Bluff called, can Conroy still tame Telstra?

Bluff called, can Conroy still tame Telstra?

Summary: How well Stephen Conroy handles Telstra's challenge will determine whether we're hurtling towards a great new era in telecommunications, or fated to even more years stuck in the grip of Telstra's well-entrenched market position.

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It can't really have come as a surprise to many, but Telstra's decision to fight Conroy's separate-or-be-separated mandate has thrown a spanner in the government's plans to turn lion tamer and pry the copper loop from Telstra's hands once and for all.

By next year's election, one assumes Conroy will want to be able to showcase his many achievements as minister — and the taming of Telstra would have to be high on his list.

Not only will Telstra not come quietly, it turns out, but the company seems set to throw its weight around in an ever-fiercer wrestling match that could easily drag into next year and taint Rudd's plans for a smooth re-election.

That is not to say Rudd faces much real competition from the Opposition as it is currently operating; Nick Minchin's hollow opposition to the NBN will be as irrelevant during the election campaign as it is now.

However, by next year's election, one assumes Conroy will want to be able to showcase his many achievements as minister for Communications — and the taming of Telstra would have to be high on his list. The Rudd Government has shown itself able to be big on vision when unlimited budgets seem to be suddenly available, but if it cannot deliver a legislative outcome to match, it will face some very real problems next year.

Widely-perceived nice guy David Thodey can only be laughing from his executive chair. Although he has shied away from the belligerent defiance that marked his predecessor's tenure, there was no way Thodey was simply going to hand over the keys to Telstra's empire. The company's submission to the government's legislative inquiry minced no words in proving that Conroy has a long, difficult fight ahead of him in his effort to become a lion tamer — and that Thodey is quite happy to join him in centre ring as the government's nemesis.

The irony: even though Conroy was quick to work the media with his claims that Telstra was welcome to stay the way it is now, he was agitating for change in no uncertain terms — and change of which Telstra was a part. After all, the market may be able to work around Telstra, but it's expensive and time-consuming. Now that Conroy clearly won't get the compliance from Telstra he seemed to think he would, he faces some difficult choices.

Foremost among these, of course, is drafting legislation that will actually freeze Telstra out of new wireless spectrum offerings and divest it of its Foxtel holdings. Although Conroy positioned these two Telstra businesses as tools for forcing Telstra to the table over separation, the reality of the wireless market is that Telstra is just about the only telco with the capital-raising capabilities necessary to buy large blocks of expensive wireless spectrum for nationwide service coverage.

Sure, smaller telcos or consortia may cherry-pick key markets like they did in the 3G auction, but the real-world interest in LTE and the so-called "digital dividend" to be available in 2014 is still anybody's guess. Excluding Telstra from the process may serve political objectives, but it's also likely to hamper competition during spectrum auctions and deliver lower overall licensing revenues to the government once the sale of that spectrum is complete. This is hardly ideal.

Ditto Foxtel: Telstra's warning that divesting the company of its share in Foxtel will see the content provider snapped up (and, by implication, muzzled) by media conglomerates is hardly far from the realm of possibility. Foxtel's ongoing success would make it an attractive target, and the government will have to consider how this scenario would affect its media ownership policies.

Furthermore, and correct me if I'm wrong, but there would seem to be little precedent for mandatorily divesting companies of their assets or shares in joint ventures when there have been no allegations of impropriety. This really is blue-sky territory for Conroy, with ponderous litigation and blown-out time frames a near certainty as Telstra resumes its official policy of foot-dragging and Conroy tries to find the right balance of kindly coercion and hard-nosed legislation.

Conroy can't back down now ... to flat-out cave to Telstra's demands would reposition Conroy as a toothless tiger beholden to Thodey's [whim].

The big problem is that Conroy can't back down now, although as I have already suggested he seems to already be treading that line. However, to flat-out cave to Telstra's demands — even its rather presumptuous attempts to influence the timetable by which government legislation is decided — would reposition Conroy as a toothless tiger beholden to Thodey's lion-hearted resolve.

This outcome would serve nobody but Telstra, perpetuating the status quo and forcing Rudd and Conroy back to the crisis table as they continue to try to deliver their NBN vision without bankrupting the country. Unfortunately, however, as always Telstra retains the power that inertia provides: it is Conroy's job to change the situation, and quick. If anything is actually going to change, it needs to be Conroy with the whip in hand.

