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  • Opinion - Written by on Sunday, June 20, 2010 22:05 - 60 Comments

    Telstra has finally sealed its own doom

    opinion Telstra‘s management will come to regret its $11 billion deal with NBN Co signed this afternoon as the most disastrous decision it has ever made in the telco’s long and tortured history in Australia’s telecommunications sector.

    The decision is so bad that it will eventually come to dwarf the hiring of chief executive Sol Trujillo and the 2005 chop in retail broadband rates below wholesale prices in terms of the infamy in which it will come to be regarded within Telstra’s ranks.

    The reasons for this are simple.

    Firstly, the agreement — in a single fatal stroke — attempts to transform the fundamental nature of Telstra’s business, changing it from an engineering company which primarily builds and operates telecommunications networks into a retail service provider focused on delivering the best customer service and value-add products in Australia’s telco sector.

    This is simply not a role to which Telstra is well suited.

    When Telstra has finished migrating its fixed-line telephone and broadband customers onto the National Broadband Network, it will find they have little incentive to continue to give it their business.

    Despite the onset of strong competition in the telco sector, many Telstra customers (especially families and businesses) have remained with Telstra for years because they do not want to go through the hassle of untangling their complex telecommunications arrangements (fixed-line broadband and telephony, mobile phones, mobile broadband and so on) into separate carriers.

    But the technological disruption associated with the migration of their services to the NBN will provide Telstra customers with a once in a lifetime reason to look at rival providers. When they do, they will find that there is almost no reason to remain with Telstra.

    The NBN is the great leveller for Australia’s telecommunications sector. It will remove any ability for Australian telcos to compete for customers’ money by building better network infrastructure (an advantage Telstra has historically exploited to the maximum). Instead, telcos will be forced to compete on the grounds of having better prices, customer service or value-added services.

    It is a fact as plain as day that Telstra cannot compete with the likes of smaller telcos like iiNet, Internode or even Optus when it comes to customer service. Despite the best efforts of its chief executive David Thodey, Telstra’s customer service continues to stink.

    After all … when you call iiNet’s customer service centre you don’t get transferred around endlessly between different departments.

    Telstra will never suffer itself to compete on price — the very idea is an abomination in its internal thinking. And value-added services are increasingly becoming the province of third-party companies, especially when it comes to content — one need only look at the growing number of IPTV and video on demand services launching this year from the TV networks and third parties to see that trend in action.

    One possible exception to this disastrous trend for Telstra may be the corporate sector, where Telstra has expertise that smaller telcos may struggled to match. But even in that area the big T will suffer — the likes of Optus, AAPT and Macquarie Telecom have been carving chunks off Telstra’s dominance in that market for years.

    Yes, the Federal Government may be providing Telstra with some $9 billion to migrate its customers to the NBN, but Telstra will need every penny of that money — because many of those customers will flip Telstra the bird as soon as they join the NBN and hitch their fate to the likes of iiNet instead.

    Even if you discount the likely flood of biblical proportions of Telstra customers leaving the ship when the NBN migration takes place, however, the telco has another major problem. What is it going to spend its $11 billion windfall from the Federal Government on?

    Telstra already struggles to find enough places to invest its money.

    Despite the fact that Telstra re-engineered almost every single aspect of its network infrastructure during the years from 2005 through 2009 (spending billions and billions under the strategy of then-CEO Trujillo), the company’s net profits barely took a hit and have already almost recovered, according to its latest annual report, reaching $4.08 billion for the year to 30 June 2009, compared with $4.31 billion in mid-2005.

    Likewise, its free cash flow dipped in 2007 to $2.9 billion, down from $5.2 billion in 2005 – but has recovered quickly to reach $4.36 billion last year. In 2010 Telstra is predicting it will generate free cash flow of $6 billion.

    Now obviously this is a high-level glossing over of the situation – Telstra’s financial situation is a complex minefield — and we haven’t gone into any real level of analysis into the company’s complicated balance sheet (or, more accurately, complicated cascading series of balance sheets that descends into a nighmare of detail that gives even seasoned telco financial analysts migraines).

    But the fact remains that Telstra currently generates a stack of cash every year and keeps much of it sitting around … at 30 June last year it had $1.38 billion in cash sitting in the bank and a further $4.8 billion in current assets. It’s a lovely little stockpile — and it just keeps on growing.

    Traditionally Telstra has invested much of its overflow in its fixed-line networks. Building out fixed infrastructure is quite expensive, as Communications Minister Stephen Conroy is discovering with the $43 billion (plus Telstra’s $11bn, for a total of $54 billion) NBN policy.

    But Telstra’s agreement with NBN Co means that that avenue will no longer be open to it.

    Some will argue — rightfully — that Telstra will now focus on building mobile infrastructure instead of fixed — a favourite target of Trujillo due to the ACCC’s light regulation touch there, which came about due to the strong levels of mobile competition being posed by Optus, Vodafone and Hutchison.

    But mobile networks are cheap. Telstra famously spent just $1 billion on its contract with Ericsson to build its flagship Next G network. Even if you assume the big T spent a further $1 billion in internal effort and has spent another cool billion enhancing Next G’s speed over the past few years, Next G still looks cheap compared with similar fixed-line investments.

