Robbing Joe the Shearer to pay Paul

Robbing Joe the Shearer to pay Paul

Summary: Joe the Shearer can wait. Telstra is clearly going to roll out its NBN in capital cities first, where the most customers live and, despite Telstra's assertions, many residents already have access to decent broadband.

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Sol Trujillo looked downwards for most of the time that Charles Macek, chairman of Telstra's executive remuneration committee, stood in front of 2,000 shareholders and spoke for 10 minutes before announcing that Trujillo was paid over $13 million for his services during the past financial year.

Telstra CEO Sol Trujillo
(Credit: Telstra)

It was the kind of posture that suggested Trujillo wanted to just disappear under the table, at which Telstra executives sat while facing the shareholders at the company's annual general meeting held — and picketed by unions — in Melbourne recently.

With the submission deadline just five days away, the NBN was on everybody's lips as chairman Don McGauchie launched the expected tirade against the government while Trujillo — an experienced operator in whose mouth butter would seem not to melt — spruiked Telstra's success at making money for its shareholders.

McGauchie has been doing this a lot lately, picking up the mantle for departed "human megaphone" Phil Burgess in spearheading the company's relentless attempts to discredit the government, its competitors and, most recently, the NBN itself.

Yet as I think of Trujillo sitting there, trying to will himself invisible as Macek methodically built the case for Trujillo's compensation, I now wonder whether he will lift his head to meet the eyes of the person I might call Joe the Shearer — our equivalent of the Obama-McCain battle's infamous Joe the Plumber — and explain why Joe wouldn't see any benefits from a Telstra-run NBN for years now.

For a company that plays the card of rural responsibility as hard as Telstra does — the "Corporate Responsibility Key achievements 2007/2008" brochure handed out at the AGM features a heartstrings-tugging father-and-son-talking-on-mobile-with-rolling-hills backdrop — the company has shafted the two million rural Australians it purports to love. The Kombi crew's 90 per cent bid (technically, Telstra says it's 80 to 90 per cent, but let's give the benefit of the doubt here), is a fish-slap to the face of Joe the Shearer and everybody else who lives in rural Australia.

Last week, I mentioned Telstra's strange maths in estimating the total cost of its proposal at $9.7 billion, even though it had spent most of this year telling everybody the NBN would cost anywhere from $15 to $25 billion. Taking an average figure of $20 billion, we can only conclude that Telstra has pegged the cost of servicing the 10 per cent of the population not served by its network at around $10.3 billion.

That's $9.7 billion to deliver FttN to 18 million city dwellers, and $10.3 billion ($5,150 each) to service the remaining two million or so that make up the other 10 per cent. By these maths — and yes, these are rough figures — city dwellers will cost $539 each to connect, while rural residents will cost $5,150 each. No wonder Telstra decided they weren't worth servicing in the end; those rural customers sure are darned expensive!

It's a good thing they don't, apparently, need it anyway. If Telstra's proposal document is to be believed, rural customers on the whole are getting better broadband than those in cities. These aren't my words; they're Telstra's:

"The majority of those currently without fast broadband are located in the major cities, where homes and businesses located more than 1.5km from their local telephone exchange cannot currently get fast fixed broadband using Telstra's existing telephony network.

For this reason, Telstra considers that the roll out should start in multiple locations, with a roll-out priority based not on geography for its own sake, but on bringing benefits to as many Australians as rapidly as possible."

In other words, Joe the Shearer can wait. Telstra is clearly going to roll out its NBN in capital cities first, where the most customers live and, despite Telstra's assertions, many residents already have access to decent broadband. Better still, it's ready to "self-fund the NBN ... without a government funding commitment at this stage".

Correct me if I'm reading this wrong, but Telstra is basically arguing that regional Australia doesn't need fast broadband as much as city dwellers, and that Telstra can service those city dwellers with its own cash — but just doesn't feel like it yet, unless the government decides to come to the table with other concessions.

Telstra could, the document continues, push towards the 98 per cent level with "a much larger Commonwealth contribution" that Telstra chief operating officer Greg Winn this week said should be "at least double plus" the $4.7 billion on offer.

The size of that contribution has been set in stone since the bid was announced, but Telstra's proposal is suggesting that none of the $4.7 billion it would get from the government would actually go towards delivering broadband to rural and regional areas. Never mind, of course, that $2.4 billion of this comes from the draining of the Communications Fund, whose very purpose was to support telecommunications upgrades in rural and regional areas.

In other words, Joe the Shearer can wait. Telstra is clearly going to roll out its NBN in capital cities first, where the most customers live

The expression "robbing Peter to pay Paul" comes to mind, and with many worried the Rudd government will enter into back-door negotiations with Telstra, it's little wonder the upper house has frozen those assets.

While the structure of Telstra's proposals shows its executives are clearly living on another planet, I must also take Optus to task as well. After months of lobbying and bald-faced declaration of its commitment to the Terria cause, the group evaporated at the eleventh hour and instead offered nothing more than moral support to the Optus bid that was eventually lodged. Terria made much noise about its commitment to start its roll out in the country areas and move in to the city — but with Terria now a paper tiger, will Optus keep that commitment?

