full opinion/analysis by Renai LeMay
26 July 2013
Image: Telstra
opinion/analysis The Federal Government’s rollout of the National Broadband Network is the greatest show currently playing in Australia; with constant gaffes from high-profile politicians, a war of words that would make make toughened bikies wince and giant red buttons that set off fibre-optic fireworks, at times it has seemed that all the NBN needs to be a complete circus is a canned laugh track. But under the cover of this madness and media hype, there’s another high-wire act under way: The nation’s other telco monopolist, Telstra, is successfully concentrating its market power; and that’s not good news for anyone.
Many Australians will remember well the last parting words which outgoing Telstra chief executive Sol Trujillo had for the nation, upon his departure from the role in mid-2009. Australia, Trujillo told the BBC at the time, was racist, backwards compared with other first-world countries such as the United States, and living here was altogether like “stepping back in time”.
At the time, Trujillo’s comments generated outrage from everyday Australians and prominent figures right around the country.
Coming from a more respected source, they might have been taken more seriously. After all, it’s true that Australia, as a nation, has at times struggled with not only our relationship with the first inhabitants of this great land, but also with the multicultural nature of our current society. One need only closely examine the fraught and ongoing debate about asylum seekers, or events such as the 2005 Cronulla riots, to find threads of racism woven throughout the proceedings.
Then, too, Trujillo’s own nationality — the executive is of Mexican stock but was born in the United States — was indeed raised as an issue during his four years in Australia from mid-2005. The then-Telstra CEO was caricatured constantly in the local media with Mexican stereotypes, and the cadre of executives which he brought in to reform Telstra’s operations were labelled “the amigos”. The final insult came when Prime Minister Kevin Rudd, when asked to comment on Trujillo’s depature, responded curtly: “Adios”.
But an onlooker well-versed in Australian culture might also very likely observe that it wasn’t Trujillo’s heritage which earned him such levels of hostility from the Australian population. After all, Australia is a nation of individuals who claim backgrounds from countries all over the planet; we are truly multicultural, and generally accepting of difference. No, it was the arrogant way which Trujillo stewarded Telstra through those four years which earned him such censure.
Australians have always had a love/hate relationship with Telstra.
Throughout the years up until the 1990’s, the company then known as Telecom was seen as a necessary evil. Its high prices and abysmal levels of customer service were legend amongst the Australian population; particularly its long-distance rates, which severely limited the ability of many Australian families to maintain close links over this far-flung continent. And yet, up until the early 1990’s, there was no other game in town. If you wanted to place calls, or even use basic Internet services, you really had to have a Telecom line.
The formal entrance of Optus into the market in 1992 changed much of this, with its impact being felt increasingly throughout the 1990’s, as did the success of a growing cadre of Internet service providers, especially early dominant player OzEmail. And Australians have continued to get more options for telecommunications services over the several decades since; including through new mobile players such as Hutchison (‘3′) and Vodafone, as well as through the increasingly cashed up bunch of ISPs led by iiNet and TPG. Optus’ rollout of HFC cable in the late 1990’s; the DSLAM explosion in telephone exchanges throughout the 2000’s, and of late, the proliferation of new mobile infrastructure; all of these factors have played a role in reducing Telstra’s dominance.
But two key facts underlay all of this activity.
Firstly, courtesy of its decades-long ownership by the Federal Government and the fact that many of its shares are still held by individuals (the so-called ‘mum and dad’ investors), most Australians still view Telstra as being fundamentally, in some ineffable way, theirs. They may pay their monthly fees to Optus or iiNet, but there is still an underlying belief that Telstra, one of the most Australian brands in existence and still one of our biggest companies, has a strong duty to do right by the mother country which gave it birth. Telstra is Australian — more so than Optus or Vodafone could ever be. And so, like other brands such as Qantas and Woolworths, we expect more from it.
Secondly, there is the fact that most people are aware that Telstra’s infrastructure — its copper and fibre networks — still underpins most of Australia’s other ISP and telco players. No matter if you’re using services from Optus, Vodafone, iiNet or TPG; the fact is, if you’re using any telecommunications services in Australia at all, you are eventually using Telstra’s infrastructure in some point; usually by virtue of a complex regulatory agreement with the Australian Competition and Consumer Commission.
Trujillo never really understood these facts; never felt them in his gut instinctually. Grown in the fires of American capitalism, the executive was hired by Telstra’s board, then led by Donald McGauchie, to take an aggressive, market-based approach to its business, rather than the more conciliatory stance it had taken previously under Federal Government ownership, and which most Australians would prefer to see it enacting. In some senses, this suited Telstra well at the time. In the last throes of being privatised (the last tranche of Telstra shares was sold to the public during Trujillo’s tenure in 2006), Telstra needed to demonstrate to the market that it was no longer a government vehicle, and it also needed to aggressively reinvest in its business; building out a new 3G network, revitalising its core network infrastructure and moving onto a more entrepreneurial footing.
However, the approach also backfired. Trujillo’s arrogant, US-style approach to running Telstra was never received well by the Australian public or its media, which resorted to low blows about his Mexican heritage in order to get its point across. Trujillo never understood Telstra’s responsibility to the rest of the telecommunications market; in fact, he attempted to re-monopolise its fixed-line broadband business through a contentious fibre to the node proposal at the time, as well as refusing to upgrade telephone exchanges with DSLAMs where rivals didn’t have their own infrastructure; in the fear that the ACCC would force Telstra to provide open access to its infrastructure. And he never quite understood why Australians still feel a sense of ownership with respect to the telco; the executive didn’t grow up with Telecom’s paper bills taped to his fridge.
Eventually, of course, Trujillo tired of struggling with an Australian public, an Australian Government, and very likely even an Australian company which didn’t really want him. His successor, long-time Telstra and IBM executive David Thodey, has mainly reversed Trujillo’s approach; taking a conciliatory and cooperative attitude with the Federal Government and its National Broadband Network project, opening Telstra’s Next G network (somewhat) to third-party access, rapidly sanitising Telstra’s customer service capabilities and overall, putting a human face on a company which the Australia public had started to love to hate.
As Thodey’s paternalistic, reassuring approach has taken hold at Telstra, backed by a supportive board, Australian attitudes towards Telstra have rapidly changed. The company’s name has faded from the headlines, its share price has rebounded, it is marching in lock-step with the Federal Government towards a glorious NBN future, and things would all seem to be hunky dory. Hell, even Optus has broadly stopped its regular attacks on the big T. The only question Australians seem to be asking of Telstra these days is: How much will the next iPhone cost? Or, rather, how much will 500,000 iPhones cost?