    All of this begs the question of where Telstra will invest its growing cash pile — including the Government’s $11 billion purse.

    Any area that I can think of that Telstra could invest in would take the company clearly outside the area of its core competencies. And this is a very dangerous thing for a company as large and fixed in its ways as Telstra. Former monopolies do not easily or quickly change their stripes.

    Telstra is pretty much prohibited from acquiring other telcos in Australia and consolidating its market presence – any acquisition of scale would likely get knocked back by the ACCC and raise a political outcry besides.

    Unlike SingTel, Telstra has never really demonstrated any real aptitude for investing in international telecommunications markets. Its CSL New World investment in Hong Kong grew steadily in the year to 30 June 2009, but the revenue growth in that year is not significant when compared to Telstra’s wider operations — a measly $72 million.

    The company’s NZ subsidiary TelstraClear actually went backwards by $15 million in 2009. If I were to say why that happened, I would guess it’s because the business again is just not large enough for Telstra’s Australian management to pay it the correct level of attention.

    Another option for Telstra is to expand into markets adjacent to its own. The most likely one would be new media/content – a field Telstra has long toyed with. Its long-running interest in its Foxtel joint venture is one example of this attention — as were Trujillo’s new media acquisitions in China and even the speculation that Telstra could one make a play for the Fairfax empire.

    The problem with the idea that Telstra might become a media giant is, unfortunately, that if it attempts to do so, it will suffer the same difficulties that the telco did with its $333 million buyout of Australian IT services group KAZ in mid-2004.

    As David Thodey well knows — because he oversaw the KAZ business for years in his role as group managing director for Telstra’s Enterprise and Government division — Telstra was never able to integrate KAZ into its operations and was ultimately forced to sell it, because the nature of the IT services market is fundamentally different from Telstra’s strength in network construction and operation.

    Just last year Telstra sold KAZ to Fujitsu and abandoned its attempt to play in a market that, after all, was much more adjacent and compatible to Telstra’s core strengths than a new media or content business would be, the company’s encouraging efforts in IPTV and video on demand notwithstanding.

    This situation would be even worse if Telstra attempted to invest in a market — say, mining — that is drastically removed from its strengths.

    This has always been the problem with Thodey’s leadership of Telstra. In the more than a year since the former IBM executive took the reins of Australia’s telecommunications warhorse, he has failed to clearly articulate to shareholders where Telstra’s future revenue growth could come from. Today’s $11 billion deal with NBN Co has just made that problem a thousand times worse.

    Now, let’s not pretend Telstra’s NBN Co deal has no upside.

    For the Government, the deal is fantastic — it resolves Telstra’s integrated retail/wholesale nature while also ensuring a speedy and convenient fibre rollout through the use of Telstra’s ducts and delivering the NBN a guaranteed massive customer base.

    Telstra’s rivals must be jumping for joy at the idea that they will finally be able to compete with the telco on an even footing, and of course customers will benefit from getting fibre broadband faster and with more competition.

    Telstra may be the great tottering grand-daddy from which Australia’s entire telecommunications sector was spawned. But pity is not always offered for those that make gross mistakes of judgment. Thodey’s hubristic belief that he can heal Telstra’s acrimonious relationships with the public and Government will likely come back to bite him and Telstra itself.

    As a certain Reverend Mother Gaius Helen Mohiam said in Frank Herbert’s classic sci-fi novel Dune: “The boy may be worth saving, but for the father, nothing.”

    Image credit: Hans Gerwitz, Creative Commons

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    60 Comments

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    1. Posted 20/06/2010 at 10:10 pm | Permalink |

      Even if you discount the likely flood of biblical proportions of Telstra customers leaving the ship…

      An amusingly mixed metaphor. My regards to the chef. :-)

      • Posted 20/06/2010 at 10:47 pm | Permalink |

        *sigh* now if only I could afford to pay a sub-editor ;)

    2. Tezz
      Posted 20/06/2010 at 10:21 pm | Permalink |

      Telstra will need to change focus, but they are a long way from dead or signing their own death. There are 2 key elements moving forward that Telstra has already got (or getting) a foothold in.

      1/ Content delivery, or in other words providing streaming video, etc. The T-Box is an example of this.

      2/ Wireless, Telstra is already actively testing LTE. Telstra is not ignorant of the fact that delivery is slowly changing from fixed to wireless, and this deal gives them the opportunity to gain access to extra spectrum and gives them the money to get it.

      The real story moving forward is whether the other mobile carriers like Optus, Vodafone, AAPT, etc, move towards an LTE (or even Wimax) type solution for their own networks to compete with Telstra.

      • Posted 20/06/2010 at 10:49 pm | Permalink |

        I agree with you that Telstra is not dead, Tezz, but the company will need to take drastic action with its cash stockpile to guarantee future growth.

        As for the two areas that you outlined — content delivery and wireless — I just don’t believe that Telstra will be able to make up what I believe will be strong losses in its fixed-line networks from these areas. Content is better delivered through third parties (iTunes has taught us that) and wireless, while delivering revenue, will not make up for Telstra’s lost fixed revenue and will not require major level of investment.

