Quigley's job is straightforward

NBN Company executive chairman Mike Quigley and six other board members to be named this week have a series of straightforward "buy or build" decisions to make about Australia's fibre future.

commentary The future of telecommunications in Australia is rapidly getting away from Telstra — and all of its competitors as well.

In fact, it might have got away already. From this week, the big decisions about national communications will no longer be political, but simple, unemotional business decisions, and the question of whether Telstra has good or bad relations with the government is now irrelevant.

The question of whether Telstra has good or bad relations with the government is now irrelevant.

Specifically, Mike Quigley, appointed executive chairman of the NBN Co over the weekend, and six other board members to be named this week, have a series of straightforward "buy or build" decisions to make. And it would be very surprising indeed if they decided to start by buying copper, or even old fibre.

Quigley, one of the world's top telecommunications executives, has been appointed by the Australian Government to build a new fibre-to-the-premises (FTTP) broadband network — not to build fibre-to-the-node or to spend the taxpayers' money on buying copper-based ADSL from the people to whom the government sold it.

The brief is fibre all the way. The government has budgeted $4.7 billion from the Building Australia Fund as initial equity and will meet the rest of its 51 per cent share of the cost with debt. The NBN Co board's job is to privately finance the rest of the cost — whatever it might be — and to employ up to 37,000 people in building the network.

The government's $20 billion or so in equity and debt will get the project a long way down the track before any purchases will be needed at all.

The project was kicked off in Tasmania yesterday with a greenfield build and there will be many more such announcements by the Prime Minister and Mike Quigley, with local Labor MPs happily nodding within camera shot, between now and the next election.

The government has also said that part of the 49 per cent set aside for the private sector can be financed by the NBN Co buying network assets and paying for them with shares in the company, but there will be absolutely no hurry for that.

It's been assumed by many, including by me, that Telstra will be at the top of the vendor queue and could even end up with the entire 49 per cent, since the value of its network assets is arguably equal to that percentage of the total budget of $43 billion for the NBN.

But Mike Quigley will be careful in what he buys. He certainly won't blow his entire FTTP budget buying copper strands from Telstra.

If Telstra has some useful fibre assets, he might buy them — but only if that's cheaper or more efficient than building them. And Quigley will only be interested in the latest and best technology — he won't be interested in any of Telstra's old stuff.

Also, remember that Telstra must "structurally separate" if it owns more than 15 per cent of the NBN Co, so there is a cap on how many assets it can sell to Mike Quigley without a risky demerger.

And while it has been assumed that the NBN Co might buy Telstra's network assets to get ownership of the underground ducts that it needs to lay fibre to all of Australia's premises, it already has access to those ducts through the ACCC's Facilities Access Code and emphatically does not need to buy the contents of them to get access. That's what the access code is for.

Quigley will only be interested in the latest and best technology — he won't be interested in any of Telstra's old stuff.

Telstra owns fibre running to its 5000 telephone exchanges. The problem is that in the new world, those exchanges are mostly useless: the fibre simply bypasses them and the switching is done by software at head office. So buying fibre running to useless exchanges may not be a high priority for Mike Quigley.

This is a problem for all of Telstra's broadband competitors as well. The ACCC has forced Telstra to give them access to the exchanges to install digital subscriber line access multiplexers (DSLAMs) and access to the "last mile" of copper to serve customers.

All of those DSLAMs will be as useless as the exchanges and the copper. Some of the competitors, such as Optus and Nextgen, own fibre assets that Quigley might want to buy, but again — only if that is cheaper than building them.

The good news for Telstra and the rest of Australia's telecommunications industry is that it will take a few years for Quigley's team to build the NBN, and in the meantime they have a nice high margin broadband business. Once the NBN is built they will be able to buy access to it.

But will it be at a price their own customers want to pay while allowing a margin for them? Who knows? It might even be expensive enough that cheap ADSL has a future as well, possibly even a long enough future to see out David Thodey and the rest of the current Telstra board.

But the shareholders who have just finished paying for the network they bought from the government will soon find themselves in competition with the vendor.

They should have demanded a "non-compete" clause in the prospectus.

Business Spectator

This article by Business Spectator's Alan Kohler is reproduced on ZDNet.com.au courtesy of a reciprocal publishing agreement.

Newsletters

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
See All
See All