tasmania in order to buy Brian Harradine’s vote in the Senate.

    My biggest reservation was the fear that a future government would allow control of Telstra to pass into foreign hands. Already Telstra’s major competitor (Singtel Optus) is a company majority-owned by a foreign government. Now perhaps we have a chance to rethink the situation and make sure that never happens to a core national asset.

  87. smokey said

    Neil,

    “If Trujillo was terminated out of some sense of perverted patriotism and replaced with an Australian, nothing would change unless the environment shaping Telstra’s behaviour also changed.”

    Well something would change, that being the bloke would would be an Australian and not an American. He’d have to cop it from his fellow Australians about why he was shafting his fellow countrymen, and neglecting what socially conscious large companies all seem to realise that they live in a community and are part of that community, and if they shaft people in that community it will have a detrimental effect on community perceptions about said company. Ultimately affecting it’s reputation and share price. It’s more than about just thinking only of shareholders, especially when Telstra isn’t just a company, but a major part of Australia’s infrastructure.

    Sol is a stupid narrow minded American who seems to be displaying some desire to convert the gov to stupid American ideology. That’s not so say there’s not intelligent Americans, but in this case not.

    *bashes Sol*

  88. Harmless Cud Chewer said

    I think the answer to Telstra is to build a new physical network that bypasses Telstra and let Telstra compete as it wishes. Here I will explain why.

    I should begin by saying I was a fan of total structural separation. However, this became uneconomic at about the time the first third of Telstra was sold. The reason being, structural separation, even if done by a majority shareholder is an act that lessens ‘shareholder value’. Even if the government could return to the point where it had a majority shareholding, the obvious outcome would be the mother of all court cases.

    The 9 billion FTTN proposal/promise as it stands, really sits upon the assumptions of a) being able to use the last half mile of Telstra’s copper and b) being able to access it at a reasonable rent ($5 per month was the figure in the G9 document).

    There are two problems with this. The first is legal. Telstra has made no secret of the fact that it wishes to maintain a rent in excess of $50 per customer line. $5 doesn’t cut it. So, to access this aging infrastructure we have to pay the penalty of several years in the courts. That comes with a serious price in lost opportunity.

    The second problem with reusing the last half mile of copper is technical. The physical limits to copper are roughly 50 to 100Mbs using VDSL, with a good line and a maximum distance of 300-500m. That might sound like a lot, but by the time this thing is implemented, it will start to look just adequate.

    The other problem for the new government’s network is that the existing ISPs aren’t sitting on their hands and are already itching to trial VDSL (from the exchange). Admittedly this will create even more ‘haves’ and ‘have nots’ and we’ll start to see real estate ads going “buy here, this house can get 50Mbs”. Within this confusion the new network will find it hard to get mind share.

    And before I go into how I’d like to see it solved, I should point this out. The cost of simply duplicating the copper to each of the 6 million or so addresses probably averages $1000 per address. So I put the cost of totally duplicating the network, and providing a better backbone and overseas connection at around $16 to $18 billion.

    Not bad when you consider the market cap for Telstra is currently $35 billion give or take.

    My conjecture, if you like, is that to completely side step Telstra is probably cheaper than re buying it totally, or partly re buying it and then paying compensation. And paying for delays, loss of political capital, losses due to holding up the economy etc.

    I say it again. re buying Telstra totally, buys you a bunch of aging copper wires with built in physical limits.

    And this is the most important point. The new network needs new technology for the last half mile. And to do that means building from scratch. Such technologies are now being experimented with and have the potential to become cheap to the point where there will be no point running copper anywhere. That is, the only real cost in connections will be labor.

    The innovations now happening in cheap fibers, connectors and protocols will make VDSL look like the slow lane. And one can only hope that Mr. Conroy is well briefed on this. By the time the new network rolls out 2 to 3 years from now, a 100mb+ connection over the sort of distances involved will become affordable ($500-1000 per connection average).

    So the question is, whose going to pay for it? Well, let me try this. We’re fixated on a company or organization owning all of the assets. There is no reason that should have to remain the case. One possibility is this.

    Build the FTTN network to each street corner. Add a cheaper version of WiMax to each node (a few hundred dollars). This provides not only a poor mans network at about 20Mbs (remember we’re creating lots of very small cells), but it provides ubiquitous coverage, backup service and its also flexible in that you can use it as your base technology for rural areas. Then you go to people and you say hey, do you want 100Mbs? Sure, just sign this contract. It works just like your mobile phone handset. When you’ve finished, you own the fibre from your house to the node and that becomes part of your house title.