        Thodey needs a grand strategy going forward. Incremental investment won’t do it.

      • Bryn
        Posted 21/06/2010 at 10:38 am | Permalink |

        Optus have also already started LTE trials in Australia & Vodafone has internationally (but not in Au).

      • Nikolai
        Posted 21/06/2010 at 2:36 pm | Permalink |

        But don’t you think Telstra has pissed that many people of they will avoid these services simply out of spite? I know I sure will be.
        The bottom line is, Telstra wont find another medium it can monopolise, forcing people to use big T as the provider. If they want to stay afloat they will have to realise their customers expect some level of respect. I seriously doubt they will be capable of this change without flushing a whole bunch of upper management down the shitta.

        • Posted 21/06/2010 at 7:06 pm | Permalink |

          There are a fair amount of Telstra loyalists out there. I heard that they even had their own fan club at one stage – don’t if it still exists though.

          • Tezz
            Posted 22/06/2010 at 2:12 pm | Permalink |

            That was the old nowwearetalking.com.au propoganda website, Thodey abolished it when he took over.

    3. Bob
      Posted 21/06/2010 at 9:58 am | Permalink |

      A dune quote, you just made my day!

    4. lol
      Posted 21/06/2010 at 10:09 am | Permalink |

      umm.. with the $11 billion, couldn’t they buy a STACK of media/content assets to make their network more attractive..

      i’m guessing $11 billion would buy you: AFL rights, NRL rights, v8 rights, A-League rights for many years to come

      you’d probably also be able to buy: Channel 9, Channel Ten, CMJ

      (obv there are cross-media ownership laws, but the media assets they can buy with 11b are staggering)

      • Posted 21/06/2010 at 12:15 pm | Permalink |

        Before you get too carried away with your shopping list there, I suggest you look up how much the rights to major sports actually cost. You’ll find you need to trim your splurge somewhat.

    5. simon h
      Posted 21/06/2010 at 10:13 am | Permalink |

      What a stupid article , how can telstra sealed its own doom, when it gives the advantage to telstra to under sut competitors on the nmn, accc can not stop them

      The other isps can not complain to the accc, because telstra is not the wholesale only a retailer

      Telstra and only few other isps will be left on nbn.

      So telstra is made stronger

      • Posted 21/06/2010 at 3:21 pm | Permalink |

        Hey Simon, I think the answer to this question can be found if you look at how many customers have already deserted Telstra for rival carriers over the years. Ever since competition was opened up … the company has been facing seepage from its customer base. This will only get worse when the NBN happens — and I don’t think any number of Telstra marketing campaigns will stop that.

    6. BOB
      Posted 21/06/2010 at 10:16 am | Permalink |

      I agree with simon h, telstra will be enjoying to undercut competitors without fear of the accc, putting on competition notice

      The isps will not be able to match telstra

      this is on uninformative reporter who thinks this is doom for telstra

      • PeterA
        Posted 21/06/2010 at 12:33 pm | Permalink |

        Sorry BOB, and SimonH
        The only reason people complained about Telstra to the ACCC, and the only reason they were put on notice for anticompetitive behaviour, is because they were selling products to customers cheaper than they were wholesaling the same product to their competitors. (Presumably because the actual cost to provide the product was below the wholesale cost)

        In the new scenario with NBN, Telstra will have the same underlying cost for production of service. So Telstra will lose money if they undercut the wholesale price, and as this article pointed out, Telstra would absolutely abhor not charging an arm and a leg for its “Premium” service.

    7. Shane
      Posted 21/06/2010 at 10:36 am | Permalink |

      Surely a deal with NBN Co leaves Telstra in a better position than having been completely bypassed in the fiber roll out? Which based on all reports was on the cards.

      • Posted 21/06/2010 at 3:24 pm | Permalink |

        Hi Shane, it would have been a good outcome for consumers if Telstra had actually built its own rival network to the NBN. Having two networks would have been better than one — sure, not for the industry, not for the government, not for NBN Co and so on. But for consumers, and likely even for Telstra, it would have been a better outcome.

        I am tired of this “let’s push the NBN through at all costs, damn the torpedoes” approach. The telecommunications industry is a lot more complicated than that. And we don’t always have to trust that the Government is always going to make things better — because it doesn’t always do the right thing.

    8. Steve
      Posted 21/06/2010 at 10:36 am | Permalink |

      “while also ensuring a speedy and convenient fibre rollout through the use of Telstra’s ducts “,

      Having worked for Telstra for years in the construction side of things as well as the service delivery side. The state of the underground network in most areas of Sydney leaves a lot to be desired. Asbestos pipe and ceramic pipe as well as gal iron pipe. These are damaged beyond repair by other external contractors ie water, gas etc.

      Also what about all the direct buried lead ins that will need upgrading? Who will pay for that? The customer or the NBN?

      Telstra is quite possibly laughing all the way to the bank by selling off a badly damaged infrastructure assett. The only way it will damage Telstra will be if some part of Telstra is contracted to build the network!