Over the last 12 months, NBN Co has replaced Telstra as the great evil in much of Australia’s media. Articles that used to quote senior Optus or iiNet executives about Telstra problems now quote Opposition MPs about NBN Co. Attention has turned from regulatory debates about access to Telstra’s network and towards the contractual debates about the rollout of the NBN. And customers are no longer frustrated about why Telstra won’t fix their broadband worries; now they are frustrated about why NBN Co is taking so long to fix them, why they will only get wireless — not fibre — when the NBN does come to town, or even why NBN Co seems determined to put a tower in their back yard, blocking out all the serenity.
The effect that this massive shift of media and public attention away from Telstra has had has been extraordinary.
Take for instance, the case of Telstra’s shadowy deal with the FBI. At midday on 12 July earlier this month — a Friday — independent media outlet Crikey revealed that back in 2001, Telstra had signed a secret agreement with US Government agencies such as the FBI and the Department of Justice that provided American law enforcement and national security organisations with an extremely broad level of access to all of the telco’s telecommunications passing in and out of the United States.
The wide-ranging nature of the arrangement was remarkable. It gave the US Government complete access to all of Telstra’s telecommunications going in and out of the US — data and voice. When you consider the fact that a massive proportion of Australia’s international telecommunications traffic goes through the US (as that’s where much of the Internet’s major content hubs and Internet backbone pipes are located) in the first instance, and that back in 2001, Telstra was one of the only carriers to operate international submarine telecommunications cables out of Australia to anywhere, the implication is that for a period, virtually all of Australia’s international voice and data traffic was subject to surveillance by US law enforcement.
Telstra is still the telco of choice for most of Australia’s government departments and corporations. It provides international voice and data service for organisations with sensitive roles, such as the Department of Defence, the Australian Taxation Office, the Department of Foreign Affairs and Trade, as well as major banks such as the Commonwealth Bank of Australia and Westpac, retail giants, mining giants, manufacturing giants, state governments — the list is endless. And since 2001, all of those organisations’ international voice and data traffic to the US — unless it was encrypted — has been subject to access by US law enforcement authorities.
The number of implications from such a deal are staggering. The Sydney Morning Herald has already exposed the fact that Australian intelligence agencies are able to gain access to data from the PRISM spying program controversially operated by the US National Security Agency. Are they also able to gain quick and easy access to the data collected by US law enforcement agencies from Telstra’s fat pipes across the Pacific? It seems logical that this would be the case, given the fact that Telstra, in 2001, was still majority-owned by the Federal Government, and the historically close links between US and Australian law enforcement and intelligence agencies.
Then again, one might question whether Telstra still provides the US Government with this access. One very much suspects that it does — after all, it seems unlikely that the US Government would relinquish this access, once it had it. Has Telstra re-signed this agreement over the years? Expanded it? What’s the current situation?
None of the countless questions about this dubious and secret arrangement have been answered. Telstra made no executives available to comment on the matter. It held no press conferences. It took no questions from the media. Instead, Telstra glibly played down the issue with a one paragraph statement to the media at the time Crikey published its secret agreement, alleging that the agreement merely reflected necessary compliance with US law. Never mind the fact that the deal affected the privacy of all Australians and has been kept secret for a decade. There’s no problem, according to Telstra.
By Monday week after the news broke on the Friday, the story was already dead. Where the media would have once hounded Telstra to death for months on the issue, the debate had already returned to the latest comments by politicians Malcolm Turnbull and Ed Husic about the NBN. In fact, most of the media ignored Crikey’s revelations to start with, and Telstra was able to exit the situation with minimal damage. The only people still interested, it appears, were fringe groups such as the WikiLeaks Party, which has filed a formal complaint with the Privacy Commissioner, which will doubtless ignore the issue as it does so many others.
We’ve seen this situation repeated time and time again over the past several years, as Telstra’s actions, or inactions, have been clouded by the ongoing political warfare over the NBN.
Another prime example relates to the issue of asbestos. As those familiar with the NBN debate will be aware, in June 2011 NBN Co and the Government signed a comprehensive deal with Telstra which allowed, among other things, “immediate access to Telstra infrastructure, such as pits and pipes” — to support the rollout of NBN Co’s fibre infrastructure throughout Australia. By pits and pipes, we’re referring here to the underground infrastructure which allows Telstra’s existing copper and fibre-optic cables to run along streets and deliver telecommunications services today.
Now, let’s be clear here: NBN Co is not buying Telstra’s pits and pipes, by any means. NBN Co is merely gaining access to the infrastructure, so that it can deploy its own fibre cables through them. It’s a bit like renting a house. You use the house, you install your furniture in it, and you have constant access to it. But if something goes substantially wrong with the house (for example, the toilet starts leaking), you don’t try and resolve the problem yourself. You call your landlord and they send someone out to fix it.
Well, in late May this year something did go wrong with Telstra’s house. It was discovered, in a variety of locations nationwide, that Telstra’s house contained asbestos — an extremely dangerous material which hasn’t been used in construction since 1989. If it is released into the air and people breathe it in, it has the potential to cause serious long-term health consequences.
But do you think the Australian media, and the Australian public, pinned the blame on Telstra? No. In the eyes of virtually everyone involved, it was an NBN issue. Comments made by Shadow Communications Minister Malcolm Turnbull at the time indicated the general mood. Turnbull told Sky News that he acknowledged that Telstra had an obligation to safely remediate its old pits and pipes to allow the NBN’s fibre to be installed. However, he added: “But I don’t think NBN Co can wash its hands of this.”
“The fact is that the asbestos issue has been known for some time and it’s worse than that, it’s always been on the table, and NBN Co should have been more vigilant in overseeing this. And of course there is work being done with that old infrastructure on NBN Co’s account where it actually has to be expanded or as they say augmented, so I think both management at NBN Co and at Telstra should have paid more attention to this.”