If not, who is Joe the Shearer to go to when he wants ADSL2+? Telstra's NBN proposal excludes the bush, and Optus presumably will support rural Australia but needs to distance itself from the fiasco that is Terria. And then there's Acacia, whose bid apparently covers 100 per cent of the Australian population — presumably within the parameters of the government's original offer — and Axia NetMedia, which isn't talking specifics but presumably is doing much the same.

One of the main objectives of the NBN was to bring decent broadband to regional areas where dial-up internet is still the order of the day. I'm not on the evaluation panel, but if I were, I would be factoring each bid's provisions to service "the other 10 per cent" quite heavily into my assessments. Joe the Shearer wouldn't expect anything less.

Topics: Broadband, Telcos, Optus, Telstra, NBN

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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67 comments
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  • As a shareholder I can only endorse anything that makes me money

    YES - I AM A TELSTRA SHAREHOLDER - BOTH OFFERS.

    NO - I AM NOT A TESLSTRA CUSTOMER IN ANY DIRECT WAY. (We are all Telstra customers indirectly in some way)

    Anything they can do to make my pile of money bigger is OK with me. I didn't invest my money so it would decrease in value.
    anonymous
  • acacia for the win!

    100% of the population? none of the unsightly idocioies of tesltra or tierra/optus, I know who should win!

    And wa wa wa in advance 'only telstra has the financial availabilty to do it', then throw the bid to axia, I'm sure one of the biggest telcos in canada will be able to find a backer if telstra is?
    anonymous
  • what a crock

    David Braue its one thing being Simon Hacketts butt plug seriously what an imagination

    now if you care to show some real figures, not ones you just roughly throw together?

    i seriously hope telstra dont get it ( although we know they will dont we ) so we can see what a real cock up looks like
    anonymous
  • Reject fantasy. Get real. And grow up.

    Your pathetic story was deceptively set-up and based on an absolute lie.

    I was at the Telstra AGM and saw no sign of your weasel words of insult that Sol was in any way uncomfortable. If I were trained in psychiatry I would guess that you are a jealous insignificant failure that indulges in fantasy to try to agrand yourself by belittling others.

    Your writings were childish and simplistic in the extreme, not factual and indeed demonstrate how far you will sacrifice journalistic honesty in your effort to have some false glory transfer to yourself by your dishonest attack on decent people and a great Australian company.

    Constructive criticism is good but destructive garbage helps no one.
    anonymous
  • he does have a point though

    Telstra's 'NBN' plan is rather city-centric, all while they are spruiking their pro-rural approach... in advance, i agree syd, it is expensive to service the bush, and no, while Next G offers oodles more coverage than CDMA and such, most customers still dont get reception on their properties, main highways, yep, covered, individual properties on a 20 acre farm, nope... and telstra really shouldnt, its to expensive, but if there going to play heart strings with the bush, then the least they could do is try and give them somethign decent
    anonymous
  • Telstra or American Trash?

    Pay Sol millions for halving the share price and borrow to pay shareholders. lol....

    It is going to be fantastic when Telstra are forced to compete.
    anonymous
  • Crazy talk Anon.

    Anonymous you are funny. You say " it is going to be fantastic when Telstra are forced to compete".

    Do you realise that if Telstra were to to "compete" and reduce prices the other 600 ISPs would soon be forced into bankruptcy.

    Watch what you wish for Anon the results could be catastrophic for many, probably you included.
    anonymous
  • ROFL!

    Sydney - you're mutterings always make me ROFL!

    Grow up and learn that Telstra's board are employed to defend their actions. If you are unhappy with the public's perception of Telstra, you need to take that up with the Telstra board - because the public couldn't give a rats arse about self-interested shareholders :-)
    anonymous
  • Independent NBN needed...

    It'd be interesting if Acacia wins. Optus said they wanted to invest $2billion, and didn't want control - lets see them invest $2billion in Acacia's bid :) (or whoever else gets the go ahead).

    I'd like to read a summary of all the bids. It'd be very interesting.
    anonymous
  • @Crazy talk Anon.

    Syd, I think he's talking about the NBN. Wouldn't it be grand if Telstra were forced to compete to get their subscribers, on a level playing field, that being, one that isn't totally controlled by them (price wise as in inflated wholesale pricing therefore justifying the excessive retail price they will charge, much like their ADSL Network). Imagine the Millions they spend on their marketing and spin (NWAT and yourself for example) wasn't needed because their offering alone brought in the subscribers...

    Yes, their margins wouldn't be anywhere near as big, and yes, my shares would be worth less, but I can't help but believe that the country would be better off, especially those in the IT industry or companies who would get freedom to compete more easily on the international stage.
    anonymous
  • It's not all about FTTN

    If you read what Telstra has been saying over the past few days, some of it is actually intelligent!

