Has Turnbull already negotiated FttN NBN concessions with Telstra?

Has Turnbull already negotiated FttN NBN concessions with Telstra?

Summary: Stephen Conroy and Malcolm Turnbull's online debate proved that there's no love lost between the two NBN visionaries — and that Turnbull's strategy is based on blind optimism about Telstra's generosity.

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It's a good thing Malcolm Turnbull and Stephen Conroy were in different states during their ZDNet Google Hangout debate, or shoes might have been thrown. Yet as post-debate analyses focus on the love obviously not lost between the country's two warring NBN visionaries, a far more significant point must be made.

Turnbull-Hangout
(Image: Screenshot by David Braue/ZDNet)

That point is, simply, that Malcolm Turnbull is sharing nothing about his plan to convince Telstra — a century-old monopolist that has shown remarkable agility in delaying the competitive market and in bending government to its will — to completely rework its $11 billion contract with the government for its transition to a fibre-to-the-node (FttN) policy.

If you watch the very interesting debate between Conroy and Turnbull, you will notice that Turnbull, when first asked about the complications of renegotiating the largest telecommunications agreement ever penned in Australia, simply dodged the question — utterly and completely.

This is par for the course with Turnbull, and it took a follow-up question from moderator Josh Taylor, delivered towards the end of the debate, to get Turnbull to confirm that he believes Telstra will simply give the Coalition its copper access network (CAN).

"We are absolutely satisfied we will get access to the D side copper without any further payment," Turnbull said. "We are very confident we can access their copper without any additional charge."

I don't know about you, but I've never rented a car for several days, returned to the office, and had them say, "don't worry about it; keep the keys and take the car home with you". Maybe I'm just using the wrong rental car company.

Yet, this is exactly what Turnbull seems to expect from Telstra — and he was quick to then dismiss Conroy as a negotiating ingénue, who: "If he were competent, would have negotiated an option over that copper."

Had Turnbull been negotiating the contract, he would apparently not only have secured unfettered access to Telstra's CAN, but would have done it at a vastly reduced price. And, I guess, had David Thodey washing his car on weekends for 10 years as an added concession to the thunderous negotiating power of the Coalition government.

In his defence, there have been suggestions that Labor may not have been as hard on Telstra during negotiations as it should have — but Labor did not want to buy the CAN, and the Coalition shouldn't either.

I don't know about you, but I've never rented a car for several days, returned to the office, and had them say, "don't worry about it; keep the keys and take the car home with you". Maybe I'm just using the wrong rental car company.

Given the immense market power that Telstra can retain simply by dragging its feet, the fact that the contract was signed at all was no small achievement. For Turnbull to suggest from Opposition that he can simply bend the company to his will, seems hopelessly optimistic — but that's exactly how his cocksure arrogance plays out.

I can only imagine David Thodey sitting deep in his C&C bunker, quietly chuckling to himself and stroking a purring chinchilla.

Interestingly, Tony Abbott is on the record saying that the Coalition isn't "interested in going to war with Telstra".

"I think we have seen too much conflict between government and Telstra in the past."

Well, OK, then: Turnbull is just going to ask Telstra nicely to hand over its entire network. For no more money than the $11 billion that Telstra has already negotiated from the government in an arrangement under which it retains ownership of the network. It's a nice theory.

After the ZDNet debate, I asked Turnbull how he can be so confident about his ability to negotiate the outcome on which his FttN strategy absolutely depends. His explanation: He believes Telstra will be happy to negotiate because under Labor's plan, it only gets paid as customers are switched from the CAN to the NBN — and as Turnbull put it, "At the current rate of FttP [fibre to the premises], they will be waiting to get paid for decades".

This is one view, but it assumes a fair bit about Telstra's motivations. Telstra has already been riding out its CAN business for years, savouring its stranglehold on the ADSL market. Turnbull assumes that Telstra will behave in a perfect commercial sense by getting its $11 billion in the short term — presumably, if his belief that time is an incentive, as a series of lump sum payments rather than outcomes-based payments.

The Coalition always did favour industry subsidies. But if FttN proves harder to deliver than Turnbull believes, this policy will leave taxpayers holding the bag — and Telstra shareholders laughing.

And what if Telstra decides that it's happy with the current arrangement, and will simply keep its customers on the CAN until the FttP NBN is built?

It's not as though the network isn't generating money for Telstra now: The company's DSL services continue to dominate Australia's broadband market, and each month the NBN is not-built means more revenues for Telstra. This contradicts Turnbull's assertion that Telstra sees no value in its network — something that I don't think the company meant literally.

Turnbull is repeatedly painted as the shrewd business man, but if he is indeed that shrewd, he needs to consider one simple fact: The only time it would make sense for Telstra to give that business away would be if the costs of maintaining the CAN outweigh the benefits Telstra is getting from holding on to its copper monopoly. Until then, the government will be fighting an uphill battle — and I suspect an incoming Coalition government would soon discover this all too painfully.