Staring down a wild beast always carries risks, and Conroy certainly has his hands full. How well he handles this new challenge will determine whether we're hurtling towards a great new era in telecommunications — or fated to even more years stuck in the grip of Telstra's well-entrenched market position.

Were Conroy's separation terms just empty threats? Could an unshackled Telstra become a key election issue? What should Conroy's next step be?

Topics: NBN, Broadband, Government AU, Telcos, Telstra

About

Australia’s first-world economy relies on first-rate IT and telecommunications innovation. David Braue, an award-winning IT journalist and former Macworld editor, covers its challenges, successes and lessons learned as it uses ICT to assert its leadership in the developing Asia-Pacific region – and strengthen its reputation on the world stage.

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53 comments
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  • zzzzzz

    gee...who couldn't see this one coming?

    I'm sure Conroy, as much as i'd personally like to think so, isn't a complete idiot. He would not have made threats wildly without a contingency. If (as David says above) Conroy wants to take some shiny trophies to the next election, we can surely expect the big guns to come out blazing, and fast.
    anonymous
  • stick with it

    Let's hope Conroy see this through. This country needs it. That Telstra is now starting to play the jobs and shareholder cards (more) is telling. Does anyone really think that those in charge at Telstra truly care about eliminating sour outsourcing someone's job?! Does anyone think that with cheaper retail prices, demand will drop and jobs will erode...? Telstra needs to separate, if not voluntarily then by legislation. They had their chance. Which should give their shareholders some food for thought: Dominant market leader in the telecoms realm unable to grow share price over many years....?! Blames having to support infrastructure for other companies...but now doesn't want to split it out...? Having cake and wanting to eat it too?
    anonymous
  • ....stick with it

    Seems to me, that you and a few others have nothing better to do do, than continually berate Telstra shareholders, for being nothing more than Telstra shareholders. One moron in particular continually slams the company, and constantly refers to "greedy Telstra shareholders" and then comes out saying he will buy Telstra shares, if and when they go down to $ 3.00. If that is not being a rank idiotic hypocrite, then I don't know who is. And you sound exactly like he does, a complete idiot. But what goes around comes around, and you clowns will eventually get your just desserts.
    anonymous
  • ....stick to it

    Seems to me, that you and a few others have nothing better to do do, than continually defend Telstra shareholders, for being nothing more than Telstra shareholders. Gotta love the old shareholder, as the price goes down they call more people moron and clown but whose the one here who still has those paltry shares. I sold my T3 I paid $2.22 for first day of trading, for $3.24 and got my just desserts with cream and a cherry on top, just like you could have. So who is the complete idiot?! $3 for full Telstra sounds like $3 to much to me.
    anonymous
  • Telstra vs. Conroy

    Just a question to all out there but isn't it illegal for a government to force this kind of thing on to any company?

    If this is the case, Telstra only needs to push it and end of story.

    Conroy is all hot air and this is very dangerous when a government offical. From day one he has proven that he has no knowledge of what to do and it appears that he dreams up things and then runs with them hoping the technology is available. He actually reminds me of a 2 year old with a new toy, I would say 4 or 5 year old but 4 or 5 year old kids know more about technology them him.
    anonymous
  • ....keep sticking to it !

    Well well well, lets all give three cheers for this genius, duh !
    anonymous
  • Separation

    You state that Telstra needs to separate. Why does it need to separate?

    Cheaper retail prices. I do not think so as the ACCC sets the wholesale price.

    Access to exchanges. Maybe but when an exchange is full it is full. If Telstra has delayed removal of old unused cable to delay access then they will get caught out as seen recently.

    I think the only reason the govt wants Telstra to separate to avoid any competition to it's NBN. If Telstra was able to keep its cable access network then a lot of people who are happy with thier existing service (regardless of the ISP) they will have no reason to change to the NBN. This would make to business case for the NBN that much harder to justify.

    If I have overlooked anything I am sure someone will tell me.
    anonymous
  • That doesn't matter.

    It doesn't matter if it's illegal or not as long as they say they are doing it for the sake of all the Australians. They create the law anyway.

    The point is that they need to make sure that there are more people who are happy with what they are doing and are willing to vote for them in the next erection than people who aren't
    anonymous
  • Yawwnnn

    Of course Telstra will whinge endlessly about the changes needed to give the customers a fair go. Monopolies can always think of a hundred reasons why they should keep their monopoly power.

