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opinion/analysis - Written by Renai LeMay on Thursday, September 12, 2013 10:38 - 33 Comments
Reality check: Appointing “Dr Ziggy” to run NBN Co is a terrible idea
full opinion/analysis by Renai LeMay
12 September 2013
Image: Australian Workforce and Productivity Agency
Ziggy Switkowski spent just one year at Optus during a time of chaos, led Telstra into a deep stasis in the 2000’s and hasn’t touched the telecommunications industry for the past decade. And yet Communications Minister-elect Malcolm Turnbull reportedly thinks he’d make a great choice to run the National Broadband Network Company. Can I please have some of what he’s smoking?
If you read Australia’s business media over the past week, you would have been hard-pressed to escape the fact that several of its seasoned commentators, not to mention Malcolm Turnbull himself, appear to have some sort of steamy love affair going on behind the scenes with former Telstra and Optus chief executive Ziggy Switkowski, who rumours claim has been tapped on the shoulder by Turnbull to run NBN Co for the next several years.
‘Seasoned’ business commentator Terry McCrann — whose warblings for the Herald Sun your writer habitually regards with a high degree of suspicion — has appointed himself the leader of the love brigade, gushing that “Switkowski is precisely the best person” to reform Labor’s NBN project in the Coalition’s image.
“Not only,” raved McCrann, his heart fluttering rapidly in paroxyms of delight, had Switkowski spent time “inside the Telstra CEO’s office” (making it sound as though Switkowski was some kind of glorified secretary), but “he understands better than just about anybody both the business and technical dynamics for both Telstra and the broadband network”. Wow. An unqualified recommendation from a News Limited newspaper. Sounds objective.
BBY telco analyst Mark McDonnell, normally noted for his calm head, also came out of the woodwork to profess his undying support for the executive, telling the ABC that any issues associated with Switkowski’s ignominious exit from Telstra ten years ago were purely water under the bridge. “He certainly has telco experience having been managing director of both Optus and Telstra,” McDonnell said. “That is ten years ago now. The issues have moved on.”
Of course, by far the most effusive support for the love doctor came from Turnbull himself, who struggled to contain his enthusiasm on the issue of Switkowski’s appointment, in an interview with dubious ABC News Breakfast co-host Virginia Trioli. Clearly Trioli didn’t feel the mood in the air.
“He’s obviously highly qualified and I think most people would regard him as an eminently suitable person,” effused Turnbull in response to Triolo’s question on the issue, before, almost as a dreamy afterthought, adding that he couldn’t comment on the issue and that it would be a matter for Tony Abbott’s new cabinet. Of course, as he had said earlier in the piece, he would be the Minister in charge of making the recommendation.
As I read all of these pieces and watched Turnbull’s performance on the ABC, I couldn’t help but laugh. What kind of wonderful happy high herbs had all these grey-hairs been partaking of? Were the glory years of the 1960’s experiencing a resurgence? Was I missing out on some kind of love renaissance directed at the person of Ziggy Switkowski? Had I been left out of some critical background briefing?
The problem with all these unqualified recommendations that Ziggy Switkowski take the helm of NBN Co under a Coalition Government is that, to anyone who’s spent some time in Australia’s telecommunications industry, they have the aura of re-writing history. Switkowski has a very chequered past in Australia’s telecommunications industry; and yet this dubious past, and his decade-long absence from the sector as a result, appear to have been airbrushed from his new glossy PR appearance in the media. I guess we shouldn’t be surprised: After all, Turnbull is a master of media manipulation.
So let’s spend some time filling in the blanks.
Those of you with more than surface-level knowledge of Australia’s telecommunications industry will remember that Switkowski trained as a scientist; the “Dr”, which he so casually appends to his name, comes from his PhD in nuclear physics, gained at the University of Melbourne. And let there be no bones about it: Switkowski did spend a great deal of time in research. Ultimately, however, he ended up working in more practical roles; for close to two decades he worked for Kodak, eventually ending up as the managing director of the photography giant’s Australian operations from 1992 to 1996. Under Switkowski’s leadership, the company forged new relationships with the Government that allowed it to stay afloat locally.