      • Posted 21/06/2010 at 10:25 pm | Permalink |

        Actually Telstra is not selling the ducts to the NBN — it is merely leasing them on an extremely long-term lease. So I assume Telstra will still have to maintain that side of it. I think from Telstra CEO David Thodey’s comments today that NBN Co would have had to pay a buttload to actually buy the duct system or part of it etc. And I’m sure Telstra would want to keep the system to maintain some portions of its own infrastructure etc.

    9. Steve
      Posted 21/06/2010 at 10:42 am | Permalink |

      I agree Telstra is getting very delusional if it is imagining that awesome customer service and value is going to yield a bonanza. None the less I imagine that their wireless network will prosper. The fixed line service revenue stream is certain to implode and that is surely what the 9 billion is about.

      I have to question where you are plucking 54 billion from. My understanding is that the 9 billion is a component of the cost of the network ie part of the arbitrary 43 billion not a standalone addition.
      The 2 billion USO co is a new cost but that was always going to be a point of contention that no carrier would want to be saddled with.

      If anything the consensus opinion appears to be that this agreement will cut the cost of the roll-out dramatically and more over start revenue flowing in much more rapidly.

      That noted thanks, this is a nice balanced piece

      • Posted 21/06/2010 at 10:31 pm | Permalink |

        Cheers Steve!

        A few people have questioned the $54 billion figure. I have to say that I didn’t put that much thought into that — I simply added the $11 billion onto Conroy’s initial $43 billion figure. I’m sure there will indeed be some of the $43 billion chopped off because of access to Telstra’s infrastructure, but personally I do not believe it will be that much — I still believe the final sum will be quite high. Don’t forget that the NBN will need to rollout fibre to every street and to every house.

        In addition, the sums outlined by the McKinsey/KPMG report were quite nebulous — there were wide margins for change etc. The number may actually rise again if, as the report recommended, Conroy chooses to roll out fibre to an even higher proportion of the population than was originally planned.

        My feeling in general about the $43 billion is that it has always been a bit of an estimate. After reading so much over so many years about this I feel that the figure could be anywhere between $30 billion to $60 billion. We don’t really know and we may never.

    10. Bryn
      Posted 21/06/2010 at 10:43 am | Permalink |

      The $11 billion isn’t really on top of the existing $43 billion, as that $43 billion figure was arrived at without the use of Telstra duct’s & backhaul. Those ducts will cut costs for NBN Co… by exactly how much remains to be seen but it’s quite possible it will cut at least its purchase price from NBN Co’s costs even despite the run down state.

      Long term, Telstra is going to face difficulties. I would agree that this is a notable turning point in Telstra’s dominance but I wouldn’t say they will rue the day they signed this agreement- its entirely possible that without this agreement, it would be worse.

      • Posted 21/06/2010 at 10:33 pm | Permalink |

        I don’t have the solution for Telstra, but I do know that when I have been faced with two bad choices in the past, it’s normally a false dichotomy. There is usually some way that you can change the game entirely.

    11. anon
      Posted 21/06/2010 at 10:58 am | Permalink |

      Article translation – “Telstra will no longer be able to abuse it’s monopoly at the expense of Australian citizens.”

      “Telstra already struggles to find enough places to invest its money.”
      Well they definitely haven’t been using their huge nest egg to deploy fibre outside of the 3 major cities. Telstra will never provide fibre to regional Australia, this is why the government must do it.
      I know people who live in a town of 70,000 people that can’t get ADSL in a new estate, because Telstra has been cheaping out and deploying RIMs. How is it that in 2010 new houses in a city of 70,000 can’t get ADSL when people across the road can get it?

      Yes, it’s bad for Telstra, but they refused to build this network themselves, so they could choose between getting paid to join the party, or be forced out. It’s just a shame the current government is going to get killed at the election, and the coalition will kill the NBN, this is the only good policy that’s been on the table.

      • Posted 21/06/2010 at 10:36 pm | Permalink |

        I wouldn’t say the NBN is a perfect policy … it has been mismanaged and has about a bajillion flaws — including the fact that the public still knows relatively little about what is really going on inside NBN Co. However, I do think it’s the best telco policy we have and are likely to have for some time, and ultimately that it will benefit Australia in the long, long term, even if it does throw us into debt for some time.

        There is no going back now.

    12. Jack Strangio
      Posted 21/06/2010 at 11:12 am | Permalink |

      Ten years ago, I vowed that I would not use Telstra for any reason for ten years. My boycott of them ceases in another six months. But know what? I see no reason to ever go back to using them at all.

      Why did I leave them 10 years ago? Their bald-faced lying, their poor customer service. They thought that their time and money was more important than my time and money.

      • Posted 21/06/2010 at 10:37 pm | Permalink |

        I use Telstra Next G mobile broadband for my laptop because it’s the best out there … #badoptus is not even comparable. However, even though I have only been with the company for a few months, already I know their customer service is still bad.

        Without their network and technology advantage they will discover just how much people really do hate them.

    13. Brett Haydon
      Posted 21/06/2010 at 12:44 pm | Permalink |

      I think you will come to regret your analysis.

      The winner in 21st century telecommunications is who will provide the best wireless, the most compelling content services, and good bundling of services.

      Clearly a cashed up Telstra with half of Foxtel is in the box seat for all of this.

