Shareholders onside, NBN's final battle looms

Telstra's shareholders have voted resoundingly for the NBN Co deal, but the battle isn't over yet. The future of the NBN now hangs in the balance as David Thodey steps eye to eye with ACCC head Rod Sims over Telstra's so-far-inadequate SSU. The structure of the NBN, and of the entire industry, now depends on who blinks first.

And so it came to pass that after years of open hostility and plodding negotiation, the last seal was breached, and Telstra came face to face with its nemesis at last. Yet, while a boss fight between Sol Trujillo and Graeme Samuel might have been even more epic, there's no discounting the sheer drama that will ride on the next few weeks as Telstra CEO David Thodey and Australian Competition and Consumer Commission (ACCC) head Rod Sims decide who will emerge as victor on the long road to the NBN.

It's a climactic battle worthy of all the great heros' journeys — you know, Thor vs. Loki, The Bride vs. Bill, Luke Skywalker vs. Darth Vader, Scott Pilgrim vs. the World — which start innocuously enough, but veer into open warfare through often-violent sequences of events involving treachery, betrayal and self discovery. And, like so many stories of the prodigal son and the black sheep returning to the family, this one ends with the final face off between Telstra — the ex-monopolist that never quite learned to play fair in our competitive market — and the ACCC — the sheriff appointed at the dawn of deregulation to force Telstra to play fair, but so far cursed with a lifetime supply of dummy bullets.

Telstra shareholders have welcomed the NBN, but will they be smiling if Thodey overplays his hand against the ACCC?(Credit: Josh Taylor/ZDNet Australia)

The final point of contention, now that those pesky and hard done by shareholders are out of the way, will be Telstra's structural separation undertaking (SSU) — that instrument by which Telstra will determine the terms of its government-imposed Seppuku. Yet, while the shareholder vote in favour of Telstra's deal with NBN Co was absolutely resounding — 99.45 per cent affirmative doesn't really leave Malcolm Turnbull much to work with — the steps remaining before the structural separation undertaking (SSU) is finalised will determine just what kind of NBN we end up with.

While the shareholder vote in favour of Telstra's deal with NBN Co was absolutely resounding, the steps remaining before the SSU is finalised will determine just what kind of NBN we end up with.

It has played out exactly as Internode MD Simon Hackett said it would at the CommsDay Summit earlier this month, when he warned that the shareholder vote was premature because the SSU — which was originally submitted by Telstra, and promptly rejected by the ACCC and the rest of the industry as inadequate — was still very much up in the air. The ACCC now waits for Telstra to submit a revised document, which Thodey today indicated will happen within a week or so.

Of course — and here's the rub — there's no guarantee that a revised SSU will address the concerns of the industry and the competition regulator. If Telstra's fight to the death resistance strategy continues as in the past, it will make small concessions in a series of subsequent drafts where each gives as little ground as possible. Assuming that the final approved version is mostly the same as the one that the ACCC rejected, Telstra's destiny will be cemented.

The thing is — and both Hackett and Telstra know this very well — if the final SSU is much different than the current one, as it seems it needs to be, Telstra will need to take it back to its shareholders. This means months and months of delays, and that's the last thing the government needs now, having just made a major announcement about the NBN's roll-out over the next 12 months.

This situation shapes the current battle, which Hackett characterised as "blackmail", and I would probably classify as "stalemate". Either way, Telstra is playing the situation for all it can: witness the wording in its press release, in which Telstra chairperson Catherine Livingstone warned that "we continue to believe that none of the issues raised by the ACCC in relation to the SSU is insurmountable, and that they can be resolved in a way that's consistent with our principle of protecting shareholder value. However, if any material changes occur, we will ensure that shareholders have an opportunity to consider and vote on them."

If the ACCC accepts a materially insufficient Telstra-penned SSU to advance the NBN once and for all, there are real risks that the separation will be inadequately framed, and the future of the industry will be threatened. But if the ACCC rejects it, it risks pushing Telstra back into an endless series of obfuscation and delays of indeterminate duration as it looks for yet another shareholder mandate; this could derail the NBN and help Telstra buy even more time to renovate its business, as it has been doing furiously with its fast-tracked long-term evolution (LTE) and corporate rebranding.

The catch for Telstra

That said, Telstra's board is not entirely free to act with impunity; although Thodey was recently quoted as saying that he would walk away from the NBN Co deal if Telstra and the ACCC couldn't resolve their differences, he now faces a dilemma of his own.

Thodey now faces a dilemma ... if he and the board decide to cancel the deal, they would be acting in direct contradiction to the expressed wishes of their shareholders ...This would theoretically lead to a loss of confidence in the entire board, forcing the company's executives to resign.

Telstra shareholders have, after all, resoundingly indicated their support for separation and the company's push towards the NBN. If he and the board decided to cancel the deal, they would be acting in direct contradiction to the expressed interests of the shareholders — and hard data suggesting that they would be acting against the best financial interests of the company. This would theoretically lead to a loss of confidence in the entire board, forcing the company's executives to resign and ushering in a time of major turbulence for the company.

No wonder the Competitive Carriers' Coalition moved so quickly to dare Thodey to make good on his threat; for Telstra to walk away from the deal now would be a disaster for all concerned.

Yet, one wonders just how the next few weeks will play out. Will Telstra go quietly and concede more ground, so that everyone involved can just get on with it? Or will it continue to press for its vision of separation until the government either rolls over and accepts a substandard SSU — or until it throws caution to the wind and takes the knife to Telstra like it's been trying to do for a decade?

What do you think will happen now? Can Telstra twist this situation to its whim? Or has the government finally won at last?


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