Letter to David Thodey: Time is running out

With almost five years under his belt as Telstra's boss, David Thodey has plenty to be proud of but his biggest challenge still lies ahead of him.

Dear David Thodey,

It's now almost five years since you joined Telstra as CEO, and after five years at the helm Australians might expect that the hardest decisions you would need to make as CEO are now well behind you.

But any expectation that the CEO of the largest of the Australian telecommunications companies can sit back and reflect on Telstra’s turnaround both in terms of growth and value for shareholders would be mistaken.

Under your stewardship Telstra has seen its share price move from about $3 in May 2009 to the depths of $2.70 in 2011 recovering to over $5 today.

While Telstra’s share price has not reached the halcyon days in 1999 when shares were valued at over $9 there is an undeniable steadiness to Telstra’s return to growth and shareholder prosperity and it is this achievement that best sums up your tenure to date.

You have presided over Telstra during a period of great change in the Australian telecommunications industry. Your predecessor as Telstra CEO Sol Trujillo made the correct call when he focused Telstra on an expansion of mobile cellular at a time when the telecommunications industry was still finding its feet in a deregulated marketplace.

The period leading up to your appointment as CEO was marked by successive government’s efforts to find the right balance between the provision of telecommunication infrastructure, products and competition while maintaining universal service and the much debated decision to privatise Telstra as one entity rather than separate retail and wholesale companies.

And your appointment at Telstra was about one month after NBN Co was established, so it should not come as a surprise to anyone that in some small way, whatever National Broadband Network (NBN) that we end up with will in part be linked to your leadership at Telstra.

There can be no doubt that your leadership during the Telstra-NBN Co agreement negotiations completed in mid-2011 was a career highlight that led to Telstra shareholders voting overwhelmingly in favour of the decision for Telstra to relinquish its near monopoly position as a fixed-infrastructure access network provider.

And at the time the agreement was signed in June 2011, the ABC reported your comment that the “agreement ended the uncertainty surrounding Telstra's possible association with NBN Co and would allow his [your] company to focus on customer service.”

The majority of Australians supported the Telstra agreement with NBN Co and still do so. Sure the argument could be put that it was only a 30 year leasing agreement but it provided certainty that the NBN would be built and Australians could expect to benefit from new fibre, fixed wireless and satellite access networks.

But should you support the government’s decision to re-introduce copper and HFC into the NBN with no vision for a fibre access network to be built over the next decade?

Having wiped your hands of the provision of fixed infrastructure whilst maintaining a lucrative deal to provide supporting facilities and infrastructure including exchange buildings, pits, ducts and traps it must be confusing to some within Telstra as to why you would consider being a contributor to the multi-technology mix (MTM) NBN 2.0.

Because there can be no doubt that unless every Australian gets what the Coalition government promised before the 2016 election, there will be a constant and ongoing campaign of ridicule that will inevitably mean that Telstra will forever be tarnished by the same brush.

And what of your legacy as CEO of Telstra? If you were to resign and leave Telstra today, Australians would remember a successful CEO that drove a hard bargain with the Australian government and won an outcome worthy of shareholder and the Australian public’s praise.

But the reality is that the Coalition government’s MTM NBN 2.0 will never live up to expectations and the smart money is on the MTM NBN 2.0 taking just as long to complete as the original NBN and at about the same cost. The resulting performance of the MTM NBN 2.0 will be woeful as we have not heard anything to date about upload speeds, maximum utilisation, congestion and traffic class management.

At a time when the rest of the world has joined the “gigabit broadband race” Telstra will be spending valuable time and energy wrestling with outdated and uncompetitive infrastructure when it should be developing new fibre based products and positioning itself as a leader in the global telecommunications community. Will Telstra’s most important asset, its personnel, remain positive about two more decades of going sideways and backwards or will they head overseas to find more progressive companies?

It has been pointed out time and again that Fibre to the Basement (FTTB) should have been used as an interim technology and undoubtedly there are those in Telstra that pointed this out to the previous government on many occasions. Other suggestions such as community participation in fibre premises installation similar to the approach used in a couple of the Nordic countries, use of Fibre to the Distribution Point (FTTdp) as a compromise upgrade pathway to full fibre networks and NBN Co managing the rollout directly as it is doing in the Northern Territory have all gone through to the keeper.

And it's quite possible that Labor will win an election in the next six years and direct NBN Co to return to building a fibre NBN.

What will Australians remember of your support for the Coalition government’s MTM NBN 2.0 if it's only one third to one half completed after six years, the performance falls well short of the Coalition government’s pre-election promises and a new Labor government changes course back to a fibre access network?

But there is an alternative that provides a positive outcome and redresses some of the mistakes made by governments over the past thirty years. And don’t wait for the government to put the alternative on the table for there's nothing like a logical and pragmatic outcome, that is for the nation’s benefit, to cause a politician or their representatives to lapse into aphonia.

Earlier this year you added your support to fundamental change in the telecommunications landscape when you said that “Telstra supports … a wholesale only NBN and the progressive structural separation of Telstra.”

You went as far as giving a clear indication that if the government provided justification that “nothing’s off the table” and Telstra’s structural separation could be brought forward.

Well let me provide a few reasons why you should put this option to the government negotiators.

  1. It's inevitable that Telstra will be separated. If not now, most certainly after the next change of government because any deal to support the Coalition government’s MTM NBN 2.0 will result in punitive action by a future Labor government who will see the agreement as a betrayal by Telstra.
  2. The Australian public have and still maintain overwhelming support for a fibre NBN. If Telstra supports a second rate solution then there will be a concerted campaign that could terminally affect Telstra’s brand.
  3. If Telstra’s structurally separated then the new wholesale organisation could incorporate NBN Co and utilise its more than fifty years’ experience to quickly overbuild the existing copper network with fibre whilst potentially offering wholesale FTTB, FTTdp, HFC and mobile cellular /fixed wireless.
  4. Australians would have confidence that the NBN would be built cost effectively and take no longer than reasonable.
  5. The NBN would no longer be a political hand grenade that has the potential to go off in 242 Exhibition Street, Melbourne.

Earlier this year, you said that you had been opposed to structural separation because there were no examples around the world where it had added value for shareholders. Can Telstra’s structural separation be the first of its kind that is a great win for shareholders and the nation?

Isn’t this the greatest challenge of your career and one that is far greater than re-negotiating what will only be a second rate and temporary agreement with a government hell bent on its less than stellar MTM NBN 2.0?

And your legacy will be that of a great Australian corporate leader and innovator that has the Australian public and Telstra shareholders best interests at heart by taking Telstra into the next phase of its existence.

Yours,

Mark Gregory