    I’m just tossing that in as the kind of innovative solution that gets overlooked in all the debate about will we fuck with Telstra or get fucked by Telstra. I think it’s time to consider the future and realise that technology is about to make a bunch of things a lot cheaper.

    Btw there’s a bunch of other ways to solve the same problem. Individual microwave links (we’re talking about a plate sized roof mounted antenna). Free space optics (laser). etc. But in reality a simple fiber that shares poles/ducting with the electricity is the best solution for most situations.

    Let us suppose we do all of the above. Well, Telstra slowly but surely fades into obscurity and ends up being just another retailer of the new network.

    Nice.

  89. dave said

    My understanding of TLS under Ziggy was that they had a profit margin of around 52%. Think about that. For every $2 of income over $1 was pure profit. Not a bad business by any measure when you contrast fuel refiners margins of about 10% – and we all scream about fuel prices etc.

    Why in the bloody hell would you sell something like that in the first place ! Not only a poor decision but also place the country at major disadvantage at the same time. As Keating would say – Why would you do that to yourself ? Why ?

    TLS profit margin dropped to about 43% in recent years but is climbing again. They are regaining market share and reducing employees and other costs. But by any measure they are still doing really well and this is reflected in the share price. There would not be many other business’s that would have the profit margin of TLS.

    The future fund still has 17% ownership of TLS. If structural separation was imposed (like the UK etc) and the government insisted its ownership be transferred to the fixed asset part of the business, they (we) should own 30% plus of that part of the business – enough to call the shots while still treating the remaining shareholders fairly. The government could increase ownership further, if it wanted, by virtue of the $4 B plus they intend to put up for expanding broadband. If the other shareholders didn’t stump up for their share of costs etc their shareholding would dilute.

    Shareholders would be losing their perceived monopoly position but I’m sure the government made no offer or representation about that in the float documentation. Also possible future regulatory risks were also declared.

    Brian Toohey has written extensively in the Fin Review that the future fund was and remains a furfy. The unfunded super liabilities of public servants can and are being met easily from ongoing budget income and in any case will peak by 2020 anyway.

    Normal ongoing super liabilities for public servants have been funded via accrual accounting from the budget for some years.

    In part some of the reasons smirk established the future fund was to stop rodent etc from wasting the money on buying elections and slush funds for coalition seats as he has with the additional $400 B bonanza from the minerals boom. Also the libs really didn’t know what to do with the money left over from the overall TLS sale after government net debt was repaid.

    The overall thing with TLS is the new government have many options of how to achieve what it wants. ACurrently the rope is just being played out. Tenders for broadband plan are not due to be called until June 2008 – plently of time for TLS to make heaps of mistakes like they are at the moment, and shooting their mouths off.

    TLS have virtually no friends anywhere. They are correctly perceived as a bunch of pricks and many people are just waiting to put the boot in – particularly if someone can get them on the ground.

    The debacle about shareholders voting to decline Sols salary package and TLS saying too bad its going to stand is just another example of their arrogance. It is all going to end badly for them. Even the libs, who should be their soul mates are eager to sink the slipper in.

    We certainly live in interesting times🙂

  90. JP said

    HCC @ 88 wrote:
    “There are two problems with this. The first is legal. Telstra has made no secret of the fact that it wishes to maintain a rent in excess of $50 per customer line. $5 doesn’t cut it. So, to access this aging infrastructure we have to pay the penalty of several years in the courts. That comes with a serious price in lost opportunity.”

    I have made no secret that I wish to maintain the sale value of my 1992 Magna at the $28000 it was worth when it was new. Unfortunately, the market thinks it’s worth $1500, tops.

    Who gives a rats what Telstra wants for rent. For a start, the $50 figure is for full network access, not just the last mile, secondly most people pay less than that now, and thirdly as you pointed out this isn’t exactly cutting edge technology. $5/month is what the last mile is worth, tops.

    Screw years in the courts – if the relevant legislation is clear and unambiguous, then courts have no real role. So lets have some unmbiguous legislation saying that the line is worth what the ACCC (or the TIO) says it’s worth. People and companies have their land compulsorily acquired for highways all the time. Those deals don’t spend years in the courts, you just get a qualified valuer to name a figure, and away you go.