His blind optimism begs the question of what Turnbull knows that the rest of us simply do not. And this begs a simple, further question: Has Turnbull already been negotiating with Telstra to ensure its support for its FttN network?

The thing is, Telstra is watching this debate, and it knows how desperately Turnbull wants it to be flexible. This puts the power squarely into Telstra's hands — and opens the way for Turnbull to be significantly embarrassed.

When I asked Turnbull what the Coalition would do if Telstra simply dug in and refused to gift the Coalition its network, Turnbull was short and succinct: "David, they won't."

This may simply be the words of someone who has convinced himself that things are a certain way — but his blind optimism begs the question of what Turnbull knows that the rest of us simply do not. And this begs a simple, further question: Has Turnbull already been negotiating with Telstra to ensure its support for its FttN network?

This question has far broader implications: If Telstra has in fact signed a contract with Labor, but is already negotiating access to its network by the Coalition, this would seem to be a massively duplicitous course of action. It may be shrewd business, perhaps, but it's not the kind of thing that would endear our favourite monopolist with the Labor government it has signed up with.

Just as he pulled into his shell when initially asked during the debate, Turnbull stopped talking when I asked him how he is so confident that Telstra will roll over for a Coalition government. Yet, as we get closer to the election, Turnbull may need to start getting more honest with his constituency: Promises that he can go back in the ring and wrestle Telstra to the ground again seem hopelessly optimistic.

It's something that the previous Coalition government wasn't unable to do despite its best efforts, and it took the current government several years to effect the arrangement that's already in place. If Turnbull has through some negotiation masterstroke already ensured his FttN policy as Telstra's imprimatur, he should let us know — or start giving Telstra the commercial respect it commands and deserves.

What do you think? Has Turnbull already negotiated Telstra's support for the Coalition NBN? Or is he just talking tough and crossing his fingers?

Topics: NBN, Government AU, Australia

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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37 comments
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  • It wouldn't surprise me

    He could. But I doubt it. He is likely saying it simply for politically expediency, rather than truth. And it is easy to explain away if it turns out not to be "Oh, well, we didn't understand the contract/situation/circumstances" etc.....

    I'm waiting for his next breathtaking assumption of arrogance....
    seven_tech
    • "I'm waiting for his next breathtaking assumption of arrogance...."

      It's Turnbull so I assume we wont be waiting long.
      Hubert Cumberdale
    • Conroy . . .

      . . . said that he could make the CEOs of telcos wear red undies on their head. And you think that Turnbull is arrogant? Wow!
      Wakemewhentrollsgone
  • Thodey holds the aces!

    Thodey holds the four aces in this poker game, so no bluff from Mal is workable.
    In the final end the constitutional right of property owners to be paid fair commercial value for their property is going to screw Malcolm. Thodey can negotiate on and on and on as was done with Conroy, the longer he drags out the process the better, Malcolm and Abbott will start to look foolish in front of the people with his badly constructed promises. Malcolm would then have to start upping the ante to retain political face or just continue the NBN.
    If I were Thodey (I'm assuming Thodey is at least as smart as me, he's paid more than 20x my salary so I would hope so).
    Malcolm would have to continue the NBN if Thodey held out, because the duct payments are structured as payments for lost customers as the project proceeds, it's clear the agreement was made inconsideration for the completion of NBN over a period of time and it's very likely that the new government would be found liable for the full 11 billion if they just cancelled the program.
    Malcolm could try arguing in court after 12-18 months of negotiations that the ducts are the same things as the copper wires, but they clearly aren't a duct is just an easement for a commercial use whereas copper is an existing system producing a large commercial return.
    Thodey may see fibre to the home as a more marketable product for his company than FTTN, and commit to making Malcolm pay too heavily for his option. That's the way I see the situation. I would simply tell Malcolm there is no commercial benefit for Telstra in selling the copper for NOTHING. I want full payment for the copper because your simply trying to confiscate our property to give us the right to sell it retail. Whereas the previous government was giving us a newer much better product to market.
    Telstra's share holders will want to see Thodey do this like Sol and extract full value for the copper, anything less will cost him his job and possible court action. Thodey could easily drag this out for a couple of years, Malcolm would have no option other than either keep the NBN running or cancelling and pay Telstra anyway. The public is not going to like a cancellation and the continuing payout to Telstra.
    My advice to Thodey PLAY HARDBALL.
    Kevin Cobley
  • "Duplicitous" more like sensible

    "If Telstra has in fact signed a contract with Labor, but is already negotiating access to its network by the Coalition, this would seem to be a massively duplicitous course of action. It may be shrewd business, perhaps, but it's not the kind of thing that would endear our favourite monopolist with the Labor government it has signed up with."