    Anyway, what else could Telstra do with their wellknown spin dept, plus the huge legal dept they have created in-house?
    anonymousI
  • Monopolies

    Monopolies such as the NBN Co, you mean, or monopolies that actually have some competition?
    anonymous
  • Well well well duh

    I made $1 per share and you are losing probably three times that, duh. Yep three cheers for the genius. Seems by calling others morons and idiots you are already getting your just deserts...deserts with 1 s, it's not cheesecake... genius...!?
    anonymous
  • Wireless spectrum prices

    Hi David.

    In relation to wireless spectrum, you said:

    "Although Conroy positioned these two Telstra businesses as tools for forcing Telstra to the table over separation, the reality of the wireless market is that Telstra is just about the only telco with the capital-raising capabilities necessary to buy large blocks of expensive wireless spectrum for nationwide service coverage."

    Spectrum is sold by the Government at auction. If the price is high, it's only because cashed-up operators like Telstra are prepared to bid billions on it.

    If Telstra is excluded from the auction, I'd expect the price to be substantially lower, and the notion of "expensive" spectrum for nationwide coverage will need to be reevaluated.

    That'll have flow-on effects, of course. Spectrum auctions are a major cash cow for the Government, they're essentially selling the gaps between the air molecules for billions of dollars :-) If the price falls, Commonwealth revenues from selling it will also fall, and the Government will need to find some other way to prop up its income.

    Complicated, eh?
    anonymous
  • Fair go is finished.

    Australians are seeing a dictatorial and vindictive Government use blackmail and threat to gain advantage for their NBN monopoly.

    Where is the ACCC that is expected to promote competition and where is the Future Fund that spoke up to get rid of Sol but is now silent, supposedly reluctant to offend the Government.
    anonymous
  • re Fair go

    Sydney?
    anonymous
  • yes, and there are

    more than 1.44 million people that are happy with what they're doing. You have my vote Mr Rudd. God bless the NBN, please also bless Sydney and Vasso's TLS shares too, just this once.
    anonymous
  • No rhythe or reason.

    Keep calm Senator. Sydney Lawrence -- 04/10/07

    Oh Dear Senator COONAN displays all the mental capacity of the original neanderthal.

    Her attacks on the Telstra Executives show her (and her Governments) panicking desperation///

    Respect please Sydney Lawrence -- 22/05/08

    Please do not be so discourtious as to put words into Senator Conroys mouth.

    He has said that he will look at every angle of the situation and decide what is best for Australia and Australians///

    Although Senator Conroy has done exactly that, he's now a blackmailer and our friend will again be voting for the Neanderthals.

    Oh how the story and players change, while there's only ever one constant, who is always right no matter what.

    Begins with T and ends with elstra.
    anonymous
  • Re: Telstra vs. Conroy

    If Telstra can prove in court that they will not receive a fair market value from the governments break-up & compulsory acquisition of its assets then Telstra may be able to create a big legal problem.

    Furthermore, if this goes to court, then every major institutional investor on the planet will take serious interest (not that some aren't already) in how Rudd treats investors, especially given that Rudd wants to raise more debt in bond sales & eventually sell-off the government holdings of the NBN.

    There's also some noise by Conroy that Telstra may become richer from a break-up, just like his rhetoric of the internet filter, his point simply is not true. Re: http://www.theage.com.au/business/conroy-doesnt-hold-all-cards-20091012-gu2q.html
    anonymous
  • Re: Separation

    You're correct. It's shocking that the government wants to take Telstra's HFC (hybrid fibre coaxial cable) when it was only originally rolled out because Telstra supplied the debt (monies) to do so. It also took several years for Telstra to make any profit from the cable network.

    Furthermore, it's interesting to note that in Hong Kong, Singapore & Portugal, some cable networks now offer 1gbps (1000mbps) download speed - with all programming being IPTV. Why would any residential (not business) customer bother with 100mbps NBN?
    anonymous
  • Re: Wireless spectrum prices

    "and the Government will need to find some other way to prop up its income."

    Simple. Rudd will raise taxes.

    They will raise the compulsory super contributions from 9% to 12% (note: it's a 33% increase - not 3%) with extra taxes on top for voluntary contributions.

    The Henry tax review will also be a sham, with the full tax rate for personal capital gains coming back in full force.
    anonymous
  • Some choice Mr Conroy.

    The blackmail and threats that I refer to are obvious.

    The "choice" that Mr Conroy refers to is the "choice" you have when a gunman puts a gun to your head and gives you the "choice" to give your money to him OR cop a bullet in the head.
    anonymous