NBN BUZZ: Tireless wireless

NBN Buzz is a weekly wrap up of everthing that's going on with Australia's biggest ever infrastructure project. For previous editions got to our NBN Buzz page.

Mr Clause disappoints

The long-awaited agreement between Telstra and the government created a new bundle of questions about Australia's largest infrastructure project – and we'll endeavour to cover them all – but the issue that grabbed the most attention was the apparent “wireless non-compete” clause.

Leading Herald Sun business columnist Terry McCrann popped up in The Australian with this interpretation: “Broadly, but simply and accurately, NBN Co and Telstra agree not to compete. Worse, NBN Co is actually paying Telstra for that agreement... Where was Stephen Conroy when the late Dick Pratt needed him to explain that his Visy group had a "perfectly sensible commercial arrangement" with Amcor for each not to "promote" their boxes as a "substitute" for the other's?”

The Visy-Amcor comparison is colourful, but excessive. Look almost anywhere around the world and you'll find telecommunications is a highly regulated industry, unlike cardboard boxes.

Still, it's not a good look, especially when you consider the confidence that supporters of the current NBN structure have in fibre, why would wireless pose a threat? Indeed, as outgoing AAPT chief executive Paul Broad said it's “like asking someone to play football, but telling them not to tackle.”

Telstra chief executive David Thodey appeared on Inside Business with a softer interpretation of the clause: “The only constraint, and it's a very, very minor constraint, is to directly put a little pamphlet in someone's house that says, 'Do not buy NBN-fixed broadband, buy our wireless broadband instead.'”

Telstra workers would also be prevented from marketing the telco's wireless services when they're on a property connecting a customer to fibre on behalf of NBN Co – unless it relates to their universal service obligation or the government instructs them to do so.

According to The Australian, Merrill Lynch analysts believe the clause is a negative for the company, while Morgan Stanley thinks it will be difficult to future proof.

To some extent this is the 'fibre versus wireless' debate by stealth. Supporters of the NBN argue that this is just a detail about how the fibre network is rolled out and specific instances where Telstra will be compelled to play fair, while its detractors say its evidence that the government knows wireless technology could one day serve Australia's broadband needs enough to make the current proposal uneconomical.

With this in mind, recent statistics from the OECD showing there are more wireless connections in Australia than fixed-line services raises the stakes somewhat.

Telstra triumph or tragedy?

Telecommunications regulatory consultant David Havyatt asked whether the deal was a win for taxpayers or shareholders in a piece for IT News and came to this conclusion: “The deals actually seem to meet the economists' description of being good for both NBN Co and Telstra.  In which case the winners will be all of us – whether we are communications customers, Telstra shareholders or taxpayers… or in many cases, all three.”

The market wasn't so convinced, at least when it comes to Telstra. The company's shares dropped in the wake of the announcement – they were the third most traded stock for the day – and they're still down 5 per cent. The slump sparked a number of explanations. One tale that did catch a few eyes was the $900 million Telstra will incur to make its infrastructure ready for the handover.

But Nomura analyst Sachin Gupta summed the broader hesitation up nicely: "Telstra will definitely start getting another cash stream, but this is at the expense of losing its fixed-network monopoly... It's very difficult to know which is the better outcome."

Then there's the sheer volume of numbers associated with the deal. As Business Spectator's Alan Kohler explains, even the headline number isn't what it seems: “The 30-year "sale" agreement is for a total of $47 billion – not $9 billion as announced. That figure is a lesson in spin doctoring: it is the net present value of a stream of cash payments using an absurdly high discount rate (10 per cent after tax). The $35.9 billion capital cost of the NBN, meanwhile, is actual nominal cash, not NPV.”

Numbers aside, what will Telstra look like by say 2020? Business Spectator's Stephen Bartholomeusz urged readers to be patient: “The interesting aspect of the deal, however, is that there is no "Big Bang" moment in it because of the length and nature of the transition from today's environment to the eventual NBN monopoly on fixed line services. That means it will take Telstra at least a decade to morph from what it is today to what it will eventually be.”

While it might take some time for the 'new Telstra' to reveal itself, The Australian reports that the telco's universal service obligation improves under the new arrangements: “Telstra stands to make more than twice its current revenue and cashflow under the new universal services obligation contract inked as part of the National Broadband Network... Merrill Lynch estimates the net cashflow to Telstra from universal service obligation (USO) payments will be $65 million this year but that this will rise to $101 million next year and to $139 million from 2014.” However, there will be a new watchdog created to oversee the telco's obligations.

For the other smaller telcos however – specifically, iiNet and Internode – there aren't enough details available to determine whether the broader industry is getting a good deal or not, according to ZDNet.

What is clear for Telstra and its smaller rivals is that the retail broadband battle is going to be something to behold, as The Australian's Stuart Kennedy explains: “Get ready for a broadband marketing circus as NBN Co's fibre snakes it way through Australia over the next 10 years. Telstra yesterday signed up to a deal to decommission its copper network and transfer its customers to the NBN and Optus signed for a similar deal with its hybrid-fibre cable network. But the second you are transferred on to the NBN your old telco is going to want you back.”

Of course this all assumes that the deal gets past the Australian Competition and Consumer Commission (ACCC) and Telstra's 1.4 million shareholders. On the first point, chief executive David Thodey told The Australian Financial Review that if the competition watchdog bites down hard on Telstra, the telco would reconsider the agreement. On the second point, the cold share price reaction should be enough of a warning to the Telstra board that their shareholders won't be a walkover.

