NBN a lose-lose deal for Telstra

NBN a lose-lose deal for Telstra

Summary: Labor's policy of socialised broadband has certainly proved much harder than the party believed it would be back when it was in Opposition, but it is Telstra that stands to lose the most from the NBN - and that applies whether it loses the NBN contract or wins it.

SHARE:
91

A few weeks ago, I took on Optus for its decision to lodge not one, but two bonds giving it the right to bid on the national broadband network (NBN) contract.

This "schizophrenic" approach, I said, ran the risk of compromising the unified front that Optus and its partners-in-Terria had worked so hard to create. There was always the chance that the second bid was an insurance policy, of course, but I welcomed contact from Optus when it contacted me after that column.

I sat down over a cappuccino with Maha Krishnapillai, Optus' director of corporate and government affairs and one of the people most intimately acquainted with the bid, to find out what the hell was actually going on.

Maha Krishnapillai
(Credit: Slattery IT)

Conspiracy theorists could, he told me, move on: the secondary bid was indeed not so much an attempt to undermine Terria as a way to ensure that Optus was part of the bid no matter what happened with its consortium partners.

Apparently, the Department of Broadband, Communications and the Digital Economy is an entity so mired in its own probity that even a small change in Terria's composition could disqualify it from lodging a valid NBN bid. (If Telstra suddenly acquires one of the Terria members, we'll all know Sol Trujillo has been doing night classes at the Tonya Harding School of Negotiation).

Although Krishnapillai wouldn't share details about the company's NBN bid, he did expound on the structure of Terria, and the perception that it was just a way for Optus to heighten its profile during the tendering process.

If Optus was the largest player in Terria and had the resources to make its bid on its own, I asked, why even bother forming a consortium? The answer: Optus is carrying most of the financial weight, but the other companies are there as a show of support - and to show their commitment to bring their business with them onto the new infrastructure, should Terria win the contract.

Telstra has been quick to dismiss Terria in public, but after reading through its 2006-7 annual report, I suspect that in private its strategists have been quietly huddled in foetal position, thumbs in mouths as they contemplate just how to get out of this situation.

During 2006-7, the Telstra Wholesale business generated $2.957bn in revenues - 12.5 per cent of the company's entire revenues.

More important still is Telstra Wholesale's EBIT (earnings before interest and tax figures) of $2.867bn. In other words, accounting vagaries aside, Telstra apparently incurred just $90m in expenses, or 0.3 per cent of its revenues, administering operations that generated $2.957bn of wholesale revenues; that equates to a 97 per cent profit margin on wholesale services.

Compare this with the Telstra Consumer, Marketing and Channels business segment - the company's largest - which spent 41 per cent of its $9.509bn revenues on expenses. Or consider Telstra International, which generated $1.606bn in revenues but produced EBIT of just $61m - a sign of razor-thin margins (4 per cent) if ever there were any.

Now, consider the source of these wholesale revenues: a large proportion of them come from customers who buy their retail internet from Terria members.

Assuming the other Terria members keep their pinky deals with Optus, Telstra would lose nearly all of those wholesale subscribers as most of Australia's top 10 ISPs simply vote with their feet in the event of a Terria NBN win. There would of course be some customers forced to remain on Telstra wholesale services because of geography, but on the whole there would be no love lost - and one could expect the effect to be devastating.

Telstra knows all of this, which explains the belligerent tone its executives continue to take when discussing things such as operational change.

This has tainted the overall discussion about Australia's broadband future, turning the NBN tendering process into a debacle: timelines pushed back indefinitely, competitors exchanging derisive barbs like Spaniards at La Tomatina, Phil Burgess' predictable hyperbole, the government's futile attempts to keep everyone focused, and a growing tide of criticism that a minimum 12Mbps service is just too little, too late (for the record, I disagree; the mooted VDSL technology will run much faster than that in most areas).

Labor's policy of socialised broadband has certainly proved much harder than the party believed it would be back when it was in Opposition, but it is Telstra that stands to lose the most from the NBN - and that applies whether it loses the NBN contract or wins it.

Yes, even if it wins the deal, Telstra has a major problem on its hands. No matter how much it complains, it simply must provide competitors with open access to the network. History suggests that Telstra is hardly likely to embrace open access to its NBN infrastructure in the way that the government and its competitors are doing, and the growing tide of pro-separation rhetoric suggests that - in theory, at least - that remedy could await the company if its own concept of open access proves insufficient.

What's an ex-monopolist to do? Telstra executives have suggested they could pull out of the deal entirely if separation was mandated, and Optus has said it could do the same if separation was not. But that would cut Telstra out of a critical revenue stream, and handing the deal to Optus isn't going to improve things.

Telstra's Phil Burgess
(Credit: Telstra)

Given that Telstra's revenues would take a hit either way, I would suggest the company consider a third option: shelve its anti-separation arguments, draw up a workable plan for operational separation (I'm sure there are several contingency plans already filed away in Sol Trujillo's office), and work to build bridges with Terria members so that they're less loathe to jump ship as a symbolic measure.

When push comes to shove, Telstra has a tremendous amount of infrastructure that, if properly leveraged, could help it compete with any NBN that's out there. It could actually make competitors want to buy its services rather than feeling they were being gouged as if by a Big Day Out water vendor.

Terria, or any other tender winner, would also have to deliver commercial returns from its services, so it's not like the venture could just give away its wholesale services. This leaves Telstra a painful, but more beneficial in the long term, strategy for remaining relevant.

The issue may likely stretch out far longer than expected - I wouldn't be surprised to see the NBN become an issue with the 2010 election as well - but Telstra has well and truly painted itself into a corner. Terria has given Optus the market weight it lacked, and a bloodless NBN war with Telstra would give the whole industry a clear direction forward. The sharks are circling - and it's up to Telstra to decide just how big a bite they take.

Topics: NBN, Broadband, Telcos, Optus, 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.

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

91 comments
Log in or register to join the discussion
  • Telstra Broadband

    If TELSTRA loses the contracts then they should immediately sign Google's new office development into their network before the scavengers make their approach. As far as their services to country wide Australia, take a bow this Government, the previous Government had all of the correct procedures in place long before you popped up and the services that were put in place, work...work very well indeed.
    Take a Bow TELSTRA!
    untact000
  • Leeches

    Little hard to accuse the compeition of a 'free-ride' and being 'leeches' when they generate $2.957bn in revenue.

    If any other business showed such disdain towards such a major source of revenue, their shareholders would sack them all.
    anonymous
  • RTFA Sydney

    Stop being a schill for Telstra and RTFA.

    "During 2006-7, the Telstra Wholesale business generated $2.957bn in revenues - 12.5 per cent of the company's entire revenues."

    12.5% of their revenue from organisations that you and Phil call "leeches".

    Telstra management and bigoted die hards such as yourself and SJT now need to come to the realisation that without the Terria partners and others Telstra are really in dire straits. Win or lose the NBN tender.

    Hopefully someone in Telstra will realise this and not risk losing 12% of their revenue on stupidity.
    anonymous
  • Re: RTFA

    Speaking of bigoted, greetings anonymous antagonist!
    anonymous
  • Typical SJT

    Can't refute anything in the comment so you agree eh?

    Do you get paid by the big T for every comment, or only ones where you're a fanboi?
    anonymous
  • Re: Typical - lol!

    Yes thank you, you are are obviously infinitely intelligent, "mysterious anonymous antagonist, "whomever you may be?" - lol!

    Best have a look through the recent comments my friend and apart from now, where I have simply replied to your stupid, childish gibe aimed at me personally (for no rational reason, talking of typical oh secretive, masked one) and you won't find SJT amongst them - ooh, what a mystery!!!!

    Nice try but no banana, my friend!
    anonymous
  • Losing grasp of the big picture

    It s about providing the internet to everyone that wants it where ever they are in Australia.

    Not about the revenue of companies.