This accusation — that NBN Co, a company formed at least three decades after Telstra constructed its pits and pipes, should share some responsibility for their condition — is clearly ludicrous. This is Telstra’s infrastructure and Telstra’s responsibility. NBN must train its contractors to deal with the asbestos situation, as is standard for any such rollout, but ultimately the house belongs to Telstra. However, after Telstra’s David Thodey made a brief appearance in Canberra on the problem, and the company issued a media release noting it was taking action, it was able to exit from the media spotlight on the asbestos issue. The torch-bearing witch-hunt immediately returned directly to NBN Co’s door.
A media release issued by Nationals MP Luke Hartsuyker at the time on the issue mentioned Telstra precisely once — and then only to defend the company. “The Government and NBN Co need to come clean about where asbestos has existed and where it has been removed,” Hartsuyker wrote. “It’s simply not good enough to blame Telstra when the asbestos threat extends way beyond its existence in ducts.”
As with Telstra’s spy deal with the US Government, if the asbestos issue had arisen before NBN Co had been formed, it would have been Telstra in the media spotlight over the issue, Telstra who unions would have attacked, and Telstra which would have been dragged into Parliament so that politicians could demand answers. But in this case, despite the fact that the asbestos problem was one of Telstra’s making, and despite the fact that responsibility for remediating its pits remains in Telstra’s hands, the telco largely escaped scrutiny on the issue.
We’ve seen this scenario play out time and time again with Telstra over the past several years. In June 2012, the telco’s Orwellian move to track and analyse the websites visited by mobile customers was dramatically exposed; but the media quickly turned its attention back to the NBN. The year before, Telstra imposed a mandatory Internet filter on its customers to block ‘worst of the worst’ child pornography — a system with no oversight or transparency — but the media didn’t notice. When the Australian Securities and Investments Commission arbitrarily asked telcos to block a range of sites, using Section 313 of the Telecommunications Act to do so, other telcos raised their eyebrows, but Telstra merely obeyed ASIC’s request without protest and has never commented on the matter, despite the fact that ASIC’s notice resulted in massive numbers of innocent sites being blocked. The media spotlight in that case turned to the Government — but Telstra’s participation was barely mentioned.
The trend is clear: Telstra is regularly exposed as being a key player in questionable activities, and its corporate ethics are suspect. But the telco has been extraordinarily successful over the past several years at diverting the public’s attention away from its failures and towards other industry players, particularly NBN Co. It has developed a habit of quickly addressing the issue with the media and then exiting, stage left. But often — as is the case with the asbestos and FBI spy scandals — the issue is still a hot potato behind the scenes, out of the public eye.
There are also other reasons to be concerned about Telstra right now.
Throughout the 2000’s, the key issue for Australia’s telecommunications media was Telstra’s market power in the sector. As a former incumbent, the telco enjoyed a level of market share that was overwhelming compared to that of its rivals, and it didn’t hesitate to use its incumbency infrastructure strengths to maintain that power. Telstra was criticised in that decade repeatedly for blocking or delaying competitive access to its exchanges, charging ludicrous prices for backhaul to rural areas, and even cutting retail prices below the price it was charging its wholesale partners. Those with long memories will recall that the ACCC spent a great deal of time and effort constraining Telstra’s market power in that decade, so that competition in the sector could survive and thrive.
After the Howard Government failed to separate Telstra’s operations, it fell to Rudd’s Labor Government to deal with the issue. Labor’s answer was the NBN — a revolutionary model which would separate Telstra from its copper network by building a new fibre one on top of it. It was, and is, a nice idea. But in practice, the rollout of the NBN has been drastically delayed, with NBN Co hitting only a few hundred thousand premises in the last four years and leaving barely a dent on telecommunications market dynamics.
In the meantime, if you speak to ISPs, what becomes clear is that Telstra still has the same dubious approach to competition now that it did back in the 1990’s. Its wholesale division is still a nightmare to deal with. It still charges ridiculous prices for backhaul, essentially locking ISPs out from competing in rural areas. And, perhaps most ominously, its market share is not decreasing; in fact, in some sectors it’s growing.
Take the mobile sector, which has only three key players — Telstra, Optus and Vodafone. Vodafone revealed this week that it had lost a colossal 551,000 customers in the first half of this year (8.4 percent of its total customer base), as its #Vodafail episode continues to hit its operations hard. It lost 443,000 in calendar year 2012, meaning that its customer losses are rapidly increasing. So where are these customers going? They’re certainly not going to Optus, which has consistently shown only modest or even flat mobile growth for several years running.
As Telstra’s Thodey said in February at the company’s half-yearly financial results briefing (PDF): “We also continue to gain share in key products, adding 607,000 new domestic mobile customers.” In short, Telstra is funneling massive numbers of Vodafone customers its way right now — clawing back market share in a huge way in Australia’s mobile sector and winding back hard-won competition.
But wait, there’s more. Again, if you speak with ISPs in the fixed broadband space, what you’ll find is a not dissimilar story. Telstra’s not clawing market share back quite so fast in fixed broadband as it is in mobile, but it has indeed emerged as a revitalised competitive force in the sector. Right now, the telco is nicking customers left and right from retail ISPs such as iiNet, Optus, TPG and M2. It’s also losing some customers, but it has succeeded in reversing a decades-long downward trend and is now adding customers once again. “Our fixed broadband business also performed well, with 85,000 retail fixed broadband customers added,” said Thodey at those same financial results.
The situation is a little less visible, but still trending the same way, when it comes to large enterprise customers. While we still do see major companies and government departments buy services from Telstra rivals such as Optus and Macquarie Telecom (see this contract by ANZ Bank with Optus, for example), in general the trend is clear: These large organisations are, by and large, choosing to stay with Telstra, and competition in the business sector is not increasing. It is stagnating, or, at worst, it is gradually being wound back.
The problem is, essentially, that the rollout of the NBN has taken too long, and, because it was never structurally separated as BT was in the UK, Telstra continues to hold all the cards. In the mobile sector, Vodafone and Optus find it very hard to compete with Telstra because, firstly, the telco won’t let them co-situate their mobile infrastructure in its towers, and secondly, when Optus and Vodafone build their own towers, they often have to pay Telstra exorbitant rates to get backhaul to connect up the towers. Then, too, Telstra is easily able to cross-subsidise the construction of its mobile network with funds from other areas of its business — such as its fixed-line copper network, a massive revenue generation machine which, let’s not forget, companies like Optus pay Telstra squillions to use.