      I’m no particular fan of Telstra, but to my mind the shrinking fixed line cash cow has actually been a distraction as they try to protect it. They needed to change their business regardless, and now they’re getting paid over the odds to do it. Who wants to be in the position of rolling out fibre in the current regulated environment regardless of the government of the day.

      • Nikolai
        Posted 21/06/2010 at 4:25 pm | Permalink |

        Rubbish.

        Content delivery is just a buzzword for stupid people yet to learn to use bittorrent.
        Bundling of services becomes redundant when a fiber connection opens up so many other channels to source these services.

        • Posted 21/06/2010 at 10:40 pm | Permalink |

          Precisely, Nikolia. Online content will increasingly trend towards zero cost and universal availability for the customer, and anyone who thinks the 50 bajillion Australian torrenters and streamers will go back to a comfortable future pay TV lifestyle because it’s bundled for an additional $30 a month with their NBN fibre connection is kidding themselves.

          The NBN will only fuel BitTorrent and other peer to peer mediums.

          But yes, you’re right Brett, Telstra will do well in wireless. But well enough to replace lost fixed-line revenues? I don’t think so …

    14. Simon Reidy
      Posted 21/06/2010 at 1:08 pm | Permalink |

      A very strange opinion piece Renai. It almost reads as satire. This is Telstra we’re talking about. Their ability to dominate the market with all forms of telecommunications products and services has been proven time and time again. Most people are actually more than happy with the customer service they receive from Telstra. I can say this with authority as part of my job while working for them was to conduct customer satisfaction surveys, which were on the whole, very positive. Even in rural areas where they are traditionally despised they have grown in popularity due to their excellent Next G mobile and broadband coverage (in many areas they are the only option).

      As of late they are already starting to adapt to changes brought on by the competition. More competitive broadband pricing, better quality mobile handsets and deals, and innovation with products like the T-Pad and T-Box.

      Telstra also get it right their advertising. They have ads so popular that people even quote them for a laugh. And although Internode has cleverly poked fun at it with their own marketing, everyone knows the iconic blue combi that has become the mascot for Next G broadband.

      They aren’t going anywhere. This NBN deal will not only allow them to compete effectively in next generation optical broadband but now they’ll be at the forefront of LTE as well.

      • Posted 21/06/2010 at 2:33 pm | Permalink |

        “Even in rural areas where they are traditionally despised they have grown in popularity due to their excellent Next G mobile and broadband coverage (in many areas they are the only option).”

        Good grief, Simon, do you live in a rural area?

        1. “their excellent NextG mobile” coverage still doesn’t match up to the CDMA coverage Telstra shut down years ago. Rural customers are left without coverage, for some reason the quality and range actually continues to shrink in some regions, and Telstra is celebrating its Countrywide year by removing public phones in rural areas!

        2. “in many areas they are the only option” because Telstra deliberately obstructs ISPs from offering services to us. Access to infrastructure is persistently delayed by Telstra for ridiculously long periods with no or transparent excuse.

        3. As a rural customer, I could quote many examples of Telstra’s lack of service, but I’ll just mention one. I bought an expensive mobile phone ~3 years ago from Telstra. It didn’t ring. It had all sorts of cute features, but no matter what I did, I couldn’t get it to ring. I missed all my phone calls unless I was actually watching the screen at the time. So I rang Telstra customer service. After jumping through all sorts of who-are-you-and-why-are-you-bothering-us hoops, I was told to do X and the phone would work. I had already tried X more than once, but the Telstra rep. didn’t listen to me saying so (repeatedly). So I did X again, with no change. I was told that of course X worked, I must have done it incorrectly. After considerable time and effort, I managed to get the customer service rep. to understand that X did not make the phone work. So s/he told me to take the phone to my local Telstra shop. I mentioned (again) that I was bedridden. S/he insisted that I take it to my local Telstra shop. I also mentioned that we didn’t have a Telstra shop in our entire region. S/he insisted that we did. I kept on trying for quite a while, but in the end had to give up out of exhaustion, since I am very ill. (After that, I bought an iPhone via NextByte, they handled the whole process, and the phone works perfectly. NextByte Adelaide have excellent customer service.)

        I can assure you, based on my own region and information from other regions, Telstra is very much despised in country areas. I would also remind you that this became “traditional” only because Telstra traditionally ignores our needs.

        • Simon Reidy
          Posted 21/06/2010 at 3:01 pm | Permalink |

          Maybe I should have been more clear with my post. Let’s get this out of the way: I hate Telstra. I left them largely because of their disgusting insider practices and worth ethics. Their training is abysmal, and since moving to a commission based sales system, employees are actually encouraged to get complaints and problematic calls finished ASAP in order to get to a call that will actually generate a sale. We even had giant score boards for each sales teams, where we would go and write our sales goals out with a big black pen, encouraging reckless competition between teams for the best monthly figures (and cash bonus). The worst part being that the same people going mad to generate sales are the same people that deal with faults.

          What I was trying to illustrate is that from my experience most people that are with Telstra are blissfully ignorant of alternative options. Most people simply don’t have problems with their service and hence are happy. Hard to believe I know, but when you consider the size of Telstra and it’s market dominance, they have the ability to create an illusion of value and service for most of their customers.