    The figures you present talk of the cost of providing FTTN to 100% of the population, but this is only one solution to provide broadband, as Telstra have said. Although wireless (including satellite) has latency issues, from a cost perspective it does benefit from terrific range. Whilst it may cost $20 billion to lay fibre within a stone's throw of every person in the country, it would obviously cost a lot less to lay fibre for 90%, then use WiMAX/LTE with base stations every 40-50km for the next 9%, then satellite for the final 1%. Wireless cannot be used in cities where the bandwidth limits are easily reached (see Christmas Eve SMS sending time), but in the country with few subscribers it is a viable solution, and much cheaper than fibre.

    Also, keep in mind that the $4.7 billion is OUR money, it is the investment of all Australians. Telstra shareholders and creditors will require a return on their investment and rightly demand the network is built in a cost-effective manner, and Australian taxpayers should demand the same hold true of their contribution. The Federal Government should not allow taxpayer dollars to be wasted because fibre-to-the-node/home is the centrepiece of the NBN.

    Where there is a centrepiece there is always an extremity; it is good and proper to treat the extremity in a different manner to the centrepiece.

    (I don't own Telstra shares and don't use them as my ISP or phone carrier).
    anonymous
  • So where's the fallacy?

    C'mon Sydney, that's a bit rich, "dishonest attack on decent people and a great Australian company". What a load of piffle. Firstly where's the dishonesty? C'mon Sydney, enlighten us with some pseudo-psycho babble.

    As for Sol's behaviour at the AGM, I think that unless he labours under a truckload of arrogance he would feel a little embarrased at his remuneration package, as would many senior executives at this reporting/AGM season, especially in this economic climate.
    anonymous
  • "compete"

    Sydney, do you mean really compete without cross subsidising between wholesale/network and retail? I would love to see that happen. True network pricing for all, then we'd see how shoddy Telstra's current operational separation really is, and how they gouge the public through wholesale.
    anonymous
  • Australians are waking up to deceipt.

    Gavin all that is asked by fair minded Australians is that sensible infusion of ideas, such as you provide be presented. Not the cascade of self interest rubbish that those whose financial holdings demand that they continually demonise Australia's Telstra.
    anonymous
  • @Crazy talk Anon.

    "Do you realise that if Telstra were to to "compete" and reduce prices the other 600 ISPs would soon be forced into bankruptcy."

    I've asked you in the past to back up that statement but so far you haven't, so are you now willing to show why x number of ISPs will fail if Telstra drop their prices or is it still FUD?
    anonymous
  • Of course others would fail

    Sadly, half of you don't seem to have any understanding of business. Being the market leader, dating back to at least 1975 when Telecom was formed, Telstra has the strongest brand recognition and is trusted by a majority of older Australians. Most of these people would never stop being Telstra customers, simply because consumers tend to stick with what they know and older people are more resistant to change.

    It is also well known that Telstra charges a premium for high levels of bandwidth on ADSL services. This creates a market for smaller competitors to offer 100GB/month plans. If Telstra chose to undercut their pricing, firstly the ACCC would go nuts about anti-competitive behaviour, but assuming they didn't stop Telstra in time, many smaller ISP's would be forced to close their doors as customers switched back to Telstra. This would in turn create a cascade effect amongst other smaller ISP's as people people reach the end of their contract periods, since they would find security in the larger provider, and not want to commit to a company with an uncertain future. It is likely Optus and other major ISP's would benefit from this effect.

    The failure of small ISP's is not necessarily a bad thing. If it was a perfectly competitive market then each of the 600 ISP's would hold just over 33,000 customers, which is just plain stupid from an economies of scale perspective. In the US, with 3500-4000 ISP's, each would hold 75,000-85,000 customers. To reach the same density Australia would need to cut down to about 250 ISP's.

    Also, keep in mind that even if Telstra loses control of the network, they are still the largest service provider. Money they don't spend on maintaining a network can be spent on obtaining customers and supporting price cuts or higher bandwidth plans at current prices.

    Those ISP's that are not requesting legislation to favour them are likely simply hoping the status quo is maintained so they aren't forced out of business.
    anonymous
  • Australians are waking up to Telstra's deceipt.

    "Not the cascade of self interest rubbish that those whose financial holdings demand."

    Are you speaking in the third-person again SL?

    The fact that you assume Telstra-bashers have holdings in companies (by the likes of Optus) astonishes me.

    Had you given the thought, perhaps, that Australians are sick and tired of being screwed by the Monopolistic Mammoth?

    It's time you woke up and smelt what you are shoveling.
    anonymous
  • Sol, Is that you!!!

    It's nice that Sydney Lawrence (or should I call you Sol) reads the news online. As for your statement "destructive garbage helps no one" have you actually heard or read anything that the Telstra board have issued as 'statements'. It has been nothing but childish, simplistic, extreme, non factual and clearly demonstrates how far Telstra will sink to rip off the Australia tax payer. Get your head out of Sol butt and see the real world you moron.
    anonymous
  • Facts not Fiction

    I was referring to the NBN, and how does a wholesaler reducing costs sent its customers broke?

    And I have no shares in any Telco. I know that is hard for you to understand, being that its your only argument.
    anonymous
  • Wakie wakie

    You use the old tired Telstra shareholder claim, as your only reason in disparaging Sydney, but you are astonished when someone suggests it in the other direction?
    anonymous