  91. David Richards said

    Play hard ball – $5/month access or the government goes solo FTTH or reclaims the last mile infrastructure with no compensation, and at the government’s price.

  92. AJH said

    Telstra can’t continue as an integrated infrastructure/retail monopoly. The infrastructure arm needs to be broken off into a separate company in some way. Nationalising the last mile would be a way to do this (by introducing infrastructure competition), as would a forced split of the company.

    It’s not just their ridiculous wholesale prices that are the issue (although they are a big problem… Telstra’s wholesale prices are often higher than their own retail prices). The other issue is that Telstra often simply refuses to provide competitors access to their monopoly infrastructure.

    Internode currently have an issue where their customers in Tasmania are experiencing slow speeds at peak times. Yet there is nothing Internode can do about it, because Telstra refuse to sell them more data links between the mainland and Tasmania. There is capacity for Telstra to provide these links, but they are simply refusing to do so.

    It is simply unfair competition. Telstra can cripple their competitors whenever they want to. If an ISP plays hardball and tries to negotiate lower prices with Telstra, then they might inexplicably find that their prospective customers have their ADSL applications knocked back for “technical reasons”. If they take Telstra to the ACCC, then they might find that Telstra refuses to give them access to their infrastructure, again for “technical reasons”. It’s really a farce.

  93. Harmless Cud Chewer said

    I’ll state it another way. If we create a new FTTN network and then hitch it up to Telstra’s copper, then for the majority of users, we aren’t creating a network that is superior to what we have or could have now, given ADSL/VDSL from the exchange. The ISPs know this and will go on with implementing their own DSL type systems and the new network will find it hard to compete for customers and it’s viability will suffer.

    The only sensible way to move forward is to create a FTTH system (with a decent backup plan) and use the best technology.

    Worrying about what to do with Telstra is an unfortunate distraction. As I said, even if we can effectively force Telstra to rent its copper at a sensible price, all we end up with is, well, copper.

  94. Harmless Cud Chewer said

    JP @90, I think you miss the fact that compensation against government seizure is there in the constitution. Telstra, its shareholders and other affected parties have an automatic route to the High Court. In the end you can either pay the $18Bn for a new network, or risk paying $20Bn+ for the compensation on top of what you spent on the FTTN network itself.

  95. Jester said

    Any bets we’ll soon see mention of Trujillo’s wife being flown regularly from the US to Oz and back again at Company expense so she can both keep track of the kids and do some work (needed or otherwise) for hubby’s company before too long?

  96. JP said

    HCC @ 94:

    Perhaps I’m being naive, but I thought compensation for a seized asset was limited to its value. The last mile is not worth $20B, as far as I can work out.

    Is there someone qualified here who knows the value of the last mile (Australia wide)?

    And also it needs to be factored in that if we seize the last mile, we get to rent it back to Telstra and other ISPs, so it’s income producing.

    But I agree that going straight to FTTH or FTT-Wireless node is better than giving Telstra a cent.

  97. JP said

    Of course we could also fund acquisition of the last mile by selling the Future Fund’s Telstra stake. Then we’d own the last mile, and the FTTN network we built with G9 – that is, the entire broadband network.

    Even better, we would no longer own Telstra shares. Which once there was a fairly priced FTTN network not owned by Telstra would be worth what, exactly?

  98. adam said

    hi all

    hate to sound all smug, but guess what? i got sooper-dooper broadband already, because i’m teaching at a university! its call AARNET and it wooshes.

    now, the reason i’m pointing this out is NOT because i want to gloat. rather, i want to show you how YOU TOO could have this awesome reality (just like consumers in other parts of the world), and fund australia’s university sector to world class standards as well.

    we’ll be checking AARNET’s history out at:

    http://www.aarnet.edu.au/Content.aspx?p=103

    first i want to point out what happened to AARNET in 1995. to quote (for those too lazy to follow the above link):

    1995

    The commercial customer base of AARNet was sold to Telstra, spawning what was subsequently to become Telstra BigPond. This stimulated further growth of the commercial and private use of the Internet in Australia. The intellectual property and expertise transfer to industry resulted in development of the Internet in Australia that would not have otherwise occurred at such a rapid rate.

    so obviously, these guys can deliver the bacon. now, who developed this wonderful windfall profit machine…?

