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AAPT's Broad: split Telstra, but forget NBN

Separate Telstra and give the competition regulator enough power to control it, but for heaven's sake don't let the Federal Government own a telco, says AAPT chief Paul Broad.
Written by Liam Tung, Contributing Writer

Separate Telstra and give the competition regulator enough power to control it, but for heaven's sake don't let the Federal Government own a telco, says AAPT chief Paul Broad.

"The regulator says they don't have the power to force [competition]. Well why don't they? If the government is serious about competition and you have a barrier to competition, you force regulatory powers," Broad tells ZDNet Australia, hammering his fist on the table.

"The reason why Telstra is not in government hands is because the government is incompetent at running business. To see a government running business is mind-bogglingly stupid."

Paul Broad

Paul Broad: please explain the NBN (Credit: AAPT)

Broad, once a Treasury economist and former managing director of the NSW state-owned corporation EnergyAustralia, has joined this week's chorus of power brokers who have slammed the Federal Government's plan to fix the telco industry by launching the government-owned telco NBN Co.

Bevan Slattery, former owner of largely wholesale network provider Pipe Networks, yesterday said it would be impossible to get a commercial return on the National Broadband Network (NBN).

One of the first vocal critics of the NBN, Broad, like Slattery, can't figure out how the government can claim it will deliver a return on its investment. In April last year, at the announcement of the second NBN proposal, Broad said that to deliver a 10 per cent return, retail prices would need to be $200 per month — well out of reach of "the average punter". NBN Co chief Mike Quigley and Communications Minister Stephen Conroy have dismissed that price as the premium end of services and still insist the network will be profitable.

Broad also suspects that the government has stalled the release of its $25 million NBN implementation study, conducted by KPMG and McKinsey & Co, because it can't explain how it will deliver a positive return. And if the government does manage to explain it, it will be doing so at the risk of McKinsey's reputation.

"They should be putting McKinsey on the block to explain it to us. Explain to me the economics," says Broad.

"What are they [the government] frightened about? Obviously [the report] can't be favourable," he says. "And McKinsey are on the line. If McKinsey put out a report that is rubbish, their global reputation could be on the line."

Everyone keeps talking about the NBN but that's in eight years. In eight years we'll all be dead.

Paul Broad

Earlier this week, NBN Co chief Mike Quigley "="" class="c-regularLink" rel="noopener nofollow">explained it would generate a positive return in the short term on the costs it outlays prior to the official completion of the network. In the long term, the company would return the Federal Government's multi-billion-dollar equity contribution within 30 years.

But Broad is not convinced by the short-term claims of NBN Co let alone the long term. "Everyone keeps talking about the NBN but that's in eight years. In eight years we'll all be dead."

Perhaps Quigley is right. But while Slattery and others fear that the NBN Co will not be able to attract private investment due to the lack of a business plan, thus leaving Australian taxpayers burdened, there's another problem. Should NBN Co generate returns, Quigley will likely be asked to hand them over to the government.

"The classic example was when I headed EnergyAustralia. The government treats it like a taxing-agent and takes the dividend flows out of it," Broad reflects.

"They rolled up one Sunday afternoon and told me I would have to restructure my balance sheet and they would move $1.2 billion of debt out of the government and into me. There's no discipline in all that. Governments are governments. They're not business."

Broad's formula for fixing the country's telecommunications problems is a conservative and simple one: adequately equip the Australian Competition and Consumer Commission (ACCC) to do what it was meant to do, but don't impose fibre on the nation when there's still more to squeeze out of copper.

"It does help if you have a regulator empowered to really force the issue. Why is it they are building out extra fibre in the bush? Telstra already has it. The regulator needs the power to tell them it's going to be this price come what may," he says.

"You want the market to work. You have a dominant Telstra. If you're going to structurally separate it, structurally separate it with the powers to regulate under a very strict mandate to protect the interests of consumers."

In recent times Broad says he has become suspicious of the ACCC's independence. "What really frightens me to my core is when the regulator comes out and starts to say the NBN is the best thing since sliced bread on day one. These guys should be independent of that. They're the regulator for heaven's sake."

Broad also thinks any idea that the NBN Co can build the network without Telstra's cooperation is a joke. "Surely it's bluff," he says, calling it "madness" to build what is already in the ground. "My point is that you can get a lot of speed over copper. You haven't even pushed copper to its limits," he says.

These guys should be independent of that. They're the regulator for heaven's sake.

Paul Broad

In order to compete with Telstra's Unbundled Local Loop (ULL) copper service, which enables the delivery of ADSL2+ broadband, Quigley has differentiated NBN Co's fibre service on the basis that it will offer "guaranteed" rather than variable speeds available under copper as well as multiple service providers rather than just one. Quigley has also said the only pricing that would make sense is if it was close to copper, but with superior qualities.

But, given recent changes to the broadband market, pointing to AAPT's own unlimited plans, Broad doubts this will compel customers to demand a switch to the NBN. "We've got unlimited broadband today, and let me tell you that those that have it are not complaining about speed," he says. "If you look at all the customers, a small fraction go anywhere near the speed that is available."

"I'm not anti-speed. The need for speed will get there, but we have huge amounts of capacity in the ground today. We have pockets where it's uneconomic and governments, if they want to subsidise, I get that. But don't say that we're going to run fibre to the eastern suburbs of Sydney. It doesn't make sense."

Whatever happens, if NBN Co attempts to compete against Telstra it will lose every time.

"If you did build it, and you let Telstra compete against you — an integrated telco as it is today — it beats you at every turn. They have sunk costs. They don't have to make money on $43 billion. They have sunk costs and they will do you over every time if they want to. And what do you do then? How does that work?"

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