In the fixed sector, again the main issue is backhaul. Companies like iiNet are still unable to reasonably compete in many areas of Australia because there is only one way to get backhaul access out to telephone exchanges in those areas — pay Telstra’s expensive backhaul prices. The rollout of the NBN is supposed to eventually fix this problem … but again, the NBN has not yet affected this issue in any meaningful way. And, of course, Telstra is also able to leverage its bundles in a way most other telcos can’t. It can offer customers bundles of services consisting of mobile, fixed broadband, telephone line and entertainment (Foxtel) packages. No other telco has quite the same service offering in the market, and all this gives Telstra an inherent advantage against its rivals; an advantage which it is exploiting. As Vodafone chief executive Bill Morrow said in July last year:
“No other jurisdiction allowed a company to have Telstra’s level of market dominance in fixed, mobile, and cable network infrastructure and to own half of the largest pay TV company. This anti-competitive playing field has undermined the incentive for the broader telecommunications market to invest, resulting in less choice for consumers and a lack of innovation. Outside the capital cities there is virtually no fixed-line competition and mobile competition in regional areas has been hamstrung by Telstra’s regional backhaul dominance.”
“The changing nature of the telecommunications market does not require a change in policy frameworks, but it will require a change in regulatory focus. Traditionally, regulators have treated ‘fixed’ and ‘mobile’ as separate markets. Regulatory assessments have not acknowledged that Telstra’s dominance in fixed telephony has significant impacts on the mobile industry. In a converging world this siloed approach is no longer tenable.”
On the one hand, you can’t blame Telstra for this activity. It’s a corporation, and has a responsibility to its shareholders to maximise its returns. But that also doesn’t solve the situation. If Telstra continues to suck customers from Vodafone at the current rate, within a year or two, Vodafone’s business model will no longer be viable, and the company will collapse, leaving Australia’s mobile sector with only two players. And that would be a catastrophe for competition in the space; a catastrophe which would have a marked impact on customers. The situation cannot be allowed to progress this far.
The perfect demonstration of the strength of Telstra’s market position occurred over the past several years when the telco was forced to upgrade its fixed-line network surrounding the South Brisbane telephone exchange to fibre, due to the forced construction of a hospital in the area. Telstra used the rollout as a test case for deploying fibre of its own, and the rollout proceeded according to schedule. But along the way the telco was also successful in winding back competition in the area. The way it set up its fibre network blocked certain competitive services from being deployed on it; its wholesale division proved intractable during the process, and its prices were so exorbitant they caused retail ISPs such as TPG to drastically limit the services they provided in the area.
Like so many other aspects of Telstra’s position in the market, the South Brisbane situation has not changed. Right now, the maximum quota which TPG, known for its unlimited plans, offers on a South Brisbane fibre service is 300GB; the maximum speed, 30Mbps.
So how does Telstra get away with all of this? There are two answers. The first is obvious: As a project, as a policy, as a political debate, the NBN soaks up all the oxygen. In a time when journalists are receiving daily media releases (usually I get at least half a dozen per day from politicians alone) and seeing daily political debate on the NBN as a key election issue, there really is no incentive to go beyond this and pay attention to yesterday’s monopolist, Telstra. The NBN is a much higher profile issue.
However, there’s also another reason, and it relates very much to the personality of Telstra’s chief executive, David Thodey.
It’s easy to guess that if Sol Trujillo was still in charge of Telstra, then Telstra would not be able to escape being held much more strongly accountable for its current actions than it is now. Trujillo’s brash personality, which verged upon arrogant when he led Telstra, the aggressive corporate stance with which he positioned Telstra, and even his nationality as an American; these were all factors which positioned Telstra at the forefront of the public consciousness.
In contrast, Telstra’s current chief executive, David Thodey, does everything he can to keep Telstra out of the media. With his quiet, paternalistic manner, Thodey resembles nothing so much as someone’s middle-aged father, calmly overseeing a mild debate at a parent’s and citizens’ meeting at a local high school on a Wednesday night.
If you’ve seen Thodey hold a press conference or give a speech, you’ll probably agree that butter probably wouldn’t melt in his mouth. The executive smiles often, chuckles gently when pushed on irrelevant issues, and dons an air of quiet attentiveness when pushed on serious issues such as the asbestos situation. He is an absolute expert in defusing tense situations and deflecting troubling questions. After speaking with him, you usually walk away feeling as though everything is being taken care of, and your problems addressed. With this manner and the advantage of the NBN distraction, Thodey has been able to get Australia’s media squarely on his side when it comes to Telstra; in a way that Trujillo was never capable of.
Then too, Thodey understands what Trujillo never did — that Australians fundamentally feel that they still own Telstra, and that Telstra’s infrastructure is at the heart of the whole telecommunications industry’s operations. What this has meant in practice is that Thodey has gone to great lengths to deal with the pain points which Australians have had with Telstra; remediating its customer service operations, resolving its relationship with the Government (seeing Telstra and the Government argue is like watching your parents fight), and dampening down the arguments between Telstra and its client ISPs so that they occur primarily behind closed doors.
In Thodey’s hands, Telstra has stopped being the Big Bad and become your kindly uncle — here to help.
But the problem for the executive (and, in fact, the entire telecommunications market and its customers) that Telstra’s new image is largely a facade, and underneath this glossy exterior, nothing has changed. As this article has demonstrated, behind the scenes, the telco is still very much the same bad old ugly beast it was under Trujillo. It is still organising secret arrangements to give law enforcement agencies access to its customers’ data. It still has massive asbestos issues. It is actively working to roll back competition in the sectors it operates in, through borderline anti-competitive practices. It still deals with its wholesale customers only reluctantly, and it still needs to be restrained from abusing its power by the ACCC. And it still has no intention of acting in a transparent and open way about its operations — even keeping its own customers in the dark as to what’s really going on. All of this is quintessential Telstra to a capital T.
While the NBN circus continues to distract Australia’s media and the public, and while Thodey can maintain his fatherly smile, Telstra’s activities may largely escape notice. But as the NBN continues to be delayed, inevitably attention will turn back to the company which still, after all this time, dominates Australia’s telecommunications market in much the same way it always has. And when people do start taking a closer look at Telstra, they may not quite like what they find.
Telstra has been singing the praises of the Copper Network for years, whilst it’s been variously stated as being “five minutes to midnight” when questioned on investment levels — depending on whom is asking questions.
There is a degree of cognitive dissonance between the management and front line. Theodey has recently stated the network will be good for decades. Practical reality indicates this is a dubious claim at best, without further investment.