    1989

    The Australian Universities and the CSIRO, under the umbrella of the Australian Vice-Chancellors’ Committee (AVCC), initiated a project called the Australian Academic and Research Network (AARNet) – this was the genesis of the Internet in Australia.

    a bunch of computer wonks working for the universities and CSIRO. hmmm. this means academics can provide good services to themselves. so, what kind of actual systems am i using now as an academic exactly?

    2002

    AARNet was the prime motivator in implementing GrangeNet which provides a high capacity research network of 5 Gbps from Brisbane to Sydney and 10 Gbps between Sydney, Canberra and Melbourne. AARNet has also worked with local Regional Network Organisations to achieve high capacity metropolitan and regional networks.

    2006

    Having aquired NextGen fibre, AARNet builds a leading edge high speed network. AARNet3 is officially launched at Parliament House, Canberra on the 14th September 2006.

    …yes, that was julie bishop standing next to this recent launch, acting all in-the-know about it. fancy poor old helen coonan being nowhere in sight, eh. as ever. note alsoo that they have experience helping others to get going on building capacity…

    all very interesting. but we shouldn’t be surprised. universities founded the internet to begin with. the first nodes on ARPANET were UCLA (network measurement), UC Santa Barbara (interactive mathematics), University of Utah (ivan sutherland’s computer graphics people) and SRI’s Augmentation Research Lab (home of doug engelbart). it wasn’t built for nuclear defence, despite many urban legends to the contrary. look at where it is now, delivering porn knowledge to the masses, like j. c. r. licklider intended.

    so now, people, my point.

    now, there is an australian company with experience who could possibly provide the frame for building the new network. its called APL (AARNET pty ltd). there’s a good reason for getting them involved. in doing so, it could fund the university sector forever… two birds with one stone. WHY?

    1998

    APL was incorporated on 22 December 1998 with the sole shareholder being the Australian Vice-Chancellors’ Committee (AVCC). The company became fully operational in March 2000 after completing the transfer of functions from the AVCC. APL is a not-for-profit company limited by shares. The shareholders are 38 Australian Universities and the CSIRO.

    so as they are not for profit, any profits after their new remit of meet the university budgets can be run back into the consolidated fund…

    :^) screw you, toll-stra.

    later…

  99. CL de Footscray said

    Good topic possum, and indeed I was pondering the size of my mobile phone bill (tragically, paid for by me personally and on a Telstra ‘plan’ – just as an aisde, there are now three pieces of advice to pass on to one’s children from a Melbourne perspective: never use Punt Rd regardless of the time of day; never trust a member of the Liberal Party; and never purchase a service from telstra) when it ocurred to me (i) that the Lindsay Tanner idea of splitting Telstra into a common carrier and a retail business and keeping the former in either puiblic hands or a heavily regulated consortium would have been a dmaned good idea and (ii) as RA has noted simply reacquiring enough shares to get a controlling interest and then do (i). Am I impossibly naive? Or (as yet another thoughtful blogger has suggested) can we use the laughingly entitled ‘future fund’ to do it? Of course, this would be politically risky, but a damned good idea. Have to sell it. Rudd doesn’t seem brave enough, but the alternative is to get comprehensively rogered, as you so elegantly put it M. Possum. The other benefit is that Trujillo and co could get sacked once the gov had it’s controlling interest back …

  100. caf said

    CLdF @ 99:

    The government would need to launch a takeover offer to acquire the entire company, because although you can vote in whoever you want to the board of directors with 51% of the voting stock, that board is still legally bound to act in the interests of ALL shareholders. Breaking up the company wouldn’t be in the interests of the remaining 49%, so they’d have a good case against the board. The board might even be personally charged.

  101. caf said

    Oh, and here’s another one of Possum’s predicted economic floaters left in the national dunny: The privatisation of airports, leaving them as private fiefdoms forever exempt from any local planning laws.

  102. Neil Cammack said

    For the record, Adam, AARNET was on its knees in 1995, unwilling and unable to cope with the expansion associated with rapidly increasing commercial use of the national internet backbone. The AVCC sensibly decided to sell it to Telstra, who put a lot of much needed investment into the network and embarked on a crash program to upgrade national and international capacity, upgrade nodes etc. The universities didn’t have enough money and expertise to do the job. The result was a national “wholesale” network, not to be confused with the BigPond retail ISP business, which along with other ISPs, companies and government agencies was an end user.

    Universities’ record of involvement with anything required to operate at a profit isn’t encouraging. And you need profits to fund future capital investment, quite apart from providing a return to those who put up the original money.

