News, Telecommunications - Written by Renai LeMay on Monday, February 3, 2014 15:27 - 12 Comments
NBN Co director Milne has Netcomm conflict of interest
news New NBN Co board director Justin Milne has a second significant conflict of interest which he does not appear to have resolved, it has emerged, as questions continue to swirl around the appointment process for NBN Co’s new board and executive team under the Coalition.
In November last year, Communications Minister Malcolm Turnbull announced that he had appointed three senior executives to be non-executive directors sitting on the board of the National Broadband Network Company. The trio were Internode founder Simon Hackett, construction industry senior executive Patrick Flannigan and Justin Milne, the former leader of Telstra’s BigPond division.
Immediately after the trio were appointed, questions were raised about the degree to which the trio of executives could truly be considered independent members of NBN Co’s board, given their involvement in other enterprises in Australia.
Hackett, for instance, at the time was a board director of iiNet, one of Australia’s largest retail telcos and a direct customer of NBN Co, retaining some $37.9 million worth of shares in the company, courtesy of its acquisition of his company Internode. For his part, Flannigan is chief executive of a company he founded, Utility Services Group, offers construction services to the utilities (for example, water and gas) and telecommunications sectors across Australia, and would potentially be in the bidding for NBN construction contracts.
And Milne had perhaps the biggest conflict of interest of all. In October it was reported that Milne still held 305,000 Telstra shares, worth around $1.5 million at the time. The shares would place Milne in a direct conflict of interest with respect to NBN Co’s negotiations with Telstra, as any fluctuation at all in Telstra’s share price would be likely to have a significant impact on Milne’s shareholding.
Subsequently, some of those conflicts of interest have been resolved.
In mid-November, for example, Milne confirmed plans to sell his Telstra shareholding. Hackett also noted that he had committed to departing the iiNet board at the end of November, a move which will end his formal involvement in both iiNet and Internode. The executive pointed out that he had sold down half of his iiNet shareholding only a few months prior to that point; he had no immediate plans to sell the remainder of his shares.
Flannigan declined to comment when asked about the issue by Delimiter. However, it is believed that the executive’s potential conflict of interest is not likely to become a major headache for the executive in his work with NBN Co, due to several factors. Firstly, USG’s area of specialisation lies more in the utility sector than it does in the telecommunications sector. Secondly, if the company did pick up NBN construction work, it would likely to be one level removed from the major NBN contracts NBN Co has awarded so far — USG would likely act as a subcontractor to much larger contracting firms.
However, one major conflict of interest which was overlooked at the time was Milne’s close involvement with another Australian company, which is a direct supplier to NBN Co: Netcomm Wireless.
Netcomm is best known in Australia for manufacturing routers and modems to suit a variety of connection types, from 3G/4G mobile broadband to ADSL and Wi-Fi. It has also recently been diversifying into the Machine to Machine (M2M) connectivity market.
And the company has a substantial contract which directly relates to NBN Co. In August 2011, Netcomm announced that it would supply outdoor routers and connection equipment to aid in Ericsson’s $1.1 billion deal to build NBN Co’s fixed wireless network throughout rural and regional Australia. At the time it was reported that the deal could be worth up to $200 million for Netcomm — five times its current annual revenues — although Netcomm chief executive David Stewart played down the value of the contract, noting that the amount would depend on how much equipment was needed for the rollout.
Currently, NBN Co’s fixed wireless rollout is progressing very slowly. For the week ending 26 January, NBN Co had only passed some 66,302 premises with its wireless broadband solution, of which only 7,728 had chosen to activate their NBN wireless connection.
Netcomm’s 2013 annual report states: “The Ericsson NBN fixed wireless contract is a key domestic M2M contract. We are confident that this contract will deliver substantial value to the company. However, there have been ongoing delays in the rollout of the NBN, principally associated with long haul fibre and wireless tower completions, which have delayed revenue generation to the company. We anticipate small volumes in FY14 with a substantial ramp up in FY15 and FY16.”
However, any benefit to Netcomm that would impact the company’s share price is likely to substantially benefit Milne personally. Appointed to Netcomm’s board in March 2012, the executive currently holds the position of non-executive chairman at Netcomm. As of last year, he held some 180,588 shares in the company, amounting to around $64,000 at the company’s current share price. In addition, the executive makes a salary of $79,000 from Netcomm each year.
A spokesperson for Minister Turnbull was invited to comment on Milne’s Netcomm position last week, but has not yet done so. Turnbull’s initial announcement regarding Milne’s appointment only noted that he was a “non-executive director” of Netcomm — but not that he is actually chairman of the company.
The news comes as questions of conflict of interest and the appropriateness of executive appointments continue to dog NBN Co as well as Communications Minister Malcolm Turnbull personally.
In August 2012 Turnbull disclosed a new financial investment in France Telecom that placed the then-Shadow Communications Minister in a significant conflict of interest situation with respect to the French telco, due to its extensive business operations in Australia through its Orange Business Services brand, including some 240 local staff. Orange is likely to utilise NBN Co’s network resources as the company’s network rollout grows.
Turnbull also made investments in international telcos Sprint in the US and Telefonica in Spain at the time.
In addition, there are questions around appointments which NBN Co has made since Turnbull became Communications Minister. Several executives appointed during Turnbull’s time at NBN Co — including Milne and also JB Rousselot, who is heading up NBN Co’s transformation effort — have close personal relationships with Turnbull and have worked with the Minister in the past.
Update: Delimiter has received the following comment from the office of Communications Minister Malcolm Turnbull on this issue:
“Netcomm is not a direct provider to the NBN Co. It provides wireless routers for Ericsson, which in turn provides a complete fixed wireless service for the NBN Co. As such, NetComm is not in direct commercial negotiations with the NBN Co. At the outset of Mr Milne’s directorship, his current position at Netcomm was declared and Netcomm’s position with Ericsson was declared to both the shareholder minister and the chairman.
Netcomm sought legal advice on potential conflicts of interest and Mr Milne has agreed to recuse himself from any Board meetings where such a conflict may arise. It should be noted that Mr Milne has divested all his Telstra shares since he took on the NBN Co directorship.”
Image credit: Telstra
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