Australia | Jun 19 2006
By Greg Peel
The Chinese will put a man on Mars before Australia has high-speed broadband.
By that stage we’ll probably be looking for hand-outs as let’s face it – commodities or no commodities, Australia is rapidly becoming a third world country with respect to the most important element of the new business age – information technology.
Unconditioned Local Loop (ULL) is a means whereby Telstra (TLS) competitors can provide ADSL broadband service down Telstra’s copper wire network and pay a rent for the privilege. The network is divided into four "bands", representing the CBD, city metro, regional and rural/remote areas. Presently the most populous band – metro – attracts a rent of $22 per customer per month.
Obviously services in the bush are much higher, and this is where the whole Telstra debacle begins. Telstra has offered the ACCC a compromise in order to reduce broadband costs in the bush by averaging out the band costs (ie city subsidises country). The price offered was $30.
The ACCC was hoping for $13, based on what it believes the network costs Telstra. The market was expecting $22. Telstra suggests $30 is a realistic average and furthermore that its competitors are making substantial profits at $22 without the bush service obligations.
So we’re at another stand-off.
The sad thing is that ULL is old technology. Fibre to the Node (FTTN) provides much faster broadband and many countries already boast comprehensive FTTN networks. (FTTN replaces the connection from base to a network node with fibre optics, before the old copper wires remain as the connection to your house).
I just don’t want to contemplate how much of a bun fight FTTN negotiations will become down the track. In the meantime, brokers have been calculating just what different ULL prices mean to Telstra valuation. For example, SB Citigroup believes the market is currently factoring in an average price of $15-18, and that every $1 of price differential affects a $0.05 difference in valuation.
An outcome is not expected until November 2007. Telstra will continue to hold up broadband development as it protects ancient revenue bases such as fixed line calls, ISDN, which the bush uses for timed calls and which costs an arm and a leg, and its cable network that it has an interest in via Foxtel.
A good comparison to Australia is Canada – vast spaces, low population. The Canadian government is not made up of dithering fools, it would seem, as it had the foresight to prevent telcos becoming cable operators as well. The result was a competitive broadband delivery market and substantially faster broadband.
Australians might as well go back to living in caves.
The FN Arena database presently shows 1 Buy, 6 Holds and 2 Sells for Telstra. The average target price is $4.06 but this is blown out of proportion by Credit Suisse’s $4.78. CS believes Telstra will significantly benefit from ATO tax concessions for capital programs (read FTTN). But we have to get there yet.