          Having said that I dealt with some amazingly savage calls on a daily basis working there. When people hate Telstra, they REALLY hate Telstra and they aren’t afraid to let you know. In regards to faults, the system they use for reporting is highly antiquated and flawed and would fail customers time and time again.

          I guess you could argue that I live in a rural area (Tasmania) and having been with all the major mobile carriers, there is no question that Telstra’s Next G service is infinitely superior to anything that Optus or Vodafone can offer. In most parts of Tasmania you can barely get a phone signal at all with Optus, while Telstra’s Next G 850Mhz service remains strong and consistent throughout most of the state.

          Unless you don’t plan to travel outside of Hobart and it’s greater suburbs, people down here don’t even consider getting a mobile with anyone but Telstra as their coverage is so much better.

          In regards to fixed line DSL services, the competition is really growing however, and I’m now loving my Internode ADSL 2 in Hobart. However the vast majority of people I know that aren’t interested in telecommunications or the IT world, remain with Bigpond, simply because they aren’t aware of the alternatives. Even when I take the time to explain better options to people they are either a.) too scared or reluctant to leave the company they know or b.) locked in to a shitty 24 month contract.

          It’s worth noting that in Tasmania there is absolutely zero advertising from other ISPs on television or in newspapers. I guess they just don’t think it’s worth spending money on such a small market. Perhaps this is the other reason that Telstra remains so dominant down here. Of course the NBN is set to change this given the huge push for it in Tas, alongside the Government’s new ad campaign. I really hope it takes off as it has the potential to drastically change the access that people have to broadband in regional Tasmania. Some of the initial sites being connected have been stuck on 33.3k (or 56k at best) dialup. Not a bad jump going from that to 25mbps+…

    15. Jason
      Posted 21/06/2010 at 1:10 pm | Permalink |

      Telstra stopped being an engineering company years ago. They’re a marketing company now.

      $11b to get rid of an ageing copper CAN/PSTN that require huge amounts of power, cooling, maintenance and upkeep at at time where fixed line revenue is declining rapidly seems like something of a gift to me.

    16. Scott Lutvey
      Posted 21/06/2010 at 1:34 pm | Permalink |

      I think the author is mistaken if he thinks telstra have problems for making the deal. If it actually go through then Telstra will use that money to buy an enormous amount of 4g spectrum. With this they will simply delivery a voip service to the home that’ll completely bypass the NBN. They’ll make use of newer technology to deliver speeds that are suitable to most users and vastly undercut the NBN on price in the process. As for mobile towers, 11 billion dollars means no problems there either.

      To use the best of both worlds, they could probably move their customers onto the NBN and get paid for doing so and then turn around and entice them to move onto the wireless network. It’s what I would do if I was running Telstra. After all as the author of this article has stated, setting up a mobile network is relatively cheap.

      Telstra already provides some pretty good content on their bigpond site and have recently released the T-box with some pretty good good integrated plans. Telstra is sitting pretty from where I am looking.

      • Posted 21/06/2010 at 3:18 pm | Permalink |

        Hey Scott, to be honest I don’t think Telstra will be able to invest heavily enough in 4G to be able to recoup its inevitable revenue losses as customers who have been migrated to Telstra desert the company in droves. Mobile broadband just doesn’t cost the same amount as fixed-line, and I think the company’s management will inevitably struggle to justify throwing away its network advantage for what ultimately amounts to money that it will be able to do little with.

        Long-term, I think we’ll find that value-added services will be provided by third parties rather than through telcos directly — we’re already seeing this in the US through services such as Hulu. And this poses another problem for Telstra in the long term.

    17. Steve
      Posted 21/06/2010 at 2:22 pm | Permalink |

      Right, so Telstra will do voip over wireless. I am happy to be wrong but this sounds somewhat redundant. Unless they are pulling mountains of cash for data as they do now. In a much more level playing field that seems far less likely.
      Otherwise they run the risk of just stealing from their own mobile traffic.
      As for Telstra having good satisfaction ratings….. Geez I actually am the only person I know who still uses the big T.
      Every relative or friend and for that matter all of the businesses that I deal with have jumped.
      Even my 70 year old mum dumped them.
      Their poor service is the stuff of legend. That I got a landline at my home was a triumph of persistence over three weeks nagging and that was for an existing connection.

      Sol did wonders at gutting the company and ramping up the costs of doing business with them. Maybe they can change. I really do hope so because we need big companies that can actually do stuff.
      Mind you Telstra has largely become a company that contracts other people to do stuff.

