Australia | Jun 06 2007
By Greg Peel
Telstra (TLS) could begin the process of rolling out a fibre to the node (FTTN) fast broadband network tomorrow, but until it can get the price it wants from its competitors for wholesale access (believed to be $85 per month) it will sit tight. The ACCC has to approve this price, and to date has suggested it’s way too high. Analysts agree, calculating that Telstra is basing its expectations on an excessive internal rate of return requirement. The G9 agrees, as it has indicated it could provide much cheaper access on its own network under a cooperative arrangement.
The government had been content to let the Telstra-ACCC stand-off remain unresolved, claiming that ADSL2+ provided sufficient broadband speeds in the meantime. While true, the limitations of ADSL2+ would continue to commit Australia to broadband third-worldliness.
However, the government has been forced to act on FTTN, lest it prove another election tipping point. The ALP has indicated it would build an FTTN network by hook or by crook, under a public/private partnership. The G9 has thrown the cat amongst the pigeons by proposing a network built by a consortium of telcos (including Telstra), collectively managed, and financed by the financial markets. The government’s response has been to laughably attempt to use the G9 proposal as an attack on the ALP, given G9 does not suggest the need for public funds.
While the ALP has never provided more than an unsubstantiated promise with regards to FTTN, the government has indeed been working in the background. It knows it cannot go to the election seen to be doing nothing to resolve the stand-off. To that end, Treasurer Costello announced yesterday that the government would intervene in the FTTN debate and create an independent panel to drive a review process. Analysts at JP Morgan noted this morning:
“While awaiting the details of the plan designed by the Liberal Government, we believe that the creation of an independent panel to drive the review process might be seen as the Government intending to adopt a more conciliatory approach on the issue.”
JP Morgan joins most analysts around town in believing that the G9 proposal is laudable but unworkable. There is no escaping (a) the need to have Telstra involved as a participant and (b) Telstra’s ownership of the sub-loop – the last link of copper wire from homes and businesses to “the node”. For the G9 proposal to work, Telstra (who would be less than accommodating) would need to be forced to migrate its lines on to the new network, and so far this is basically unlawful. Hence significant legislation changes, which could not be achieved in any timely fashion, would need to be enacted.
If the government is going to intervene to usurp some responsibility from the ACCC, it is a given that for Telstra to win an FTTN tender it would also need to make concessions on price. Maybe this has been Sol Trujillo’s tactic all along – wait till the government is really over a barrel ahead of the election and leverage a deal that looks like a big concession, but really means $85 was simply a sly opening gambit.
Whether or not this is the case, JP Morgan believes the “public scrutiny and transparency involved in the review process is likely to deliver some reasonably favourable bitstream access and sub-loop unbundling terms for competitors”. In other words, competing telcos can only be better off and not worse off on access and price if the government is keen to reach a quick resolution.
Nevertheless, neither JP Morgan, nor anyone much else for that matter, can see any sort of meaningful resolution ahead of the upcoming election. If the ALP wins, the whole negotiation process would have to start again.