How well Stephen Conroy handles Telstra's challenge will determine whether we're hurtling towards a great new era in telecommunications, or fated to even more years stuck in the grip of Telstra's well-entrenched market position.
It can't really have come as a surprise to many, but
Telstra's decision to fight Conroy's separate-or-be-separated
mandate has thrown a spanner in the government's plans to turn lion
tamer and pry the copper loop from Telstra's hands once
and for all.
By next year's election, one assumes Conroy will want to be able to showcase his many achievements as minister — and the taming of Telstra would have to be high on his list.
Not only will Telstra not come quietly, it turns out,
but the company seems set to throw its weight around in an
ever-fiercer wrestling match that could easily drag into next year
and taint Rudd's plans for a smooth re-election.
That is not to say Rudd faces much real competition
from the Opposition as it is currently operating; Nick Minchin's
hollow opposition to the NBN will be as irrelevant during the
election campaign as it is now.
However, by next year's election, one assumes Conroy will want to
be able to showcase his many achievements as minister for
Communications — and the taming of Telstra would have to be high
on his list. The Rudd Government has shown itself able to be big on
vision when unlimited budgets seem to be suddenly available, but if
it cannot deliver a legislative outcome to match, it will face some
very real problems next year.
Widely-perceived nice guy David Thodey can only be laughing from
his executive chair. Although he has shied away from the
belligerent defiance that marked his predecessor's tenure, there
was no way Thodey was simply going to hand over the keys to
Telstra's empire. The company's submission to the government's legislative
inquiry minced no words in proving that Conroy has a long,
difficult fight ahead of him in his effort to become a lion
tamer — and that Thodey is quite happy to join him in centre
ring as the government's nemesis.
The irony: even though Conroy was quick to work the media with
his claims that Telstra was welcome to stay the way it is now, he
was agitating for change in no uncertain terms — and change of
which Telstra was a part. After all, the market may be able to work
around Telstra, but it's expensive and time-consuming. Now that
Conroy clearly won't get the compliance from Telstra he seemed to
think he would, he faces some difficult choices.
Foremost among these, of course, is drafting legislation that
will actually freeze Telstra out of new wireless spectrum offerings
and divest it of its Foxtel holdings. Although Conroy positioned
these two Telstra businesses as tools for forcing Telstra to the
table over separation, the reality of the wireless market is that
Telstra is just about the only telco with the capital-raising
capabilities necessary to buy large blocks of expensive wireless
spectrum for nationwide service coverage.
Sure, smaller telcos or consortia may cherry-pick key markets
like they did in the 3G auction, but the real-world interest in LTE
and the so-called "digital dividend" to be available in 2014 is
still anybody's guess. Excluding Telstra from the process may serve
political objectives, but it's also likely to hamper competition
during spectrum auctions and deliver lower overall licensing
revenues to the government once the sale of that spectrum is
complete. This is hardly ideal.
Ditto Foxtel: Telstra's warning that divesting the company of
its share in Foxtel will see the content provider snapped up (and,
by implication, muzzled) by media conglomerates is hardly far from
the realm of possibility. Foxtel's ongoing success would make it an
attractive target, and the government will have to consider how
this scenario would affect its media ownership policies.
Furthermore, and correct me if I'm wrong, but there would seem
to be little precedent for mandatorily divesting companies of their
assets or shares in joint ventures when there have been no
allegations of impropriety. This really is blue-sky territory for
Conroy, with ponderous litigation and blown-out time frames a near
certainty as Telstra resumes its official policy of foot-dragging
and Conroy tries to find the right balance of kindly coercion and
can't back down now ... to flat-out cave to Telstra's demands would
reposition Conroy as a toothless tiger beholden to Thodey's
The big problem is that Conroy can't back down now, although as
already suggested he seems to already be treading that line.
However, to flat-out cave to Telstra's demands — even its rather
presumptuous attempts to influence the timetable by which
government legislation is decided — would reposition Conroy as a
toothless tiger beholden to Thodey's lion-hearted resolve.
This outcome would serve nobody but Telstra, perpetuating the
status quo and forcing Rudd and Conroy back to the crisis table as
they continue to try to deliver their NBN vision without
bankrupting the country. Unfortunately, however, as always Telstra
retains the power that inertia provides: it is Conroy's job to
change the situation, and quick. If anything is actually going to
change, it needs to be Conroy with the whip in hand.
Staring down a wild beast always carries risks, and Conroy
certainly has his hands full. How well he handles this new
challenge will determine whether we're hurtling towards a great new
era in telecommunications — or fated to even more years stuck in
the grip of Telstra's well-entrenched market position.
Were Conroy's separation terms just empty threats? Could an
unshackled Telstra become a key election issue? What should
Conroy's next step be?