And someone has to pay to remediate it all. Even more so if Turnbull has his chance to revert an active rollout back to copper.
Turnbull blaming NBNco, for Telstra’s use of Asbestos products is, frankly, baffling (one of many confusing statements made of late). It’s like blaming someone for bleeding all over a pen, if they’re stabbed with one.
How can NBNco apparently “wash their hands” of something they have had zero involvement in? They’re just the ones whom apparently are now responsible.
Win?
And the media latches on to the shenanigans, like some kind of possessed limpet, incapable of reasoned thought. The few lucid moments in the press are often met with hostility and any factual information buried, for fear it might actually, dear god, inform people.
Telstra has certainly been playing up the network. Of course it will, talking it down would only devalue any future negotiations. That the media latches on to talking-heads, and doesn’t generally question sources, perhaps says more about it, and it’s readership, than anything else.
I think the key issue here is not whether Telstra’s existing copper network will last for decades, because clearly, in one sense or another, large portions of it will keep functioning ad infinitum.
To me the greater issue is: Do we want it to? I think it’s clear that even current bandwidth needs are greater than the copper network can sustain. In this sense, we need to urgently move to upgrade as much of it as possible, as quickly as possible. Preferably with FTTP, but with FTTN if that is what the politicians end up deciding on, but in either case, we need to move forward with this as quickly as possible.
I’m starting to come to the conclusion that the FTTP/FTTN debate isn’t even relevant. What is relevant is the daily grind of getting contractors out there to start replacing Telstra’s copper network, starting at the exchange and migrating out. They then discover a myriad of issues — severely decayed copper in places, asbestos, other crappy situations. My view is starting to become that this is the greater issue. Use FTTN where the copper is good, use FTTP where it’s not, but just get this ball rolling and don’t let it stop for several decades. When the emergency areas or perhaps areas of greatest population have been done, move on to the next area. When everywhere has FTTN or FTTP, then go back and upgrade the FTTN to FTTP. But don’t ever stop or look back. Just move forward continuously.
This is kind of what you would have expected Telstra to have been doing anyway — progressively upgrading its network, instead of setting up one big network rollout, a’la Sol Trujillo back in 2005. Its failure to do this is a bit of an indictment on it and a strong argument for stronger separation of its wholesale and retail arms.
Indeed, if investment is ongoing, the CAN would go on. The question of value versus return will come into play (as in, how long do you keep it going before you pull the plug) of course, but the logic holds.
The answer to “do we want it to?” is entirely dependant on whom forms the next Federal Government. Because that invalidates the question. It removes the choice. We simply have to, under an FTTN build.
We have to remember that unlike the UK, which has (relatively speaking) good copper; much of it was replaced due to WW2, and a lot of the deployment features heavier gauge.
Much of Australia’s copper network has seen little investment. We also didn’t receive an absolute drumming from Germany, necessitating a lot of infrastructure rebuild.
So the reality is, although some parts of the network will potentially be up to the job, to reach the speeds Turnbull likes to quote, substantive effort to rebuild large portions of the CAN is highly highly likely to be required.
Telstra has previously admitted the CAN has seen underinvestment; realistically speaking once it became divorced from the government and publicly listed, it was a foregone conclusion. There’s no financial incentive to keep the network in an optimal state, if you’ve already more than made a return on it.
Shareholders want returns, not well maintained copper. It’s a pretty simple equation.
As for the snooping. I’m surprised that people are actually surprised. For a long time, Telstra was one of the very few international carriers, thus to me this is a bit expected. They may well not have been (or be) the only network the US has approached since then.
It will certainly be interesting to see how the FTTN rollout goes, if the Coalition gets into Government. Personally, after all of this bullshit debate on the issue, if the Coalition tries to rollout FTTN and realises that it’s not a good option because the copper won’t support decent enough speeds and reliability, I am personally going to be spitting chips ;)
I agree with you on the snooping issue, but that doesn’t excuse Telstra’s reaction to it. You can’t be accused of providing access to foreign law enforcement officials to virtually all of Australia’s international voice and data traffic for a decade and not do more than issue a one paragraph statement in reply. The Australian public deserves more than that. Telstra’s customers deserve more than that.
“I am personally going to be spitting chips ;)”
Too late, too bad, so sad
“Too late, too bad, so sad”
Huh?
By the time we realise it is unsatisfactory (the reason for feeding the seagulls {spitting chips}) too late to change to FTTP, besides too much at stake.
To save the face of M.T, the LNP, their allies in the Media and the so called comms experts they will give it all to Telstra and blame Labor , with the enthusiastic support of the MSM the mug public will believe them.
Too Late, Too bad , So Sad
Australia will get what it votes for and desrves
Why would it be too late to change to FTTP? Surely after a year or so, if they work out that it won’t work, they will switch back to the FTTP model?
Sorry Renai
IMO, look at all that has been said and by who’m, the personal attacks on Quigley and the NBN team and Board, all the public speeches and articles, the relentless News Ltd and MSM campaign. The fact of the tech sector that has clearly pointed out that FTTP is the only rational path at this time in our circumstances.
In the M.T article Renai, you yourself commented how M.T appears unable to accept and admit to being wrong
To quote
“It’s almost like Turnbull has a blind spot — that, because he’s been so successful in the past, he believes he can sometimes bulldoze things –as they say, crash or crash through”.
“His Quigley “fired” comments last week were the perfect example. I pointed out to him on Twitter that he was just plain flat-out wrong, and got re-tweeted dozens upon dozens of times. He refused to back down and went on the attack instead of admitting his error. It’s the arrogance
talking.”
IMO, too much has been stated and now too many reputations are on the line, more prudent to blame the incompetent NBNCo team who will be tasked with designing and implementing their LBN and obviously have failed in their task, can’t be the plan or Telstra’s infrastructure, and hand it all over to Telstra to cut their losses and wash their hands of it all.
Proof Governments should keep out of infrastructure or building anything, proof it is better to just throw Billions of Taxpayer Dollars at the private sector to deliver.
