Conroy faces a showdown at the FTTN corral

Say what you will about Senator Stephen Conroy, but he is clearly not a man afraid of confrontation. Well, he'd better not be, because by killing off the OPEL WiMax project he has just set himself up for a battle with Telstra of Biblical proportions — or a big meal of crow washed down with a $4.7 billion gift to SingTel Optus.

It's a huge step backwards for Australian broadband, but the inevitable decision to axe regional Australia's first viable alternative to Telstra's decaying copper local loop came sooner — and with less guile — than I predicted a few weeks ago.

By claiming that OPEL hadn't met coverage objectives, Conroy was able to exit the politically unpalatable (for Labor) contract despite his earlier assertions it would remain. This dropped AU$1 billion into the laps of his party taskmasters, who will relish the money to fund its efforts to build Labor's support base by bribing schools with PCs.

We'll be well through two elections — and, at this rate, probably still lacking proper broadband — before everyone realises the $1 billion that could have created fixed-line competition was blown on hundreds of tonnes of eco-junk. Instead of teaching Australia to fish, to borrow a catchphrase, Labor is buying everyone flake and chips.

If I were a cynic — perish the thought — I would demand that Senator Conroy follow through on his oft-uttered support for transparency and publish the full report documenting evaluation of OPEL's plan, the results of the government's technical WiMax tests, the due diligence on the implications of a contract cancellation, and so on. Come to think of it, these documents will likely come out during discovery after SingTel and Futuris rightly sue the pants off the government. So much for saving money.

Senator Conroy will decide just how open he wants to be. For now, though, Australia's broadband policy is in limbo. As usual. Several months ago, I theorised that Conroy's anti-OPEL rhetoric, softened by the need for the government to honour the contract, would lead to the creation of a third, separate local loop network; Telstra, after all, had indicated it was not into partnering with the government, and OPEL was at that point going ahead so the only way Conroy would get an open fibre network would be to fund a third one.

Now that OPEL is out of the picture, Conroy is free to use his $4.7 billion to put fibre into the diet of regional Australians from Broome to Hobart. But this time around, there's a catch: he can either fund creation of a parallel network, which is highly unlikely, or he can put on his iron fists and get ready to hammer the bid's eventual winner into submission.

To promote competition, Conroy needs to frame the contract around provisions that Telstra has already publicly refused — things like open access, competitive pricing for access services, a method for faster dispute arbitration, and performance targets that will ensure the winner can no longer use stalling tactics to bury competitors in procedural molasses.

Count on Telstra to put forward a strong proposal; its directors are practically salivating at the thought of fibre-ising their network in a government-subsidised project that will clinch Telstra's fixed-line monopoly and boost shareholder dividends.

If the bid comes out on top, Conroy's in for a tough fight. His handling of that fight will be his legacy — or his downfall.

Why a fight? Because, there is no way Telstra will just roll over and suddenly play nice. Remember the experience of Comindico, the nationwide wholesale network operator that won rabid support from ISPs but eventually imploded after years that executive chairman John Brennan characterised as "a period of constant disputes with Telstra".

Telstra has maintained its market strength by using its unparalleled size to fight wars of attrition against one would-be competitor after another. That's why Conroy will need to manage the FTTN contract with an iron fist and not be afraid to come down on Telstra like the proverbial tonne of bricks. Predicating the FTTN contract on anything less than full and open access would make a mockery of competition law and be a shameful abdication of Conroy's responsibilities to the Australian public. Conroy could mandate the functional separation of Telstra, as I suggested last week.

Funding an independent infrastructure arm of Telstra, and even giving it the FTTN contract, would solve many problems for everybody — but Telstra would almost certainly tie up any such change in massive lawsuits that would suck millions of dollars out of the public coffers whose protection Telstra claimed to want.

The other choice? Conroy could do the logical thing and give the whole swag to Optus. Well, not directly; his panel obviously has to complete his transparent evaluation process, and given his anti-Coalition rhetoric he can't afford to be anything less than procedurally robust.

Barring an epiphany from Telstra's management, however — and barring sudden interest from overseas players like Verizon or BT — Optus seems to be the heir apparent for the FTTN contract as it's likely to be the only large bidder willing to conform to conditions of openness. OPEL was, after all, going to be a wholesale operation so I don't see why Optus would object.

Crunch time is coming to both sides of this debate. Conroy must decide how committed he is to changing the status quo, and Telstra must decide just how badly it wants to maintain it. Will Telstra take the $4.7 billion in exchange for actually providing a fair and competitive access to the market? Will it opt out of the bidding process altogether, sticking with its guns and charting its own destiny? Will Conroy trump Telstra by imposing the functional separation that should have been implemented a decade ago?

OPEL would have avoided all of this by giving Senator Conroy an 'out' — a second local loop that would either have brought broadband to new corners of Australia, or given him anti-Coalition ammunition had it failed. Heck, rural Australians have gotten so used to waiting for broadband that a few years more aren't going to hurt, right?

In the meantime, cook up some popcorn, put up your feet, and watch the carnage. Conroy has made it clear he's the new sheriff in town — so this mess is his to clean up.