It was at this point — with little to no experience in the telecommunications industry — that Switkowski was appointed to lead Optus.
At the time, this wasn’t particularly view as an unusual move. From one perspective, both Optus and Kodak were engaged in the local technology market, and both were huge retail brands. Switkowski’s remediation of Kodak had left the executive with a good reputation. Plus, the relative newness of Australia’s telecommunications industry meant that qualified executives were hard to find; Optus’ first leader was McDonalds’ executive Bob Mansfield.
In addition, it’s also possible to argue that Switkowski was, in fact handed a poisoned chalice at the time. If you read the Communications Workers’ Union’s insightful backgrounder piece on Optus’ history, it seems clear that when the executive took Optus’ reins, the company was already being torn asunder.
As Australia’s second major telco Optus had done a decent job of wresting many long-distance and mobile customers from Telstra and was making inroads into other areas. It had also inherited a substantial satellite business. However, the company’s rollout of a HFC cable network — designed to provide pay TV services and broadband to metropolitan areas — had landed the company with massive capital costs, and there was vast disagreement between its current major investors, and potential future investors or buyers, about what should be done with the company. The issue of foreign ownership was also raising its ugly head.
There was also the problem, as the ACCC’s account of the time details (PDF), that Optus had completely failed to account for the fact that Telstra was also rolling out its own HFC cable network, and, without intervention by the regulator, would just overbuild Optus’ effort, stymieing any ability for Optus to recover its (large) costs. And other legal issues, involving sports groups such as Superleague, were also bedevilling the company.
Optus would eventually resolve many of the technical problems with its network; it would in 1997 ink an agreement between its major shareholders, under Switkowski’s watch, and it would eventually list on the Australian Stock Exchange in 1998, before being bought by Singapore’s incumbent telco in 2001. However, Switkowski didn’t stick around for long — little over a year after taking on the Optus nightmare, he was out the door with a $4.85 million severance payment and in a new role leading Telstra’s business and international divisions. It was a tough time for Optus, and I’m sure the executive was glad to get out of it.
Only a year and a half later, Switkowski was appointed in early 1999 to what must have seemed a much more prestigious and safer role at Telstra as the company’s CEO.
Now, it must be said that, at a gross level, Switkowski did improve Telstra’s fortunes. In the five years until his departure from the telco in December 2004, the executive oversaw a massive expansion in the uptake of Internet services through the telco’s BigPond division, as well as through its wholesale division (selling services to rivals such as Optus, iiNet, AAPT, Internode and so on). The company’s partnership with News Ltd in their Foxtel joint venture flourished on Telstra’s HFC cable network. Revenues rose several billion dollars over the period. Switkowski developed Telstra’s advertising and directories business, which would eventually become Sensis, and pushed the company to keep its mobile network up to date. The executive also developed a solid working relationship with the then-Howard Coalition Government, especially Finance Minister Nick Minchin and Treasurer Peter Costello, working on the second tranche sale (T2) of Telstra shares to the public.
However, in the end run, it’s not Switkowski’s pure financial success that we should be interested in, when it comes to examining his fitness to roll out the NBN. And it must be said that there were several defining factors about Switkowski’s tenure at Telstra that corresponded clearly with his equivalent role at Optus, and give deep insight into this potential future.
Firstly, at neither company did the executive actually conduct a significant network infrastructure rollout, and certainly not of the kind which NBN Co is currently engaged in. Optus’ dramatically cut short its HFC cable rollout in 1997, and Telstra did the same that same year in response, meaning Switkowski only had a very small period overseeing either rollout.
Telstra did not conduct substantial upgrades to its national mobile network during Switkowski’s tenure at the company, unlike its massive ‘Next G’ rejuvenation effort under Switkowski’s successor, Sol Trujillo in 2005 and 2006, and it was not engaged in rolling out any widespread fibre-optic networks during his leadership. Primarily, at that stage, the company was involved in upgrading its telephone exchanges with ADSL equipment, which do not require any physical construction work to install.