Consider GW/CC and the Republicans and GOP, it is really not a rational discussion
Hmm. You have a point. And there is speculation circulating in the tech sector at the moment that if the FTTN plan doesn’t work out, of NBN Co continues to suffer slow rollout speeds, that the Coalition could hand it back to Telstra. I do think it’s a long-term possibility. What I’m not sure about just yet — I’m currently investigating this — is to what extent this would be a good or a bad thing. The NBN Co model has not conclusively proven itself yet. But there are quite a few examples internationally of how incumbents have upgraded their own networks. Essentially, you get drastically reduced competition, but also fundamental improvements in basic service delivery. I’m not sure which is the right path at the moment. I want to believe in NBN Co, but NBN Co hasn’t delivered the goods just yet.
It’s no good where I am Renai…and if I move, it’s not going to be good there either.
Apologies, but how can you say that? You don’t have that evidence. I’ve lived in half a dozen locations in Sydney, and gotten around 16Mbps ADSL2+ speeds in most locations. It’s obvious that those locations, at least, could handle FTTN upgrades.
Well firstly, I don’t live in Sydney. The most I’ve ever gotten has been 6.5mbs – not to mention when I spent $700k building a house in a new estate in 2008, I had to wait 10 months before I could get an ADSL connection.
But you missed my point – having a mix of FTTN & FTTP creates a have & have nots – unfortunately, I think most of us are going to be have nots if both parties don’t get behind it.
Hmm. Not quite sure what you’re saying. If you’ve only been able to get 6.5Mbps, then either FTTN or FTTH will speed that up substantially. Even outside the major metro CBDs, it’s possible to get decent speeds now — it just depends on how far from the exchange you are. Sorry that you’ve had a bad experience so far — I know there are a lot of people out there like that. The situation in new housing estates has been a bit frustrating for a while.
Both FTTN & FTTH will speed our downloads up. People are already complaining that they’re getting wireless & not FTTH. I also don’t believe we’ll be upgraded to FTTH anytime soon if the Libs get in…and maybe we should be going “cities out” rather than “country in”.
I definitely agree the rollout should have been cities first and then the country. Anything else just doesn’t make any sense.
I think the election should change from cities out and if you’re an apartment block it’s FTTB (basement) and they should have access to townhouses without body corp approval.
I want FTTH to succeed, but the numbers are pretty bad. I don’t think FTTN is the solution – I think MT should be saying “let’s finish it as is but much quicker” and then it’s not going to reflect badly on them on poll day.
Also, my upload speed sucks. We keep focussing on download speed but it’s the upload speed that’s going to transform Australia – especially small IT businesses like mine.
Indeed. Although I think the greater focus is on “fix it now”, followed closely by “cheaper” — whomever can do so sooner, wins. The irony is that neither option is ‘sooner’. Or ‘cheaper’.
The state of the CAN as well as associated infrastructure means either party will have to spend up to remediate. The only winner is Telstra.
Whom have been paid handsomely to hand over a rapidly dilapidating network. Indeed, it almost doesn’t seem to matter which is the more sensible option; it gets lost in the easily digested soundbyte.
“The irony is that neither option is ‘sooner’. Or ‘cheaper’.”
+1000 to this. People are not looking at this debate the right way. It should be about technology and the long-term vision, not about politics, money and the short-term “good enough” vision.
I agree upload is a massive issue being ignored by the Coalition. Upload speed is also a big issue for me in my work.
Isn’t it up to the electorate to decide? And if the electorate is badly informed, the less optimal decision may well follow.
If it is difficult to persuade the electorate to upgrade at all from a low base of service, how likely is it that the electorate will be persuaded to upgrade from one which has “enjoyed” $29 billion having been spent on it? Unless the $29 billion has not fixed the problem for a LARGE number of subscribers. In which case the $29 billion will have been wasted. And who wants this?
I have just had a naughty thought. What happens if Telstra play hardball and asks to be paid for its copper? And asks a lot as Telstra is inclined to do. Tony says: “that’s far too much, we expected it to be free. We can’t afford it; the mining boom is over” He returns to his first preference: It’s Malcolm’s fault. Do nothing. Or only do that which will pay for itself in the short run.
The electorate by-and-large has decided. NBN went into at least one election as a key policy.
I cannot foresee a circumstance where Telstra would simply gift a highly profitable network to NBNco. It didn’t gift duct and facility access, why assume otherwise?
Turnbull knows full well there would be a cost. It’s missing from his Policy purely because no-one (apart from Telstra) knows what that cost might be.
How much it ended up being, could easily make or break the switch to copper.
When the electorate decided in 2010, the contest was no NBN vs a fibre NBN.
The proposition now is a faster, cheaper NBN vs a slow, costly one. Do enough voters in marginal seats read behind the promises? It strains the fortitude of those who like to be informed to keep up with the debate and fact checking attempts.
As to Malcolm knowing there will be a cost. It did not stop him saying he was confident there would be none. If you were announcing the LCP policy, would you express it that way?
There were always two options, the only difference now, versus then, is that the Liberal Party have realised the “don’t do anything” option is no longer a valid election strategy.
That the price is almost identical at this point — add in the eventual cost to acquire the CAN from Telstra, and the now almost daily updates in the press, over Asbestos and other various issues that plague the NBNco’s efforts — and there’s really no argument you can make that it’s “cheaper and faster”.
Turnbull was confident that negotiations over the CAN acquisition would be short, there’s been almost no statements, period, on any cost.
Telstra don’t give access away. Never have. Are unlikely to start. Of course he’s going to pretend they will. He has to.
My impression re the cost of Telstra’s copper network is that there is a tacit understanding between Telstra and Turnbull that the cost of the network would be about the same as the $13 billion NBN deal Telstra already has. I don’t expect it to change substantially — for it to balloon out to $30 billion, for example. This is an issue Turnbull would have had to do due diligence on already.
My impression is that Turnbull hasn’t actually spoken directly to Telstra, and is assuming it will comply. Telstra might, indeed do so. They may also ask for more money. So there’s that.
Turnbull may well find, that should the regulator once again decide to intervene (as it did in prior NBNco and Telstra negotiations) that it’ll be far, far from a five minute conversation.
The only time I’ve seen Telstra compliant, is when there is a considerable sum of money on the table.
No, I think he has definitely at least skirted around this issue with them. I mean, I know they’ve held discussions on a few different fronts, but I also get the impression that there’s been some high-level informal dialogue between Turnbull and the top Telstra brass on this issue specifically. I don’t have any evidence, but the confident way Turnbull has acted on the issue, as well as the way in which Thodey has acted when asked about this kind of issue, makes me strongly suspect there is some kind of tacit understanding. Of course, it can’t be formal at this stage — Turnbull’s obviously not authorised to act on behalf of the Government. But I strongly doubt Turnbull would have gone ahead with the Coalition’s policy without having some idea of how Telstra would react to it.
