Telstra 'blackmail' taints NBN vote: Hackett

Telstra 'blackmail' taints NBN vote: Hackett

Summary: Political pressure to progress the NBN and lack of clarity about Telstra’s commitment to structural separation will make next week’s shareholder vote a meaningless exercise that will result in either substandard structural separation or disastrous delays to the NBN, Internode managing director Simon Hackett has warned in an attack on the government and what he says is a duplicitous Telstra board.

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Political pressure to progress the NBN and lack of clarity about Telstra's commitment to structural separation will make next week's shareholder vote a meaningless exercise that will result in either substandard structural separation or disastrous delays to the NBN, Internode managing director Simon Hackett has warned in an attack on the government and what he says is a duplicitous Telstra board.

Simon Hackett

Simon Hackett
(Credit: David Braue/ZDNet Australia)

Addressing the 160-strong audience of telecoms industry heavyweights at the CommsDay Melbourne Summit yesterday, Hackett didn't mince his words in discussing Telstra's structural separation undertaking (SSU) document, which was lodged in early form and promptly rejected by the ACCC and Telstra's rivals as being inadequate.

As currently written, the SSU "is one of those unusual documents because it doesn't actually explain how Telstra undertakes to structurally separate", Hackett said. "It undertakes to explain how they don't need to, because they're really nice people and you can trust them. It's rather like trying to sell two-minute noodles on the basis that they taste good."

In this form the SSU had become a "form of blackmail" designed to pressure the government to accept substandard terms in exchange for a green light to proceed with the already-delayed project.

Because the SSU must also be accepted by regulators for the NBN to proceed, Hackett said next week's vote — at which Telstra shareholders will decide whether to accept the draft SSU as part of a broader policy package that also includes the company's $11 billion deal with NBN Co — was a toothless tiger that should rightfully have been delayed until after the SSU had been finalised and accepted by the government.

Should the SSU be modified to mollify the government, Hackett said, the deal would have to be re-presented to shareholders for approval — a process that could delay the NBN for a further six to nine months. "The Telstra board have the authority for the current undertaking, not a modified one," he explained.

"Think about this in the context of the current, flawed SSU and the pressure that would go onto the regulator: if the vote passes, the regulator would be the last barrier to the NBN existing. If and only if they decide to accept that flawed undertaking [it could proceed]; otherwise, imagine a world where they have to submit a massively modified SSU, we'd have to go around this merry-go-round again. But I don't think the current government really want the network to wait another six to nine months."

The warning came as part of a larger spray against the NBN, in which Hackett argued that the government had made three significant mistakes in its approach to the NBN.

First was the 121 points of interconnect (POI) model, against which Hackett has frequently railed as raising the cost of NBN access for retail service providers (RSPs) seeking to offer their services. "All the overheads to attack to the network rise and instead of 14 'X' I'm facing a cost of 121 'X' — whatever 'X' [the base cost of connecting] is," he explained. "NBN Co have done their part to reduce 'X', but I've still got to get to those places."

These sorts of policies had created a situation where RSPs would have to charge regional customers more to cover their costs while cutting prices in high-competition city areas. "No provider that we expect to see in the next 10 years can just average this stuff out," Hackett said. "If you want to win in the city in what will become a brutally cost-based game, you can't just squeeze this cost out and expect it to go away."

Hackett also slammed the government for allowing Telstra to retain ownership of the network in its $11 billion deal, creating a situation where the government had no option to adopt a partial fibre-to-the-node solution should future cost pressures force the government of the day to scale back the extent of the fibre NBN.

"Telstra aren't being paid to sell it to NBN Co, but are just being paid as a farmer would to stop using it to grow crops," he said. "But imagine there's another serious GFC and the government of either persuasion needs to chop half the cost out. You've got to cut the copper and reterminate the cabinets — but you can't compel Telstra to do that. You've paid them to turn the copper off but you have not gained the right to cut it in two."

With so much focus on getting the NBN Co-Telstra deal and SSU across the line, Hackett expressed concern that the everyday cost issues would seriously complicate cost dynamics in the years while the NBN was being rolled out. "The regulator is quite time-strapped and is focusing, perhaps correctly, on the big shiny thing. But it seems there is insufficient attention being paid to surviving the next 10 years, and to there being competitors left on the copper network by the time the NBN rolls around."

Hackett wasn't only about problems, however; he offered three suggestions that he argued would change the situation for the better. These included reversing the 121 POI decision and proceeding with a 14 POI model; having the ACCC declare bundles of ADSL2+ and voice services, which would stop Telstra from fudging its fixed wholesale numbers to rort providers in intervening years; and change the NBN deal so the government would get ownership of the copper rather than the current problematic situation.

"If you can define the price of access to the copper and make it equal to the price of the NBN regime, we can actually have a smooth transition and still have a competitive environment by the time we get there," he said.

Topics: NBN, Broadband, Telcos, Telstra

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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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21 comments
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  • Hackett seems to always be complaining about against competiton, he talks about telstra
    pot calling he kettle black

    its oks for hiis business to make profits but no one else can
    syd l
    • Good to see some informed commentary from you Sydney. Not so well informed I am afraid being the heavily pro-Telstra supporter that you are known to be.
      rtfmoz
    • That is entirely incorrect. He is trying to make the telecommunications market much more fair for all parties. The price revisions he was trying to get NBN to do earlier and succeeded benefited all parties, not just him. Its good that we have someone that speaks publicly so readily on topics that affect us.
      ethoscraig
      • That isn't correct either, it's ok when it suits him to argue about whats wrong the industry (i.e. Telstra), but when another solution is provided, he flips out.