  103. Rates Analyst said

    Caf

    Yes – but if the Government took a majority stake, they could then force Telstra to sell at a fair price – rather than the blackmail price that Sol would likely insist on.

    I am not proposing the board give the infrastructure back to the Government – merely that they sell it at a price approaching the sane value.

  104. caf said

    It would only be in the shareholders interests if the price was greater than the return they could expect to make by keeping the asset, or the company needed the capital to invest in a higher return generating business. The board would likely need to commission independent consultants to value the asset – probable more than one – in order to avoid certain legal trouble. Not to mention that any government-appointed directors would be expected to abstain from voting on the issue, as it would be a related-party transaction.

  105. CL de Footscray said

    I’m with you RA. The sooner they split the bloody thing up the better. It’s in the national interest for us to have a common carrier of data and communications generally, and if they get a fair price, surely the board is not dudding the shareholders. I assume that even our ridiculous corporation law won’t let them claim the benefits of monopoly rents as constituting a ‘fair price’.

  106. More Fibre, More Nodes said

    There’s a method of splitting Telstra which a number of financial analysts have identified which may lead to a greater amount of value being released (ie. two halves worth more than the whole).

    Telstra becomes two companies – the regulated and unregulated and every shareholder gets a share in each – independantly tradeable. (By unregulated I mean not subject to the current special licence conditions that are part of their carrier license, issued BEFORE they were privatised – hence all shareholders are aware of).

    The regulated company has the assets that require regulation – pit and pipe, exchange builds, copper local loop, some regional fibre assets – maybe not even voice switching. This company is allowed to make a regulated return, let’s say 10-12%. It would suit a specific kind of investor looking for nice, regulated, guaranteed returns from all players equally (including the unregulated company).

    The unregulated company gets all the rest. It can do whatever it wants but is required to buy from the regulated company all things that the regulated company does. It’s freewheeling style suits another kind of investor.

    This may mean that, because no one is worse off (and potentially they’re better off by being able to more closely select their asset risk class) no compensation has to be offered (and any that does need to can be delayed).

    This means that the regulated company can then get on with building FTTN or FTTH without us worrying about what happens with the vertically integrated whole remonopolising the market.

  107. Aspirational Aspirationalist said

    Poss,

    I think you can take this article, put it in a drawer for a couple of years (3-5), Pull it out, Replace Telstra with Electricity, Sol with another name and you’ll have a pretty good summary of the NSW electricity.

    Iemma is trying his best to make sure the Liberals cant use the Wall to Wall Labor governments argument at the next federal election by Selling off the electricity generation and retail assets .

    Might send him a letter begging him to get rid of the Snowy too, hoping reverse psychology might work.

  108. Aspirational Aspirationalist said

    Following on @ 107,

    Though they have said that they will retain government ownership of the ‘poles & wires’.

  109. Aspirational Aspirationalist said

    Following on @ 107,

    Though they have said that they will retain government ownership of the ‘poles & wires’.

  110. derrida derider said

    You can’t blame Trujillo for acting in the interests of his shareholders – that’s his job, and that it is at consumers’ expense is neither here nor there. What he should be sacked for is poor tactics. Trying to publicly bully a government whose regulations are the main source of your shareholders’ value is folly. It was after all an American who said “speak softly and carry a big stick”.

    I’ve no time for the ultra-conservative know-nothings Howard had as comms ministers, but it’s unfair not to note that it was the Keating government that had the best opportunity to do a structural separation and more of the current difficulties have arisen from that failure than from the privatisation. Keating wanted to do it but got rolled by Beazley and the union lobby.

    As for those nostalgic for a nationalised vertically-integrated telco monopoly, you must be joking. The old PMG/Telecom was famous for its hostility to customers and its change-averse bureaucracy. It could take months to get a new phone line, it ruthlessly used regulation to suppress any hint of competition (eg the only legal handsets in Australia were Telecom ones), it had tremendously opaque pricing and it was a vehicle for blatant pork-barrelling by the pollies. Government telco monopolies around the world have a dreadful record.

  111. Jimmy said

    Good response in return of this difficulty with real arguments
    and explaining everything about that.

  112. We absolutely love your blog and find a lot of your post’s to be exactly what I’m
    looking for. Do you offer guest writers to write content
    in your case? I wouldn’t mind writing a post or elaborating on a few of the subjects you write related to here. Again, awesome website!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: