Quigley's job is straightforward

Quigley's job is straightforward

Summary: 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.

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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.

Topics: NBN, Broadband, Telcos, Optus, Telstra

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Talkback

26 comments
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  • High Court may be the answer.

    I think it is time for Telstra's 1,400,000 Australian shareholders and 30,000 employees to have it explained to them that an Australian Government sold them a business that the Australian Government now proceeds to cause to become redundant and worthless.

    I wonder if this destructive Government action could be subject to a class action by shareholders considering the Telstra business was promoted for sale by an Australian Government as a good solid business.

    [Editor's note: I have deleted Sydney Lawrence's email address from this post. --Renai LeMay]
    anonymous
  • another loss, why not.

    syd, you did it again.

    while frothing at the mouth, you posted your email address! let's again pretend it's not there.

    but do you really need another court loss?
    anonymous
  • Shareholder compensation!!!!

    I don't care as long as shareholders are "compensated" with CA$H (the true network worth...say $80 Billion to start).

    The question really is how much does Kevvy want Telstra in the tent & will he pay for it for a new shinty NBN..remember the election promise??

    I certainly would take the money rather part ownership in the NBN Krudd/Conjob have created without evena business case!!!
    anonymous
  • stupidity compensation.

    stupidity compensation, ha. $80bill, ha.

    where's robbie stevens now? he's been telling us all that you telstra shareholders aren't *fair dinkum* about supporting telstra and buying australian and that you are just chasing the money.

    you all denied it. but look now.

    check this out robbie, you were right, they are just greedy shareholders, who want their ca$h and don't care about telstra or buy australian.

    i bet they'd even accept singapore dollars, ha
    anonymous
  • Anonymous is good.

    Yes I did. I really must be losing the plot. Thanks Anon maybe one of the good folk at ZD night be kind enough to delete it before the ravenous hordes attack. LOL.
    anonymous
  • Done

    Your wish is my command :)

    Cheers,

    Renai LeMay
    News Editor
    ZDNet.com.au
    renai.lemay@zdnet.com.au
    anonymous
  • yes

    syd we may not agree but i wish you no harm, so best let you know about the faux pas.

    oh but guess what, we have agreed, you are losing, in fact have lost the plot, LOL indeed.
    anonymous
  • Investing = Gambling

    In my opinion, investing = gambling. You're putting your money into something, hoping that it would rise up in the market and become a lot more, or something like that.

    These shareholders should've taken their money and leave while they still can. Get off the Telstra poker machine before you lose all your money. As for compensation - please! Should I ask for my money back because the poker machine ate it up?
    anonymous
  • RL=QC???? Perhaps, maybe.

    RL while appreciating and being thankful for your opinion concerning a possible Telstra shareholder challenge, and while not doubting your legal qualifications, I think I will explore the possibility a little further.
    anonymous
  • re stupidity compensation.

    Why do you insist that all Telstra shareholders are greedy. A fair return on investment, is all most of us want, having been bludgeoned with ads from the previous Government, when they were selling it off TO HELP LOWER THE CURRENT DEFICIT at the time !!!
    anonymous
  • Investing = Gambling ?????

    "Should I ask for my money back because the poker machine ate it up?"

    Probably the reason why you don't own any shares, but how is that a sensible comparison ?
    anonymous
  • re Anonymous is good.

    Rest assured that the ravenous hordes are already chafing at the bit, and working on all the negative insults they can throw at you Syd. Unlike most of you protagonists however, you seem to be able to take it on the chin, which I believe is nothing short of admirable.
    anonymous
  • Compensation

    They should pay compensation in line with what Telstra reports the pstn to be worth and be done with it. Telstra reported in 2005 that the pstn had a $1 value, so pay up and move on.
    anonymous
  • big time investor

    mike, how about a new line rather than using the same old boring, this is why you don't own shares, which is perhaps the stupidest reply one could make.

    you may feel like a big time investor because your telstra shares have gone up 21% but so has the rest of the market, but in mosy cases, by more.

    in the same period, optus has gone up 37%.
    anonymous
  • grow up

    mike, i saw his email address and still know it.

    if i were you mike, and sydney was me, you would use it to spam me, because that's the type of person you are.

    sydney once again, although we disagree, i have no intention of using your address, which is why i highlighted the problem in the first place.

    time to grow up mike and learn english. i think you mean *antogonist*.

    but you talk of copping it on the chin. didn't you cry like a little girl and report others for giving you a bit of curry only last week, ha
    anonymous
  • Aussies always punch above their weight.

    It's not how many times you get knocked down Anonymous, it's how many times you get back up.
    anonymous
  • and again...typo

    antagonist - yes, perhaps we should learn together, very droll!
    anonymous
  • re high court may be the answer

    syd, you aren't questioning the fairness of mike quigley are you?
    anonymous
  • Sickening

    Yes it is sickening, isn't it!
    anonymous
  • ..................grow up ????

    Jason, I didn't say I happily cop it on the chin. On the contrary, I realize that I don't, which is why I respond accordingly to your very personal and abusive attacks on me, which in a lot of cases are in reply to some one else's comments. What I said was "you seem to be able to take it on the chin, which I believe is nothing short of admirable", and that was in answer to one of Sydney Lawrence's posts, which I quite enjoy reading. Unlike yours, Syd's are never vitriolic and offensive, you hypocrite. (Oh and BTW thanks for the English lesson, you certainly are always on the ball, always right, and never make typos.)
    anonymous