        It's called Conflict of Interest, something that we need to remove some of in the industry.
        Nitrofiet
    • You would clearly prefer to be raped by monopolistic companies and no one speaks out about it.
      ethoscraig
      • Plural would be oligopoly wouldn't it?
        mwil19-a34f7
  • It is reasonable that Simon Hackett would present an argument that is of benefit to his company irrespective of its effects on others. Concerning the ACCC, I am sure they will be persuaded to make their judgements as quickly as possible.

    The Telstra Shareholder Meeting next week will be a formality and if nothing is heard from the ACCC by Tuesday I would think that the Telstra Board vote document will include wording that allows them to examine the ACCC requests, when delivered, and if the Board considers the requests acceptable, to ratify an agreement on behalf of Shareholders.

    With the delivery of fair and open level playing field competition in the Industry, surely it is time for all players to forget the "whinge and win" argument and compete fiercely to the benefit of the Australian consumer.
    sydneyla
  • syd says "it is reasonable that Simon Hackett would present an argument that is of benefit to his company irrespective of its effects on others".

    seems you and simon have more in common than you thought, syd!
    Beta-9f71a
  • Beta you would be the first to agree that every person has a point of view and possibly an agenda. I meant no criticism of Mr Hackett with my remarks, simply to point out that he would, and must, defend his interests.

    At times I have defended Telstra and at times have been critical of Telstra, this is as it should be in a free and democratic country. Only as the views of others are listened to and digested can a fair and reasonable outcome occur.
    sydneyla
    • syd, why do you resist, everyone but you can see…are you that clouded by greed?

      yes if i were you, I’d want to deny and avoid history/facts too!

      you have only ever gone cap-in-hand, grovelling to telstra, never actually fully criticised them. much along the lines of... 'may i be so bold as a mere observer sol/david to suggest…xyz. keep up the great work and god bless telstra'. that’s your criticism, ffs.

      what you have done and do is support telstra, simply because of your own financial stake, whether they deserve it or otherwise.

      as for everyone having a pov, of course. and as I said with you saying hackett speaks on behalf of his agenda, you and he have that in common.

      so think what you like about me, but I am a telstra customer and quite happy. my gripe is not with telstra as they have improved markedly. my gripe is with the very same few sol inspired, greedy shareholders/nwat throwbacks, who flip-flop from position to position and DGAF about anything but their TL$ shares…. i am pro nbn, with no stake in any of it financially, politically or whatever.

      good policy is good policy, regardless of which political party introduces it or which companies or government department s are implementing it. being so, the nbn is simply good policy, imo!
      Beta-9f71a
  • Simon's points are always interesting and do make people think ,and some ways make sense .
    The nbn co has done the cba & tco etc ,its obvious its more beneficial to pay telstra x $
    than totally re-invent the delivery system ,and more beneficial than buying the whole
    copper network etc ,I'am sure the tagged $11B would turn into 5x that if they do what SH is suggesting ,hmm ? ,what state were you in Simon when you announced this ,QLD ? ,must have been the water .
    palava-c9502
  • Simon is spot on and this Government has absolutely no idea. It would be cheaper to simply buy back Telstra - you could probably have it for $15B then sell off the retail business and you could sell off the Mobile network but it would be much better to sell the Mobiel retail business and then you have a national wholesale only network operator which already has fibre to the node. Then privatise this wholesale only network business as it should NOT be operated by the Government and certainly not this Government. Job done , all share holders win and the country gets a national backbone network. You may find that the tax payer actual comes out with a profit. Wouldn't that be novel rather than a debit which insiders have estimated is more likely to be $80-$100B which will force retail cost up significantly if they ever want a return in under 30 years. By that time you will have to do it all again was everything will be failing.
    Cheaperway
  • Cheaperway, not wishing to be picky and understanding that a couple of million between friends is neither here nor there, your purchase price of Telstra is a little low (at $15B)considering the market capitalisation of Telstra is 38,325 million dollars.
    sydneyla
    • Well if that was going to happen, the government would only need to purchase the retail arm, and not the whole of Telstra.
      deteego
  • interesting idea and something i actually toyed with about 12 months ago in forums, when telstra was trading at $2.50 per share.

    unfortunately though, telstra's market cap is currently $38.25B and a buy out premium on top (icing for investors) normally sits at around 20%. so...

    as for the nbn, it clearly states in the business case (pg 27/28/29) that the overall cost of the nbn will be $37.5B and (pg 30) the government equity on the current plan will be $27.1B.

    will these costs blow out? possibly/probably. will they as you suggest, blow out by an additional 100 - 175%, extremely unlikely.
    Beta-9f71a
  • arrrgh me and syd just said the same thing...noooooo!

    LOL ;-)
    Beta-9f71a
  • It is an undeniable fact of the cosmos that two great minds (in the end) think alike.
    sydneyla
  • Oh Cheaperway just to make sure you get every share when you start buying, Telstra has 12,443,074,357 shares for sale.
    sydneyla
  • actually he'd only need 6 221 537 179 (half, plus one, if Iv'e done my pen/paper addition correctly...!) to have a controlling stake, wouldn't he?
    Beta-9f71a
  • And that would depend on the exact value of the copper and buried assets :

    1 -TELSTRA'S copper network is worth between $8billion and $33bn ... $3.9bn for the ducts and pipes and $2.7bn for the copper cables.
    http://www.theaustralian.com.au/australian-it-old/slip-puts-value-on-telstras-network/story-e6frgamo-1225791585878

    OR

    2-Huge $25B gap between Govt and Telstra on valuation. ... values its ducts and pipes at $15.04 billion and copper cables at $12.3 billion
    http://www.itwire.com/it-policy-news/government-tech-policy/28823-huge-25b-gap-between-govt-and-telstra-valuations

    The lack of a definite value would affect the explicit asset value ,if you take the initial
    values 2.3b and do the accounting ,the share price should be ?.
    palava-c9502