During Switkowski’s time at Telstra, the only substantial hard fixed-line telecommunications construction efforts the company was involved in included laying international submarine cables, and backhaul fibre rollouts connecting regions, both of which are qualitatively different from the street by street access network construction which makes up the bulk of NBN Co’s work. The company’s main network work, apart from these piece jobs, was actually the ongoing maintenance of its copper network.
Secondly, Switkowski exited both companies under acrimonious circumstances. His departure from Optus came prematurely and in the middle of corporate chaos, and the executive was asked to leave in December 2004 by Telstra’s then-board, led by chair Donald McGauchie. Part of the problem was Switkowski’s bad relationship with McGauchie, who had taken the chair role in April that year. But part of the problem was that Switkowski, with aborted plans to buy newspaper group Fairfax and TV channel Nine in the picture, had not been able to articulate a clear future direction for Telstra.
McGauchie eventually found a leader who could articulate that vision — Trujillo — and Switkowski left Telstra with yet another golden handshake, this time of $2 million. However, this doesn’t change the fact that the good doctor had not been able to take either Telstra or Optus forward with vision.
Switkowski’s lack of experience in deploying fixed-line telecommunications networks is of particular importance, given the fact that NBN Co’s own rollout of fibre in Australia has been significantly delayed. Turnbull himself has highlighted this issue constantly over the Liberal MP’s past three years as Shadow Communications Minister.
Just this week, the Earl of Wentworth told the ABC: “While I have no criticism to make of any of the individuals, it is remarkable that there is nobody on that board who has either run or built or been responsible for building, or managing a large telecommunications network. And given that is the core business of NBN Co, that is a singular deficiency.”
And earlier this year, Turnbull said about current NBN Co chair Siobhan McKenna: “… we know that Siobhan McKenna, the chairman, who by the way has no experience in the telecoms sector, she’s never built a network or run a network, she’s a management consultant. So there’s real questions about her capacity to chair this business.”
There is no doubt that Switkowski does have experience running a major telecommunications network — the executive has that from both Telstra and Optus. However, based on his time at each company and his acrimonious exit from both, one must also agree that there are real questions about his ability to chair a company of the scale of NBN Co; in addition, it is clear that NBN Co’s main business right now is not running a telecommunications network, but building one, and on this front, Switkowski has very little experience indeed.
It is extraordinary that Turnbull, who has focused so heavily on the qualifications of NBN Co’s board members and executive team to rollout telco infrastructure, should ignore the fact that Switkowski has not broadly been involved in such rollouts.
In comparison, it must be said that the experience of NBN Co’s outgoing chief executive Mike Quigley paints a stark picture, compared to Switkowski’s. Quigley spent 36 years at French telco giant Alcatel before joining NBN Co in mid-2009. In his role leading the company’s American operations in particular, Quigley worked very closely with giant US telcos on deploying fixed-line telecommunications infrastructure such as fibre to the premises and fibre to the node infrastructure. The executive is also intimately aware of the networking products which go into such rollouts. Switkowski can boast none of these strengths; he’s not an engineer by training (Quigley is), he doesn’t have experience deploying modern telecommunications networks, and his actual experience running telecommunications companies in general is limited to about seven years.
Then, too, we must also consider that Switkowski has not held a post in the telecommunications industry since he left Telstra in 2004 — nine years ago.
In that period, Switkowski has been involved in overseeing Australia’s nuclear power and research industries. The executive has held a variety of director roles — with financial giant Suncorp, with the Australian Centre for the Moving Image, with Healthscope, with Tabcorp, with Lynas Corporation, Opera Australia and the Business Council of Australia. In October 2010, it was the Royal Melbourne Institute of Technology (RMIT University) announced that Switkowski would become its Chancellor. But none of these roles have seen the executive have direct involvement in the telecommunications industry; and certainly not with network rollouts.
