Could the ghost of Sol Trujillo stalk an Abbott government?

Should Tony Abbott be elected in September, his communications minister faces a tough task convincing Telstra to not drive a hard bargain.

The final years of the Howard government were marked by poor relations between Telstra’s CEO Sol Trujillo and communications minister Helen Coonan. Could history repeat should an Abbott government be elected later this year?

With the coalition committed to reconsidering the National Broadband Network, an Abbott government will have to renegotiate some major contracts entered into by NBN Co and the Labor government.

The most important of these contracts are the access agreements with Telstra which the telco has valued at over $11 billion dollars.

At the Mobile World Congress in Barcelona three weeks ago Telstra CEO David Thodey made it clear that the company expects that money.

"We have a contract with the government and we know what value we need to participate,” Thodey told The Australian, “and that's really the end of the story.”

"Speaking on behalf of the shareholders, if there is a different way to make up that value, we are happy to talk about it. But at the end of the day we are making available for a price this infrastructure to allow the government to implement this policy," he said.

The scope of the contracts is extensive with the stakes are high, the package includes $5 billion for the long-term leasing of its pits, pipes and ducts to NBN Co and in the second half of 2012 Telstra booked $176 million in NBN related revenues despite the project still being in its early days. Given the sums involved, Telstra’s market power and the control it has over key parts of the coalition’s fibre to the node (FttN) proposal, the company can be expected to drive a very hard bargain with the Abbott government.

Back to the future

Those tough negotiations risk relations between an Abbott government and Telstra returning to the bad old days of Helen Coonan and Sol Trujillo.

Trujillo took his position as Telstra CEO in July 2005 and almost immediately his relationship with the Howard government soured after years of the company being fattened for privatisation by his predecessor, Ziggy Switkowsky.

In November 2006, just over a year after the new CEO started, the final T3 tranche of the Telstra privatisation took place and relations became particularly testy as it became clear Trujillo had no intention of delivering anything to regional Australia beyond the bare minimums required.

This was exactly the situation the Howard government had been warned about prior to Telstra’s sale when not structurally separating the company and the coalition cast about for a solution that would guarantee regional broadband while punishing the now independent and dominant telco. As a result, the Howard government announced in mid June 2007 the OPEL consortium run by Optus and Elders would provide broadband to regional Australia using the then promising WiMax wireless standard.

Shortly afterwards, in the run up to the 2007 election, relations with the Liberal government reached their lowest point when the communications minister Helen Coonan publicly threatened Telstra over its political campaigning to influence communications policy.

The OPEL non-starter 

Hopes that Sol Trujillo’s relations with Canberra would improve with after the 2007 change of government were soon dashed as Telstra continued to clash with the new communications minister, Stephen Conroy.

Adding to the Labor government’s irritation it was also becoming clear OPEL was a non-starter. Minster Conroy cancelled the consortium’s contract – which echoes Malcolm Turnbull’s committments – and called for new tenders.

Telstra failed to submit a complying tender for a national broadband contract and in the absence of any other viable alternative Minister Conroy proposed an ambitious new project that would rewire the nation.

Which brings us to today’s NBN and the promise of an opposition to undo the previous government’s project.

The key difference is Labor’s NBN will be over four years and three billion dollars into the project by September 2013 as opposed to OPEL having barely hired an employee by the time of the 2007 election.

Another major difference is that $11 billion agreement with Telstra.

A less combative Thodey

One redeeming feature is that Abbott’s communications minister – which could be Paul Fletcher or Malcolm Turnbull – will deal with the much less combative David Thodey.

Thodey came to Telstra to run the company’s abortive foray into managed services after the purchase of Kaz Computing. In his 24 years previously at IBM he’d been CEO of the Australian and New Zealand operations after holding a number of sales and marketing roles in the organisation. While his background and personality is very different to Trujillo’s, he’s in a negotiating postion that’s probably stronger than his predecessor’s given Telstra’s increased market share in recent years.

In the face of that strength, Turnbull, Fletcher or possibly both are going to have to renegotiate a deal that allows David Thodey to keep the $11 billion while driving a quicker broadband rollout and keeping the structural separation.

Much of the idea underlying Labor’s National Broadband Network policy lies in the structural separation of Telstra. Protecting Telstra’s domination of Australia’s telecommunications network was one of the driving factors of Sol Trujillo’s falling out with successive governments.

The danger for a Liberal government is that Telstra controls the fibre to the node broadband rollout due to their control of the copper and HFC pay TV networks. It will require patient and careful government negotiations to avoid a conflict like that between Coonan and Trujillo.

Should Turnbull or Fletcher find themselves across the negotiating table from Telstra, they are going to be against a party that holds all the aces. Abbott is going to have to trust his communication minister can work a lot better with Thodey than previous Labor or Liberal ministers did with his predecessor.