And speaking of Telstra's board, the company's directors will have to stay on top of the new executive remuneration bonus scheme that the telco will have to abide by under the NBN agreement.

The new arrangements won't concern chief financial officer John Stanhope who, as expected, has announced his retirement at the end of the year, now that he's done all he can to get this deal done. In an interview with The Australian, the 40-year Telstra veteran insisted that this is the best possible deal Telstra could have achieved.

And finally, The New Lawyer reports that the NBN has been a windfall for law firms, with a neat summation of which firms have advised each aspect of the deal.

Gillard's short-lived love-in

It's a real statement about the deplorable state that Labor is in federally that this crucial, positive announcement about its flagship policy couldn't produce one serious contemplation that this is the party's turning point.

The anniversary of Kevin Rudd's knifing certainly didn't help, but the Sydney Morning Herald put that aside to contemplate what Labor has done here: “At a time when shambolic retreats by the government and opportunistic negativity by the opposition are the stuff of federal politics, the Communications Minister, Stephen Conroy, deserves marks for persistence in his campaign to develop a national broadband network. The deals he has brokered between NBN Co and Telstra and Optus, signed last week, have yet to be approved by edgy shareholders and the competition regulator. But one major obstacle to this huge project progressing over the next decade from pipe dream to reality has been overcome.”

And the same newspaper also had a succinct explanation about what the deal means at a political level: “The political battle of the NBN has moved from debates about legislation and implementation to oversight of costs.” Hence this story about Independent MP Rob Oakeshott – chair of the parliamentary inquiry into the NBN – and his unlikely campaign to get a cost-benefit analysis.

But more specifically, the debate about cost will relate to this story from The Australian about how the break fee to Telstra could in fact be up to $3 billion if the Coalition wins the next election.

This has been the angle of choice for the NBN-Telstra agreement: “What will happen if the polls don't move and Labor is thrown out at the next election.” It really underlines just how poorly Labor is travelling at the moment that as the Minister for Broadband and the chief executives of Telstra and NBN Co stand with Prime Minister Julia Gillard to celebrate one of the best moments she's had in the top job to date, the first thing the commentariat thinks is “what will Tony Abbott do?”

Telecommunications analyst Paul Budde offered this advice for the leader of the Opposition: “It is not as though the opposition is aiming to get rid of an unpopular policy. On the contrary, the NBN is a very popular policy. You would have to be brave to go against the will of the voters, even if you were going to save a few billion dollars in doing so. The opposition had its chance to set an NBN policy during the 11 years it was in government, and failed to do so.” Mark Kenny expressed similar sentiments in The Punch.

Labor wouldn't have welcomed this piece in The Australian from Kevin Morgan, who represented the ACTU on Kim Beazley's ministerial committee on telecommunications reform. Morgan took issue with the Optus deal which arguably values the company's customers three times higher than Telstra's: “There is one tradition in the ALP that endures whether in government or opposition: look after your mates and do whatever you need to, to keep them happy. And few understand this better than Broadband Minister Stephen Conroy, one of the linchpins in the NSW Right. Hence his extraordinary largesse to Australia's No. 2 telco, Optus. He's signed off on an $800 million (post-tax value) deal that will see Optus close the pay-TV network that carries half its broadband and telephony customers and transfer those customers to the NBN.”

Mates rates aside, pressure is now building on the opposition and its learned communications spokesperson to stop criticising the government's broadband policy until they reveal their own.

Turnbull's return journey

Speaking of Malcolm Turnbull, the Opposition communications spokesperson was back on the topic of South Korea this week. For those who missed last week's NBN BUZZ, Labor often points to South Korea as precedent for a government-sponsored rollout of high-speed broadband and Turnbull countered that the country's flagship carrier Korea Telecom was experiencing a decline in high-speed subscribers.

The trouble is, South Korea has more than one telco and CommsDay columnist Richard Chirgwin popped up in The Register to point that out and add that high-speed broadband is actually booming in the East Asian country.

Turnbull returned this week with a piece making mention of not one, but three South Korean telcos with an apparent concession that high-speed broadband use is rising in the country, but countered that this can be put down to unconvincing comparable offers at lower speeds, adding for good measure that the South Koreans prioritise facilities-based competition. This is the far superior offering from Turnbull.

Wrap up

It's not just Telstra, Optus and NBN Co that benefit from this deal, as shown by Eureka Report's Michael Feller in this story about Vocus Communications and BigAir Group, and The Australian Financial Review with this yarn about Platform Networks. First the Victorian Liberal government was concerned about the lack of attention being devoted to disaster management when it comes to the NBN, now they think the whole thing is a bad idea with a submission to the federal parliamentary inquiry. But the NBN did get some supporters trying to clarify details and expectations. We had Richard Chirgin in The Register dispelling four myths about the NBN, we had Stilgherrian in The Drum pleading that readers don't take warnings from the opposition about the end of broadband competition seriously, and we had reassurances from SingTel chief executive Chua Sock Koong who said voters will just need to see what the NBN can do. A number of regional councils will be hit up for funds to make preparations for the NBN rollout in their towns, which hasn't gone down all that well. Finally, the Darwin suburb of Casuarina has been confirmed as the second on the Australian mainland to be connected to the NBN. There's appetite in Northern Rivers NSW for an early NBN connection, while Adelaide suburbs of Prospect and Modbury will know within weeks when they'll get access.