Most companies will be winners if the Coalition wins this year’s election, but none will be a bigger winner than Telstra.
Telstra will win in four ways:
– It gets to negotiate with a politician who is on the hook with an election promise, no less;
– It is the only company capable of servicing the copper customer access network that the Coalition is promising to maintain;
– It will keep more retail customers;
– And it will get to be an infrastructure competitor against the NBN with its own cable.
Oh, happy days will be here again. If the Moet is flowing at Liberal HQ on Saturday night, September 14, it will be Krug Clos d'Ambonnay over at Telstra.
Shadow Communications Minister Malcolm Turnbull told me on Inside Business a week ago that he was “very confident that we'll achieve speedily the slight rearrangement to the agreements that we're talking about”.
Yes, well, good luck with that. It took two years to negotiate the current agreement between Telstra and the NBN and it has been called the most complicated in the history of telecommunications, or something like that.
The deal involves paying Telstra per customer as the copper is decommissioned and the NBN fibre to the premises network takes over. Is it really a “slight rearrangement” for NBN Co to buy/lease the copper from Telstra instead? And will Telstra really play nice?
Telstra has engaged Macquarie Bank to help it negotiate so it’s clearly taking it seriously.
Complicating matters will be the need for NBN Co to get the copper serviced. It currently costs Telstra between $800 million and $1 billion a year to maintain that ageing copper.
With the election of a Coalition government that amount will go from the cost line to the revenue line, with a margin on top. I call that a $2.2 billion a year turnaround.
On top of that, there won’t be the “switchover event” whenever a customer gets connected to the NBN. That event would have meant the opportunity for iiNet, Optus and TPG to present themselves to the household as an alternative provider of fibre broadband and home phone bundles.
But with the fibre to the node network proposed by the Coalition, that won’t happen. The switchover occurs at the node – for the household nothing changes; it only changes if that household or business choose to pay for fibre to the premise. That must mean Telstra loses less market share to its broadband competitors.
And finally, Telstra gets to keep operating its HFC cable as an infrastructure competitor to the NBN because Coalition believes in competition rather than monopoly. As Malcolm Turnbull told me: “that's socialism. That's the economics of the 1950s and it's totally wrong.”
Yes, duopoly is so much better than monopoly. Just ask Australia’s food suppliers dealing with Coles and Woolworths.
But actually, it probably will be very competitive. The most likely thing is that Telstra cuts NBN Co to ribbons in the cities and leaves them to it in the bush.
Industry sources told me last week they expect Telstra to cut the price of access to its HFC a lot: the marginal cost of delivering it is very low, over the cost of providing Foxtel, and it will be in Telstra’s interest sure to ensure it has a significant broadband infrastructure business, in addition to reselling the NBN.