    18. nonnymoose
      Posted 21/06/2010 at 2:39 pm | Permalink |

      oh come on renai! surely youve noticed Telstra kicking large chunks of its technical, hardware service workforce out the door. they wouldnt be doing this if it wasnt a game they were prepared to get out of!

      the Universal Service obligations have also been lifted from Telstra – maintaining and servicing will no longer be their remit. far from hurting Telstras business case this takes chunks of expenditure off their books, and leaves them doing what they do best – no not hardware and network services, but screwing every available dollar out of their customers.

      as for customers not wanting to go to a myriad of providers to replace Telstra, you are aware the NBN intention is to have a single bill to consumers? i.e. you could have Optus for your Telephony, Internode for your data and Fetch or even possibly Foxtel IPTV for tv/movies/sports – all delivered in one envelope and one bill. the hardest part for the customer would be deciding who delivers the best deal for their balance of calls/data/entertainment.

      on the entertainment part of the pie, asides from Optus transact and new players there arent too many in the big content game and the brand recognition foxtel has already developed will help it win custom. If i had the option to stack foxtel on my other nbn services i would seriously consider it. BTW in that instance how is it not like itunes, when foxtel content is delivered over NBN? it is being delivered over a 3rd party is it not? (“Content is better delivered through third parties (iTunes has taught us that) “)

      i think there is actually a LOT of scope for telstra to move into and make business hay now that it is no longer an equipment maintenance company. i certainly see plenty of funds being tipped into foxtel, now that they dont have to divest. and while wireless nets are cheap to roll there are spectrum costs associated with LTE and other future techs, which i also expect Telstra to sink funds into.

      I do agree that i expect Telstra to jump into something new, and yes there are industries and markets that dont suit them but i do not believe that is a cause to be unsanguine about their prospects – quite the opposite. as to what that industry could be i dunno. id like to see them taking up consumer electronic goods – theyve partnered making phones before why not go the whole hog? as long as there is data people will want to consume it, so even if Telstra is no longer delivering the bits, they can still be involved elsewhere. ive every confidence the world is not over for Telstra.

    19. Kevin
      Posted 21/06/2010 at 2:53 pm | Permalink |

      For the Government, the deal is fantastic … you forgot to mention, this means the Australian public as well.

      I’m astonished at the tone of this article. You must be an unhappy shareholder, that’s the only reason so much bias could fit in so little space. For years we have wanted a level playing field and now we get one, or the glimmer of one, you voraciously attack the deals that make it happen.

      Can’t figure you out at all Renai.

      • Posted 21/06/2010 at 3:14 pm | Permalink |

        Hey Kevin,

        I can assure you I have never held shares in Telstra, and I agree that this deal is fantastic for the Australian public and the Government :) But I do have to call it as I see it, and I’m surprised that Telstra has gone down this path. That was the main angle I saw out of this.

        There appears to be quite a lot of disagreement around Australia at whether this is a good deal for the Government, and good deal for Telstra or whatever :)

        • Kevin
          Posted 21/06/2010 at 3:29 pm | Permalink |

          Thanks for the reply. I can see your view but what are the practical alternatives? The government is going to roll out the NBN with or without Telstra, they have made it clear we don’t require you, see Tasmania. Then there is legislation being drafted to make wholesale competition non-existent then what do they do with the white elephant that’s left when the NBN goes live? They have to make a deal, or they will just end up with a very expensive but massively de-valued asset on their hands.

    20. Simon Reidy
      Posted 21/06/2010 at 3:03 pm | Permalink |

      I’m curious Renai, did you expect the negative response to this piece? Surely you must have known that few people would share your view on this one?

      • Posted 21/06/2010 at 3:11 pm | Permalink |

        It’s not really my choice whether I write articles that people agree with or not, Simon — I have simply to call it as I see it ;) And then argue with them until midnight — my definition of fun ;)

        • Simon Reidy
          Posted 21/06/2010 at 3:14 pm | Permalink |

          Haha. You’ve certainly been having a lot of “fun” lately then :)

          I admire the way you get your very strong opinions out there, I just wonder whether you knew this view would not be shared by the majority. I agree with most of your opinion pieces, but this one is way off the mark..

    21. Posted 21/06/2010 at 3:09 pm | Permalink |

      Telstra could use some of the $11 billion to pay back the $15 billion of debt they have on their balance sheet….

    22. Posted 21/06/2010 at 3:12 pm | Permalink |

      I agree with everything you say but your conclusions. Telstra will likely poorly invest the proceeds of the settlement and continue to offer subpar customer service and pricing. But to say that folks will shift providers is taking a large leap. There are those that read this site and who actively take an interest but for the majority of folks they simply don’t care. The enormity required of Telstra to screw it up is even higher than they are currently achieving.

      I also think you are also looking at the wrong asset: Fixed-line services and broadband are dwarfed by the mobile divisions in all the major telcos around the world now. For instance, 70% of Verizon’s cash flow in the US is from the mobile business compared to everything else (biz services, broadband, fixed line etc.).

      Combine this with the pace of innovation (4G, WiMax) and in 8-10 years there is no reason to suggest that the NBN will even be relevant. If you think Telstra is incompetent at present, I’m sure you’ll be treated to even higher standards of incompetence as the network actually gets built out and mistakes are made.

      Telstra Mobile + whatever they hang on to with the fixed line and broadband will be a lot larger company than today’s present value.

    23. Me
      Posted 21/06/2010 at 4:26 pm | Permalink |

      Hi Renai,

      Interesting perspective.

      Revealed in the last half yearly profit report was the fact that the number of fixed lines had fallen by 7% in the previous six months for Telstra.

      So the Govt has given them around $500 per fixed line as a bounty to migrate their customers as well as volume based discounts for NBN tails once they are on the network.