It’s obviously possible to argue that executives don’t need to have recent telecommunications industry experience to oversee NBN Co from a director or even chairman level; these board roles are primarily oversight positions. And professional executives such as NBN Co’s current chairman Siobhan McKenna can still do excellent jobs in these roles, despite a lack of direct industry experience. Indeed, McKenna’s time at NBN Co has been characterised by a firming in the oversight by the board of the company’s executive team led by Quigley. That is the board’s role.
However, Switkowski’s name is being thrown around as more than just board chairman. McCrann mentioned specifically that the former Telstra and Optus CEO could be named ‘executive chairman’ — in other words, leading both the board and NBN Co. In this position, Switkowski would have direct oversight of NBN Co’s fibre to the node rollout under the Coalition — a rollout style which he has never personally been involved with.
What this all adds up to is precisely the kind of inappropriate appointment which Turnbull has repeatedly accused NBN Co of. An executive with little network rollout experience, who has been out of the telecommunications industry for the past decade, and who was asked to resign the leadership of Telstra by its board? Doesn’t precisely sound like a recipe for success to reform NBN Co along the Coalition’s preferred lines.
I’m not the only commentator who is thinking along these lines. The Australian’s John Durie, who has been around long enough to remember Ziggy’s stint with Telstra, pointed out in a fiery article yesterday that such a move would be extraordinary, and backed the point that he does not have substantial network construction experience.
“Ziggy Switkowski’s reported imminent posting as NBN Co chairman marks an extraordinary resurrection for the man who was unceremoniously dumped by the Telstra board eight years ago,” writes Durie. “If the government is looking for a network construction expert as chairman, Switkowski would not be the first choice. While clearly a very experienced telecommunications company executive from his days at Optus and Telstra, there is a sense of irony in some circles at him being anointed as the “telco” expert.”
David Havyatt, a long-time telco executive and erstwhile senior policy advisor to both of Labor’s recent Communications Ministers, Stephen Conroy and Anthony Albanese, had this to say about Ziggy on his personal blog this week:
“Mr Turnbull has repeatedly said the NBN Co Board needs experienced telco people, especially those who can roll out a network. This just doesn’t seem to be a description of John Howard’s former nuclear power adviser. His record as a CEO is: Turned Kodak around – temporarily – only after a large subsidy from the (Labor) Government; Could not deliver a strategy for Optus; [and] had a disastrous record of $5 billion in acquisitions at Telstra and ended by contemplating – while still majority owned by the Government – buying the Nine Network. One just wonders what he could do for NBN Co.”
One may also recall Conroy’s own comments, as then-Shadow Communications Minister, when Switkowski was ousted from Telstra: “The key issue here is performance and the golden handshake and whether it’s entitled to it … Under Dr Switkowski, thousands of Telstra employees have lost their jobs, billions of dollars have been lost overseas and Telstra’s share price has gone down significantly.”
Of course, it’s not as though Turnbull (and the Coalition in general) is averse to a little revising of history along the way to reforming NBN Co. During the election, fibre to the node, a transition technology to an inevitable fibre to the premises future, became the latest and greatest technology in Turnbull’s speeches, Telstra became a meek and gentle giant who would roll over and give NBN Co access to its copper network without objections, and NBN Co’s solid executive team, led by Quigley, became a children’s day care centre staffed by incompetents. Perhaps Turnbull feels enough time has passed since Switkowski’s time in the telecommunications industry for most people to have forgotten the executive’s past history. Perhaps he’s right.
But not everyone was born yesterday; and for many, any attempt to pass “Dr Ziggy” off as the man to save NBN Co will come as a bit of a hard sell. Switkowski probably wouldn’t make a terrible NBN Co chairman, although appointing him in that role would demonstrate hypocrisy on Turnbull’s part due to his lack of network construction experience. But giving him executive powers is not a responsible option. We can only hope Australia’s likely future Communications Minister recognises this truth.
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