Of course, you’re right, about the regulator, and also about Telstra liking large fat cash sacks of money ;) That is definitely true, and there’s nothing to stop Telstra demanding whatever it wants, in the event the Coalition takes power. It will be in a strong bargaining position at that stage ;)
I think if Telstra was going to “gift” the copper to the Australian public, we’d already know it. if you read the Explanatory Memorandum Telstra put out to it’s shareholders, the Copper Network wasn’t a part of the deal done with NBN Co, the agreement was for “Copper Services” to be transferred, and Copper Services and Copper Network are two totally separate things as defined in that.
David Thodey has also done his best to “talk up” the Copper Network (even though there is evidence to the contrary, though some of it is anecdotal). David is required by law to deliver shareholder value for that asset, so it shouldn’t come as a surprise to people that this is his position.
The only way I see Malcolm getting a deal done on the copper, that doesn’t cost him an arm and a leg, is to basically give a large share of NBN Co to Telstra.
This achieves his aim of getting access to the copper and then allows an “incumbent FTTN” build, which is the only type of FTTN build being done anywhere in the world (I haven’t found any example anywhere where in the world where they have built an FTTN from scratch).
This really concerns me, and your article has shown why this could end up being a really big problem for Australian Telecoms.
Hmm. Your comment is quite convincing :) And I agree, it would be quite concerning if Telstra was to get control of a chunk of NBN Co.
But I still don’t think this is going to happen. You’re right, the agreement is for copper services, not the copper network. However, Telstra also agreed as part of that agreement to shut down and dismantle its copper network after NBN Co’s fibre has replaced it in those areas. For Telstra, this is essentially the same as selling its copper network to NBN Co, which would then shut it down. Sure, Turnbull gives Telstra more leverage if he wins Government, because the Coalition will need Telstra to maintain its copper network in any scenario. However, I don’t think the cost difference between the two policies in terms of Telstra’s copper network will be massive. Very likely it’ll only be a few billion, if at all. Telstra is not going to demand $20 billion for its copper network. There’s no way the Government would accept that, and there are no other buyers.
However, Telstra also agreed as part of that agreement to shut down and dismantle its copper network after NBN Co’s fibre has replaced it in those areas.
Yes, but the relevant section of the EM doesn’t actually state that it must be decommissioned:
It’s Telstra’s choice what it does with it (though in area’s without fibre, they continue to use it “business as usual”). I guess it would really come down to what the “mechanisms agreed, depending on the circumstances” actually are.
It also wouldn’t need to be anywhere near $20b for Malcolm’s plan to actually become more expensive for “the taxpayer”, so Malcolm “selling” off part of NBN Co early makes sense as a swap of equity (and gets Telstra on board for the copper maintenance as a bonus).
if the NBNCo or Telstra don’t start dismantling the antique wiring now, it’s only a matter of time before desperate copper theives do it for them, just as with a lot of other infrastructure (eg. relatively worthless railway signalling cables), and in the process they will likely damage the fibre cabling too.
“if the NBNCo or Telstra don’t start dismantling the antique wiring now, it’s only a matter of time before desperate copper theives do it for them, just as with a lot of other infrastructure (eg. relatively worthless railway signalling cables), and in the process they will likely damage the fibre cabling too.”
Hmm I am aware that the copper does get stolen — there have been plenty of news reports about this. But I was under the impression it was an isolated occurrence … do you think this phenomenon will become more widespread if Telstra leaves the copper in the ground?
Just need a bob-cat at night and rip up the copper wiring in your street and then it will get Fibre to replace it. Get your neighbors to look the other way and they all get super fast F.o. Would catch on quickly.
“Yes, but the relevant section of the EM doesn’t actually state that it must be decommissioned”
Interesting, I wasn’t aware of that.
Curious — what would you speculate Telstra will want to charge for the copper network, in a Coalition FTTN scenario?
Curious — what would you speculate Telstra will want to charge for the copper network, in a Coalition FTTN scenario?
I’d expect Telstra to go for “maximum shareholder value” (as they should). I’ve tried finding something firm on what that value should be, and between Telstra and the ACCC, it’s somewhere between $19b and $30b (the first figure is the ACCC’s, the second was a rant from Telstra saying the ACCC figure was undervaluing the CAN by $~15b).
I’m guessing that would be for the entire thing (conduits and all), so $11b of that’s already been covered by Labor, so $9b-$19b for what’s left (“ish”…Telstra’s numbers don’t add up that well in the articles).
You can see the sort of numbers Telstra would be thinking about in this:
http://transition.accc.gov.au/content/item.phtml?itemId=953638&nodeId=36e9cef9757cfc0944719eb6c5b67001&fn=Telstra%20Response%20to%20ACCC%20Draft%20Report.pdf
the original set of numbers were from this:
http://www.commsday.com/commsday-australasia/todays-pdf-issue-telstra-accc-plan-strands-19b-depreciation-15b-inflation-costs-network
“I’d expect Telstra to go for “maximum shareholder value” (as they should). I’ve tried finding something firm on what that value should be, and between Telstra and the ACCC, it’s somewhere between $19b and $30b (the first figure is the ACCC’s, the second was a rant from Telstra saying the ACCC figure was undervaluing the CAN by $~15b).”
Very interesting, well-referenced comment.
I suspect you’re in the right ballpark, but I also suspect it will be a bit lower. I can’t see Thodey coming out and asking for something close to $20 billion. He has to realise he won’t get it.
The way I see it working and is likely how MT can say NBN will be getting access for free is Telstra will keep its status quo. Telstra will lease access to the CAN the same way it currently does with ULL.
“The way I see it working and is likely how MT can say NBN will be getting access for free is Telstra will keep its status quo. Telstra will lease access to the CAN the same way it currently does with ULL.”
An interesting concept. That would certainly avoid the ‘forced acquisition’ scenario (provided for under the Constitution). And Telstra would probably be OK with it, if the prices were OK. This would raise the issue of what the situation would be down the track though. You’d need some pretty iron-clad agreements for Telstra to agree to a situation where it owns a small amount of copper in a fibre network predominantly owned by NBN Co.
An interesting concept. That would certainly avoid the ‘forced acquisition’ scenario (provided for under the Constitution).
