Telstra's BT coat doesn't fit

Much has been said about BT, the largest carrier so far to undergo operational separation, and its relevance to the current debate about the potential separation of Telstra.

Yet with the national broadband network (NBN) deadline set, and an increasingly petulant Telstra now saying it is "100 per cent clear" the company will not build the NBN "if further separation is required", I couldn't help but feel a bit embarrassed for us all while listening to a BT executive speaking at the recent Genesys G-Force conference in Melbourne.

Mark Baines, head of converged communications infrastructure with BT Design, is one of the key figures behind the construction of BT's multi-billion-dollar 21st Century Network (21CN) project, a £10 billion overhaul of Britain's telecommunications infrastructure paralleling BT's recent structural separation.

If we believe Telstra's rhetoric, separation is tantamount to simply shutting off the local copper loop and reverting to using smoke signals to communicate. "Overseas experience has already proven that separation does not work," new Telstra mouthpiece David Quilty was quoted as saying. "It increases costs, reduces efficiencies, limits future innovation and, most importantly, kills off investment."

Not in BT's case, it hasn't. Indeed, the vision of the future Baines portrayed is so far removed from what Quilty describes that I wonder if we're talking about the same UK.

Now, mind you, Baines didn't say BT was totally happy about UK regulator Ofcom's decision to open BT's infrastructure to competitors. "The UK has quite a strong regulatory environment, and we've basically had to give about 4.5 million unbundled lines to our competitors," Baines said in a tone that showed that the change had not been exactly a walk in the park.

However, he was quite positive about the changes that separation has forced upon BT: namely, to get its act together and modernise its infrastructure. The 21CN will be entirely IP-based and that (combined with a strong commitment to SIP, or session initiation protocol, a universal way of connecting VoIP and video calls) means home phone services will never be the same again.

"Innovation really means IP," Baines said, "and our core network is going to be SIP. By 2011, in the UK, the traditional home phone in your home will no longer exist. You will be on broadband by default, and you'll have to write to BT to ask to opt out."

Think about this for a moment. Just three years from now, Baines is saying, IP telephony will form the basis of a completely new phone system. Instead of paying for a vestigial PSTN line just so they can get broadband, consumers, mum-and-pop businesses, and everybody else will get broadband as their basic communications service. IP phones will become standard equipment, carrying voice, video, and other services into customers' homes over the 21CN's fast data connections.

By 2011, in the UK, the traditional home phone in your home will no longer exist.

BT's Mark Baines

This is Quilty's idea of how separation "limits future innovation"?

BT expects the 21CN to deliver annual savings of £1 billion from total costs of around £10 billion. But Quilty says separation "increases costs" and "kills off investment". Huh?

Here's one benefit of separation Quilty hasn't yet weighed in on: to deal with ever more-demanding customers, Baines is helping BT completely re-architect its contact centre, which will use SIP on top of the 21CN to help BT's 30,000 customer support staff work together all over the world.

This will significantly cut the cost of the 400 million customer calls BT handles every year, as well as enabling the customer staff to field support requests lodged via the Web, instant messenger, video-conferencing and other methods.

"We're losing significant margin in wholesale services," Baines said, "and get increased demand from our customers to speak to us on whatever channel they want to speak to us on. Voice is no longer the main channel."

There you have it: BT's own account of some of the changes separation has wrought. As far as I could tell, the worst thing separation has done to BT is to force it to shake off decades of legacy technology, stop trying to milk the PSTN to within an inch of its life, and get on with the business of building a better, bigger, faster, modern and global telco that provides exceptional customer service.

No wonder Telstra is running away from this stuff as quickly as it can. Our own largest carrier has been on a years-long effort of cost-cutting and lay-offs, is stonewalling against the same unions whose support it will need to build the NBN, and even went so far as to brag in its latest annual figures that it had slowed down the trend of people abandoning their fixed lines.

That's right: Telstra slowed PSTN's decline to just 3.2 per cent, with the number of retail access lines increasing by 87,000 during 2007-2008 compared with a 5,000-line decline in 2006-2007. "We continued to add retail customers, defying the trends of our global peers," the CEO's report proudly says.

David Quilty
(Credit: Telstra)

Were it not for full disclosure rules, Telstra would probably have neglected to concede that it lost 572,000 fixed-line customers during the year as they rushed to ULL-based services.

Telstra turned a record $3.7 billion profit last year, but it wasn't by charting a conciliatory and realistic path to the future; it was by fighting change, baring its teeth at competitors and regulators, and stripping back in customer service and every other area it could get away with.

Just consider those fixed-line customers Telstra signed up, 600,000 of them, according to the report, who are now locked into contracts that left them little recourse when Telstra raised line rental rates yet again last month.

BT is talking about delivering VoIP to an entire nation, but Telstra is so eager to protect its fixed-line cash cow that it has yet to offer VoIP services to its customers: defying both international trends and the inevitable weight of progress.

Indeed, we have heard very little about Telstra's long-term vision, apart from rhetorical threats to walk away from the NBN if it doesn't get its way.

Telstra loves to argue that separation has stymied investment in the UK, but Baines' story suggests that separation has in fact motivated BT to pour billions of dollars into a network that will keep it at the forefront of the world's telecommunications providers.

And, he pointed out later in his speech, this network has been designed from the ground up to facilitate interconnectivity with competitors: an important capability in any open market.

Separation behind it, BT seems to be looking towards a bright future. Can Telstra say the same?