    It s simple, tender to built the infrastructure, charge the companies to use it so that infrastructure can be maintained and improve thought-out the years. Put in a legal act that it can not be sold to a private company or listed on the Stock Exchange.
    anonymous
  • Sol or Phil makes contact

    Somehow Sydney I don't think that Sol would ever wish/have the balls to make personal contact with David "over a cappuccino" as he is full of himself/above everybody else to put Telstra's side of the story.

    Imagine Sol coming onto WhirlPool to post on behalf of Telstra. I think not, it is to laugh Ha! Ha!
    anonymous
  • NWAT - Sol or Phil makes contact

    None of the T crew would ever show up in Whirlpool. Sydney and SJT avoid it like the plague - too many knowledgable people there who would see through them in a second.

    Thats why Telstra created NWAT..
    anonymous
  • Sol or Phil

    It would make interesting reading if either Phil or Sol contacted David and actually had a frank and open conversation on the record. To say that David was obviously and easily led by Maha reflects upon your views more than David's gullibility.
    anonymous
  • Why Are We So Backward With Broadband

    Why Are We So Backward With Broadband.

    Is it all the previous Govermants?

    Or is it Telstra?

    Either way we have to do what is right for the people and buisneses.

    We can not compare Australia with any other country as we have vast distances to cover.

    But in saying that there is technology in place now to recifie this.

    Is it the cost to do this?

    Who knows ony us normal mortals hope everything gets better.

    I think this will be later than sooner.

    After seeing what is happening all overe the world.

    Telstra can not step up and say this is what we need, this is what we can do, but the allmighty $$$ comes first.

    Instead of serving the people they are serving them selves filling ther pockets and will soon leave soon.

    Maybe we need a Audtralian CEO who can look after the people instead of themselves.

    I am not a Telstra Broadband supporet, i changes to a local ISP years ago.
    anonymous
  • Re: NWAT

    My... someone has a mines bigger than yours fixation don't they!

    With you obviously chronically obligated to mentioniing me all the time, I feel so important! Apparently more important than even the NBN itself (according to you) - lol!

    Some people.
    anonymous
  • Your Dreaming

    The Telstra Fanboi's are out in force I see.

    You can only kick a dog for so long before it finally feels the urge to bite back and it looks like the dog's are getting ready to sink their teeth in.

    Telstra are the only ones to blame for this as they have shown nothing but disdain towards their wholesale customers over the years.

    I think that John Romero's egotistical quote states what Telstra needs to do... Suck It Down!
    anonymous
  • @your dreaming

    telstra fanbois are out in force. plus theres also you the lonesome idiot.
    anonymous
  • Sydney is on wp, i think

    Actually... i think Sydney shows up a lot on WP.

    his user name is (i believe) Attila.

    His comments there are very well thought out, and widely revered by the folks at wp.. just check what he says and see how most folks respond with praise at his cleverness. ;)
    anonymous
  • Family first.

    The Anti Telstra idiots are really getting desperate. I am sure Sol or Phil would be only too pleased to educate David but must, for the moment, abide by the good Senators call for restraint of publication of information.

    I know Telstra appreciate customers but when those customers proceed to pilfer Telstra own customer base and use a free-ride to plan to weaken and destroy Telstra it it time for this great Australian icon to stand up and fight back.

    We have only seen the beginning of the devious tactics that Telstra opponents will sink to in their endeavour to gain control of Australia's vital NBN. If our Government allows a foreign controlled company, with the assistance of 4.7 billion dollars of Australian taxpayer money to defeat an Australian owned enterprise they will deserve to be cast out at the next election.
    anonymous
  • @sydney is on wp

    who cares what a few 1000 dopey geeks on wp think
    anonymous
  • Whirlpool

    230k at last count.

    How many non-telstra people are at NWAT? Two?
    anonymous
  • Dodge, dodge

    You're pretty slimey aren't you SJT. Always dodging and weaving the questions. Eh, par for the course for Telstra fanbois I s'pose.
    anonymous
  • OMG

    "his user name is (i believe) Attila."

    OMG he is too .. User #204307.

    If its not him, someones done a damn fine job of impersonating him!
    anonymous