    Actually they didn't sign it with Labor, but with the NBNCo (aka Australian taxpayers).

    "Duplicitous" more like sensible. I'd be shocked if the coalition hasn't had preliminary discussions with many parties. They could be in govt in as little as 4 months; billions riding on the outcome.

    Telstra CEO David Thodey has shown he's much more inclined to work with govt than the previous two. Quoting him in an interview:

    "Well, we haven’t worked that through yet, Alan. If there was a change of government and if that government decides to do fibre to the node, you are right to raise the issue about who owns the copper from the node or the head of the street to the house and that would be subject to another negotiation with the government. But let me be clear, I only have approval from my shareholders for the transaction that’s been done for eleven billion dollars, so in many ways as we enter into any revision, which there is opportunity to do, my starting point is what we’ve already got on the table. But I’d be flexible"
    http://www.businessspectator.com.au/article/2012/9/28/technology/kgb-interview-david-thodey

    Negotiations happen everyday, yet David finds it all to difficult. Labor's "negotiations" were described as anything but by parties present; looking for political expediency.
    Richard Flude
    • Richard, alternate viewpoint

      It does raise many possibilities, after all the key factor behind delays is Telstra's remediation and state of inground infrastructure which means Fans cannot be rolled out efficiently impacting on cost efficiveness, plus once the polls indicated the Libs will win the contractors would understandably be loth to invest in training and equipping fibre jointers/splicers or be able to provide the continuous volume work the subbies need to be viable as it would be wasted monies once Libs in power
      Abel Adamski
    • Of course they happen every day

      But if Telstra has signed an agreement to implement the current government's plan for a sizeable payout – and is at the same time negotiating with its political rivals to give its copper network to a new government at no additional cost – surely this would materially impact the terms and outcomes of the deal, and would be something shareholders would need to know about?

      The training aspect Abel mentioned is just one very significant follow-on effect. Given that Telstra has been contracted to deliver outcomes as per Labor's plan, one would certainly hope the same company isn't doing backroom deals that would directly cripple its ability to complete its current contract. Wouldn't one?
      braue
      • Telstra aren't contracted for NBN installs

        Only to provide their infrastructure.

        Preparing for a change of govt their duty and wouldn't impact their existing arrangements with NBNCo contractors.

        Any proposed deal will be presented to shareholder; as it has in the past and discussed in the quite provided. Shareholders are present for every stage.

        Any company investing effort in NBNCo at the moment would be crazy.
        Richard Flude
      • It's not just the copper Malcolm needs

        He also needs to negotiate access to the HFC, which under the Labor plan is still used commercially for the delivery of cable TV, but not internet access.

        Under the Liberal plan, Malcolm will negotiate access for third party access to Telstra systems/equipment to provide internet access, which is the exact opposite of the current deal.

        Under the Labor deal, the is no maintenance factored in for the copper, as it's being retired. Under the Liberal deal, someone needs to maintain those many miles of copper that will now actually be used.

        If people think Malcolm can sweet talk Telstra into a honey-pot deal for access, consider the only times the Liberals have been able to get Telstra to do anything in the past was via regulation, not negotiation...
        Tinman_au
        • Entirely correct

          and he's not talking about HFC at all. Not one bit. I've mentioned this in the past and there is still no clarity on how he is going to achieve that outcome either. IIRC there was some vague contention in the policy about opening up those networks, but as we all know it took more than words to build the pyramids.
          braue
      • Something else to consider David

        If those negotiations with Telstra, plus Malcolms "extra nodes" come to $9B or more, his plan is no longer "cheaper" and also gains the risk of actually being more expensive.

        Could the copper be worth $9B?

        The ACCC says it's actually worth $17.5B...

        Could the "extra" nodes really add that much?

        NBNCo is using 60,000 GPON's for it's fibre network, and a GPON cable can run 20 Klms with no drop in speed/signal. An FTTN node will need to be at least under 1 Klm (and possibly 300-500 meters for 50 Mbps). I don't think Malcolm factored in that the original Telstra plan he is basing his on had anywhere near the coverage he needs.
        Tinman_au
  • I think you have misread Malcolm

    Malcolm would never telegraph to you what he is thinking, politics has to be like that.

    If Malcolm after September faced a Telstra playing hard ball over this issue, what could he do, what would you do in his shoes?

    Conroy faced exactly the same problem, but perhaps not as difficult as it could have been when Sol was around. Previously Governments had contemplated splitting Telstra into two companies, wholesale and retail. That would require leglislation and possibly a double dissolution. It would take a long time.

    But Conroy found an easy way out: "play ball or you will be excluded from future spectrum auctions". I am speculating here, but I suspect he did not push that line far enough due to the looming budget deficit.