      Hardly the stuff “level playing fields” are traditionally made from, which was supposed to be the whole point of the wholesale only, level playing field NBN.

      Telstra also get many of the USO obligations lifted, and $100m as a kicker to retrain staff.

      All of this, remember, is a taxpayer funded incentive to shift customers off a product that has been in decline revenue wise for some time now, and showing no signs of doing any differently.

      This is a WIN-WIN for Telstra, and nobody else (maybe Labor as well).

      If he’s on tonight, I’m sure Alan Kohler will feature prominently the market’s reaction today, which was TLS up 4.3%, TPM heading in the opposite direction by nearly the same amount.

    24. singo79
      Posted 21/06/2010 at 7:33 pm | Permalink |

      Some pretty interesting and varying comments over this subject.

      Personally I would have liked to have seen the NBNCo. go it alone without Telstra. However I know that getting Telstra on board with the NBNCo. was the more cost effective solution, for without Telstra the NBNCo. would have had to overbuild many thousands of kilometres worth of fibre, whereas now they just have to supplement the areas without fibre coverage.

      I hold Telstra with great distain, which stems back to the Arrogant American Sol Trujillo’s days running Telstra. I am slowly warming up to the company as they really try to address the mistakes of the past and as they really start to compete in the market. David Thodey has done wonders for the company’s reputation since taking the reins and I totally agree with what he is trying to do.

      Broadband internet plans are some of the lowest they have been in over 10 years, their mobile phone plans are almost on par with the other players, which is great as Telstra has the greatest coverage as we all know.

      By having the NBNCo. and Telstra compete for business it would have benefited consumers in terms of getting cheap deals. However Telstra most certainly had the upper hand with the infrastructure already in the ground and the established client base.

      The thins is with a good majority of Australians are that they are either ill-informed, lazy or lack the technical ability to make well informed choices. I am the main go to man in terms of IC&T information or advice for my friends, family and work colleagues. Some find it all too hard, some want a good deal but are too lazy to do their own homework and others just don’t know where to start. However, the vast majority all are under the impression that if they want broadband internet then they need Telstra.

      Until recently I have personally transferred 30+ people away from Telstra and as a result of those 30+ people moving away, they in turn have spoken to their friends and family and made their own recommendations based on the advice that I had given them. However, with the recent policy change at Telstra and the increased value in their Broadband and Mobile Phone plans, I have recently started to recommend people back to Telstra based on their individual circumstances. After all $160/m for line rental, unlimited local, STD and Australian Mobile calls with 200GB of data and a Telstra T-Box is the most value plan on the market to date, in my opinion.

      Telstra are certainly at risk of losing their place in the market, especially with the likes of iiNet, Internode and TPG who have excelled in a Telstra run and dominated market. These other ISPs have innovated, proved to have good customer service and provide great quality.

      Only time will tell I guess.

    25. Posted 21/06/2010 at 7:42 pm | Permalink |

      Then there is legislation being drafted to make wholesale competition non-existent then what do they do with the white elephant that’s left when the NBN goes live? They have to make a deal, or they will just end up with a very expensive but massively de-valued asset on their hands.

    26. Adam
      Posted 21/06/2010 at 10:20 pm | Permalink |

      This article is based on so many invalid assumptions.

    27. Posted 22/06/2010 at 2:41 pm | Permalink |

      Assumtion one would be if it is an African or European Swallow…

    28. Kevmeister
      Posted 22/06/2010 at 5:16 pm | Permalink |

      Since when does the $11b the Government pays Telstra add to the cost of the NBN?

      The $11b will give the government access to a massive amount of ducts and infrastructure to the extent that the overall cost of the NBN will likely decrease.

      Telstra committing to the agreement means NBN and Telstra won’t engage in a competitive war to retain fixed-line customers (whose numbers have been in decline for many years anyway).

      Telstra gets to eliminate its USO obligations.

      Telstra potentially side-steps the structural separation issues.

      The alternative was for Telstra to engage in a competitive battle with NBN Co, continue spending hundreds of millions on maintaining its copper network, be threatened with structural separation (which might still happen though), continue to see a decline in fixed-line services, and watching as, over time, more and more people come to the conclusion that insofar as broadband is concerned, the NBN simply has the better product because it is delivered over fibre. Faster, speed not affected by distance, etc.

      Telstra’s main game will now shift to/towards wireless broadband. This is why it was crapping its pants at the prospect of not being able to bid on LTE spectrum. That section of their business is considered somewhat competitive, and there is no regulated access to their infrastructure, hence no-one getting “something for nothing” as the pro-Telstra camp are likely to say.

    29. Posted 22/06/2010 at 10:21 pm | Permalink |

      For all you naysayers out there, looks like I’m not the only one thinking this way:

      http://delimiter.com.au/2010/06/22/deal-may-cause-telstra-losses-analyst/

    30. Kevmeister
      Posted 23/06/2010 at 3:47 pm | Permalink |

      And the article you link to also says:

      Other analyst firms have not agreed with Telsyte’s comments in their own statements issued yesterday.

      So really it’s no different to most issues: some believe it is positive, others negative.

    31. Phil Collins
      Posted 23/06/2010 at 4:51 pm | Permalink |

      This peice is ridiculous.




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