Section 51 of the constitution means Telstra would still be compensated even if there was a “forced acquisition” though:
Typically, a determination of just terms based on the market value of the property at the time of acquisition will be sufficient to satisfy the requirement of just terms. Unlike the “just compensation” requirement in the Fifth Amendment, however, “just terms” imports no equivalence of market value.
The arrangements offered must be “fair”, or such that a legislature could reasonably regard them as “fair”. However, this judgment of “fairness” must take account of all the interests affected, not just those of the dispossessed owner.
Telstra are well aware of the corner Turnbull has painted himself into. They won’t be demanding a direct monetary payment instead it will be a very carefully crafted set of steps that leaves Telstra with much greater control over the market.
“Telstra are well aware of the corner Turnbull has painted himself into. They won’t be demanding a direct monetary payment instead it will be a very carefully crafted set of steps that leaves Telstra with much greater control over the market.”
This is consistent with what I’ve seen of David Thodey’s approach.
True Renai.
The costs and issues of remediation and the Asbestos issue are I believe far greater than Telstra had anticipated . (Shows how well they know their own business).
A shift to FTTN would greatly reduce that shareholder cost, in fact with FOD it could shift the cost to the RSP or the customer.
Plus as “the experts” with the copper maintenance infrastructure they would make a very handsome profit from maintenance and refurbishment contracts.
So yes I could see minimal upfront deviation from the $11Bill, however ongoing and long term a different story.
Remember Telstra is the main reason we have had to do the NBN, a leopard does not change it’s spots
Telstra wants $100 BILLION for its crap copper Tony Abbott, he will say no and its back to dial up for another 10 wasted years.
“Telstra wants $100 BILLION for its crap copper Tony Abbott, he will say no and its back to dial up for another 10 wasted years.”
Hmm … I don’t think Telstra wants that much ;)
I got Joe Hockey to do the numbers , and if you have a desperate buyer and with a $1B per year maintenance bill clocking up as Telstra plays hard ball with them. If not , build your own infrastructure system. Telstra share holders will want their pint of blood.
Lest we forget.
So much of the delays and issues NBNCo has been facing come back to Telstra.
First the duration of the negotiations and them being able to do a deal with no penalties for failing to perform satisfactorily.
Second the tardy and patchy pit and duct remediation which has prevented smooth volume workloads by the contractors, affecting their profitability and especially the income of the subbies
Third the Asbestos issue, NBN advised that this had specifically been a important part of the negotiations/deal. Yet the contractors Telecom gave the work to were not trained or equipped for the task, leading to the major delay we have.
Do Note Telstra advises they are ahead on their installation of the backhaul and links for NBNCo (both plans need those dark pipes)
It’s true. I hadn’t thought too much about this, but you’re right — Telstra’s problems in these areas have certainly slowed down the rollout of the NBN. I guess we shouldn’t be surprised … it’s Telstra.
.. that same recalcitrance to invest in the network would not disappear under a Turnbull lead initiative. I get the (strong) impression Mr Turnbull believes Telstra would somehow operate on “gentleman’s rules” – i.e. a bit of a directive from Government and hey-presto, CAN do.
Problem is, Theodey can’t simply hand over the network under the current deal. Firstly, the board (and by proxy shareholders) haven’t agreed to do so, and secondly both will want to see it’s value paid out.
So that leaves either renegotiation of a deal, and pricing the network for an additional $5-6 billion would be more that sufficient to actually make the FTTN solution more expensive.
The notion that a portion of NBNco could be sold to Telstra would immediately red-flag to the ACCC, leading to all manner of competition concerns, and considerable delay.
Everything I have seen and read indicates that Theodey, and Telstra, is quite happy to have that conversation with Turnbull. But I believe it’s incredibly naive to presume they will simply hand over the CAN; whilst there is an agreement that indicates Telstra has the option of dismantling it’s copper network, it is not compelled to, as I understand it.
That means the incumbent can continue to retail, and seek rental from wholesale partners for however long it remains in the ground. That’s going to be a non-trivial value over the course of the next few years and I cannot, based on past history, believe that will be “gifted” to Mr Turnbull.
I don’t believe for a moment it’s that simple, and history shows that to be the case.
The Wizard or Wentworth won’t Expecto Patronum the actual realties as much he might think.
+1
Very solid post.
Actually Renai, it is not just slowing down the rollout, but along with the issue in NSW with access and cost for the use of the Power Utilities infrastructure are both having a major negative impact on the financials for the Prime Contractors and the sub contracors. At the low pricing of the contracts, steady continuous workload is a necessity, not a nice to have.
So they are not just impacting negatively on the NBN , but destroying businesses and lives in the process. To Telstra and NSW Power co’s just collateral damage I guess
I may be a little slow, but in talking to a friend who stated the NBN was a disaster and hopeless, I asked some questions.
The reason was her Parents(pensioners) and several pensioner family friends have the NBN. They also have their phone over the NBN.
The reason for their anti NBN stance is the telephone, it is unreliable, drops out during calls, the quality varies from occasionally good to disgusting.
Telstra has replaced their phone several times to no avail and her dad says it is that rubbish NBN.
All the affected services are Telstra.
So either poor fibre joints.
Problems with NBN’s ATA (Uni-V)
Problems with the providers exchange/implementation
There have been posts on Whirlpool and elsewhere indicating lousy Phone service via NBN, that were fixed and resulted in fantastic service by changing telephone provider.
Which IMO raises questions as to how come the premier telephone company provides such a poor service that the customers blame that rubbish Labor FTTH NBN and want their phone back on copper.
Taken in conjunction with all the other issues created by Telstra to handicap and delay and create a poor impression of the NBN how many dots do we need to join?
I really don’t think Telstra created a faulty NBN telephone service to make the NBN project look bad — that’s a conspiracy bridge too far, IMNSHO.
Renai, not an intentional maybe, but an interesting co incidence which could indicate inadequate or faulty VOIP infrastructure. One of the Whirlpool posts indicated another RSP (Not Telstra) had a poor phone service, change of provider problems gone.
I suggested to the friend that they get their parents to sign up for phone service with another provider that specialises in VOIP and see how that goes. Be interesting to see how that turns out
But the accumulation of coincidences is interesting.
Maybe some complaints registered by those affected could lead to solutions.
P.S you don’t have to create a faulty phone service, just have an excellent but temporarily faulty one
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