NBN BUZZ: Wireless reawakening

NBN Buzz is a weekly wrap up of everything that's going on with Australia's biggest ever infrastructure project. For previous editions go to our href="http://.

Why so wireless?

The Telstra wireless non-compete clause debate has been resurrected as the Optus wireless non-compete clause debate.

The arguments are the same. NBN supporters say Telstra and Optus have been given billions for their fixed infrastructure on the basis that their customers will move to NBN Co's fixed infrastructure. It would be unfair to allow the telcos to take the cash and then convince their customers that NBN's fibre is rubbish or excessive, and that they should commit to Telstra or Optus' higher margin wireless services. The sceptics point out that it's anti-competitive and undermines the apparent confidence the government holds for our fibre future.

NBN Co chief executive Mike Quigley hit back at critics of the infamous clause while speaking at a conference in Sydney. “We don't view it as anti-competitive ... The aim of these clauses in the agreement was to try and make sure that we at NBN Co protected the Australian public – the Australian taxpayer – who it is their money we are spending, to do these deals.”

ZDNet's David Braue points out the clause is more of an issue for Telstra because it's been actively pursuing wireless services, adding: “Although even long-time NBN sceptics seem to have quietened their silly arguments that the growth of wireless obviates the need for a fixed network, applying thumbscrews to the country's two largest wireless operators seems to be the result of an almost paranoid fixation, on the part of NBN Co and the government, to head off anything that could ever potentially make customers question the need for the NBN.”

Cynics might argue that such a paranoid fixation to head off anything that could undermine the necessity of your product is just good business practice. Then again, Quigley is happy to protect a household of taxpayers and their indirect investment in the NBN from a last-minute wireless marketing campaign from Telstra and Optus, but those household members aren't just taxpayers – they're consumers as well.

Deals for Victoria, WA

All this distracted from some consequential events at NBN Co, with the broadband company signing fresh agreements for the fibre rollouts in Victoria and Western Australia.

In Victoria, the suburbs of Bacchus Marsh, South Morang and the rest of Brunswick will receive their fibre rollout courtesy of Transfield Services, which signed a two-year construction contract worth $133 million. The contract, which will create 400 jobs in the state, has the option of a two-year extension potentially worth an extra $262 million if it hits performance targets. Construction will commence by the end of the year.

In Western Australia, Geraldton, Victoria Park and Mandurah will be brought into the loop via Syntheo, a joint venture between Lend Lease and Service Stream. Like the Transfield deal, it's a two-year contract with a potential two-year extension, with a minimum value of $174 million with an extra $310 million up for grabs. Work in Geraldton is set to start next month.

The only insight that NBN Co gave into these contracts is that they're broadly in line with the $1.2 billion deal signed with Silcar, a joint venture between Leighton Holdings subsidiary Thiess and Siemens. The Silcar deal was supposed to function as a kind of benchmark to measure subsequent contracts against, and the interesting thing isn't so much the deals that have been signed, but the ones that haven't.

NBN Co is still trying to put pen to paper for deals covering the initial rollouts in South Australia and the Northern Territory and the Australian Financial Review understands that, so far, the terms offered by the bidding parties haven't been satisfactory.

Before it's too late

NBN Co chief executive Mike Quigley says the company has a back-up plan in the event that Telstra shareholders reject the $11 billion proposal currently before them, or the Australian Competition and Consumer Commission (ACCC), under new chairman Rod Sims, makes the decision for them.

Whatever the outcome at the ACCC – and the smaller telcos aren't waiting to voice their frustration at the current proposal – Telstra is doing everything it can to convince shareholders to deal. The Australian Financial Review reports that chief executive David Thodey has been meeting institutional investors on the US east coast, while chief financial officer John Stanhope has been speaking to fund managers in London.

Telstra won't be shouting from the rooftops to its much-touted 'mum and dad' investors that it paid $87 million in advisor fees, much of which went to Macquarie, but the result of those investigations was an examination of what would happen in two alternative scenarios: a demerger of its copper network or an outright sale of the asset to NBN Co, according to the AFR.

Time is of the essence here. It's in Telstra's interest to sign an agreement or else risk the struggling Labor government collapsing and Tony Abbott vaulting into The Lodge and Malcolm Turnbull into the Communications Ministry.

While the deal hinges to some extent on the ALP hanging on to government for the foreseeable future, the ability for the government to sell the project rests in no small way on the prices Telstra ends up offering. The government's fortunes won't be hurt if consumers get a look at some compelling deals on the horizon.

So when is Telstra going to release its prices? Chief executive David Thodey said late last week that “over the next couple of months we'll probably give some indication of pricing – but we're not ready to do that yet”.

Delimiter's Renai LeMay concluded that, unlike Internode and Exetel, Telstra is highly unlikely to release a spreadsheet of upcoming deals: “Instead, what I am betting Thodey means by these comments, is that Telstra will take the chance to 'position' itself regarding NBN pricing at an upcoming briefing — likely its annual investor day held towards the end of each year. It is likely Telstra will take this chance to highlight — without too many details — some of its NBN pricing modelling. This will likely be a bit of a 'poke' at the market and will see the telco position itself as being a bit cheaper than most people would expect. Of course, once you add on a bunch of services in a bundle, however, the telco will likely end up looking quite a bit more expensive.”

If I were in government...

The Coalition's task of undermining the government's NBN policy was given a boost by RBS telco analyst Ian Martin who wrote the latest sceptical analysis of NBN Co's revenue targets.

In the Telecommunications Journal of Australia, Martin said there was “very little prospect” of the NBN meeting the stated targets, expressing particular concerns for the proposed high prices that end-users will pay for its services.

Meanwhile, another analyst offered the Coalition some bad, but not unsurprising news, by concluding that figuring out how to halt the NBN's construction will be their hardest task should they win the next election.

Informa senior analyst Tony Brown said the broad outline of the Coalition's new broadband policy earns it a seat at the “adults' table”. But Brown went on to say: “It is possible that Turnbull will spend his entire first term as communications minister without even getting his own deployment off the ground, simply because wading through the legal and commercial minefield of renegotiating a deal with Telstra – not to mention renegotiating with other operators, such as Optus – would chew up so much time.”

And speaking of Turnbull, if you want his perspective on broadband policy in this country you should read his long yarn with economist Joshua Gans in The Conversation.

Wrap up

As Townsville residents give a tick of approval to the NBN and Treasurer Wayne Swan raises hopes that Gladstone will be included in the advanced rollout, NBN Co chief executive Mike Quigley has said local councils are pressuring his company to prioritise their areas over others. Hopes have again been raised that the NBN will aid regional health services, but the Royal Flying Doctor Service has expressed concerns that the current fibre map being proposed by NBN Co won't be sufficient for the services it provides. Finally, figures obtained by The Australian indicate that average wage levels at NBN Co are set to hit $145,000. The newspaper points out in the opening paragraph that such a salary is more than twice the average income, but NBN Co isn't employing the average worker.