    Now it so happens that Telstra along with the other two players have a very wide bandwith with leases that run out in the term of the next Parliament. This includes spectrum in the 900 mhz range that Telstra is counting on for its LTE Advanced. Under Australian law, Spectrum belongs to the Federation but is leased out. There is a vague understanding of course that these telcos will be able to renew these leases but that is by no means law.

    Now of course Malcolm knows that, but his policy is to talk softly but carry a big stick.

    Somehow I think that you know that he knows and are simply trying to goad him into an outburst to stir the pot?
    gwilo graham
    • Telstra manoeuvred around Conroy

      That's why I think he didn't push it so much – Telstra's reaction to Conroy's threat was to simply figure out how to put LTE into its 1800MHz spectrum, which now supports 2m LTE users and has made a mockery of Labor's efforts to squeeze an outcome out of Telstra.

      If Turnbull thinks he could do the same by threatening to effectively throttle back or disconnect the country's largest mobile telco – and would disrupt the entire industry just to implement his own NBN vision – well, I want a box seat.

      Interesting times indeed.
      braue
  • Telstra can ask for $100 billion

    99.3% of Telstra shareholders approved the agreement with NBNCo to get $11 billion cash and be liberated from the $13 billion per decade ($1.3 billion annual) cost of maintaining the copper. That's $24 billion NPV, and would probably be the endgame for any new negotiation.

    Telstra is a public company, and required by law to maximise the shareholder value of the copper which it purchased from the Commonwealth in 2007. It is in no hurry, as it makes quite a lot from wholesale access fees and retail customers now.

    Turnbull MUST have Telstra's copper wires to deliver FTTN, and it will cost at least the $20 billion Telstra sought from Kevin Rudd for the abandoned 2009 NBN Mark I project. In 2009, constructing 20,000 nodes (for 12 Mbps) was costed at $11 billion. How can 60,000 nodes (for 25 Mbps) cost less?

    In Australia, solely because Telstra owns all the copper, FTTN costs just as much as FTTP to build. If both projects depend on monthly revenues to repay their loans, and both cost about the same to build, why on earth would you not build FTTP, which will generate higher monthly revenue to repay its construction cost sooner? This even before considering the higher wealth generation from more reliable and faster broadband, and the lower operational costs of a passive fibre network?
    umbria
  • Roll up Roll up

    Enjoy the coming circus.
    Now we have supplementary mini nodes (repeaters), it will become increasingly convoluted and complex, plus the maintenance and fault repair factor.
    Going to be interesting times ahead for the new team at NBNCo fulfilling M.T's promises and carrying the can for any shortcomings and failures and believe me they will be under the microscope

    Should be a job opportunity for you Richard, show em how to do it
    Abel Adamski
    • "Enjoy the coming circus.
      Now we have supplementary mini nodes (repeaters), it will become increasingly convoluted and complex, plus the maintenance and fault repair factor."

      Indeed. It was bad enough when Turnbull insisted on a technological smorgasbord board but now he seems to be introducing more clusterfuсκ elements just for the sake of it. No doubt just trying to prove a point rather than a solution. The big problem however is the cost and those that will inevitably have to clean up his mess due to his mistakes.
      Hubert Cumberdale
    • Great

      He's already adding band-aids to it and they haven't even started :/
      Tinman_au
    • Sounds familiar

      "Now we have supplementary mini nodes (repeaters), it will become increasingly convoluted and complex"

      Is it just me or does this sound exactly like pair gain/RIM systems to squeeze every ounce out of hopelessly underconstructed copper networks we have right now?
      Ramrunner-5dd3e
  • Not necessarily money

    "We are very confident we can access their copper without any additional charge".
    Carefully chosen words, typical of MT.
    So what can he offer Telstra in exchange for access to their CAN, aside from more money? What about shares in NBNco? Maybe a merger?
    Some sort of payment-in-kind will do it. I suspect MT has already negotiated such an agreement in principle and will announce it after the election as some sort of triumph - a testament to his superior negotiating skills. He will, of course, have given away any chance we had of reducing Telstra's power, forever.
    What about MT's commitment to structurally separate Telstra into wholesale and retail? No problem! P12 of The Policy has his carefully worded clause stating: " We may seek to negotiate variations to commitments to provide efficiencies, ...".
    Yep. He has it all worked out. Malcolm is a very clever man but he could not resist implying how clever he is.
    MaudeLynne
    • Yes but..

      Granting shares in NBNco or any other activity that dilutes the government's ownership is proscribed under the NBN Corporations Act.

      Without control of the Senate (and the Liberals won't this time around) there is no other way than to bend NBNco to its will. Which means sacking Quigley, losing much of the most committed senior management and engineering staff and causing months of disruption - even before they proceed to complete redesign of the network, reworking of the business plan and product roadmap. And all of that has to come before any serious negotiations start with Telstra.

      In practice its another 3 years of delay.
      Russel-07615