Reports on demise of Telstra greatly exaggerated

The break-up of Telstra because of the NBN was greeted with horror by corporate Australia and shareholders, but things are different now, writes Ian Verrender.

The break-up of Telstra because of the NBN was greeted with horror by corporate Australia and shareholders, but things are different now, writes Ian Verrender.

REMEMBER that sexist old line trotted out in dozens of Hollywood movies in the postwar era, that changing one's mind was a woman's prerogative. The truth is finally out. There is no statistical correlation between inconsistency and gender, and if any proof is needed, just look at Telstra.

In late 2009, the corporate world was whipped into a state of outrage over the federal government's plans to bust up the monopoly in the nation's telecommunications industry.

Newspaper commentators fumed at what they dubbed "corporate terrorism" as hundreds of thousands of Telstra shareholders, many of whom bought stock in the ill-fated and overpriced T2 float, fretted over what was left of their investment.

I must confess to feeling a little isolated at the time after suggesting that separating Telstra's infrastructure from its retail business and replacing it with a new national broadband network may prove to be the best thing that ever happened to the company.

My, how attitudes have shifted in that time. Telstra shares this week edged past $3.50, capping a solid 18 months since its $2.61 nadir at a time when the Australian stockmarket has gone nowhere, making it one of our best performing blue chip stocks.

Courtesy of the $11 billion deal it struck with the federal government in June 2010 to hand over its wires, ducts, conduits and customers to NBN Co, Telstra shareholders have suddenly found themselves owning stock in a corporation with a future.

Prior to the NBN deal, Telstra largely relied on cutting costs faster than revenue fell on the old copper wire network as it scrambled to keep pace with mobile technology.

No longer burdened by an antiquated fixed-line system and with oodles of cash in the bank either to invest, pay off debt or distribute to shareholders, an air of optimism has engulfed the nation's biggest telecommunications group.

But with the federal government desperately clinging to power, courtesy of Peter Slipper's predicament and an opposition intent on undoing pretty much everything introduced during the Labor years, it is worth examining what a change of government would mean for Telstra shareholders.

The short answer is, not much. Telstra's management has struck a clever deal, one that largely insulates the company from any change of plan to the NBN rollout.

Given the triple-barrelled shotgun pointed at their heads by Communications Minister Stephen Conroy the forced sale of its Foxtel stake, the sale of it existing fibre network and being prohibited from bidding for new mobile spectrum if they refused a deal, it is testimony to the skills within Telstra's hierarchy that it has achieved such a result.

To be fair, Conroy's "too good to refuse" offer was aimed squarely at Sol Trujillo and his American imports, a belligerent but handsomely paid band of rough riders who first scuppered the Howard government's broadband policy and then set about undermining the newly elected Rudd government's ambitions.

Shortly after the NBN proposal, they packed up and headed off into a golden sunset, to leave new boss David Thodey and chairman Catherine Livingstone to pick up the pieces.

The $11 billion deal is comprised of three main payments. The first is $5 billion for a 30-year lease over Telstra's fixed-line infrastructure. Thanks to some clever negotiations by Telstra's Tony Warren, the company receives that money even if the network is not built.

The second component is $4 billion, which it only receives as it switches customers over to the NBN. But again, there is a clever clause that protects the company. Customers who want to maintain their old service will continue to pay Telstra for the privilege.

The final component is $2 billion for providing the Universal Service Obligation so as to ensure telephones at a fair price for all Australians. Prior to the deal, Telstra was forced to fund that as part of its monopoly obligations.

If you look at those three components, Telstra receives the first and third in full, and what it doesn't pick up on the second, it retains its existing revenue as a consolation prize.

So what does that mean under an Abbott-led Coalition government?

Like the Howard government, the Coalition has a broadband plan, but one that is more modestly priced than that of the Labor government.

The main cost saving under the Coalition would come from running a fibre-optic cable to those little grey Telstra boxes or nodes on street corners rather than running it into nearly every residence, the devilishly complex and hugely expensive part of the operation.

Clearly, that would mean the last bit of the copper wire network, the bit running down many streets and into residences, would remain. And Telstra would retain ownership of that copper wire remnant.

This potentially could give it a bargaining chip with an Abbott government, to charge it for access to its residential and business connection.

The signals emanating from Telstra in recent weeks suggest that under Thodey, it is unlikely the company would resort to the hijack tactics of the previous management. It would also be safe to assume that discussions have already been held with the opposition about access and pricing.

That's not to say it couldn't happen in the future. But either way, Telstra is protected. The national broadband rollout will continue, regardless of which party is in power, and the company will receive the bulk of the cash it has negotiated under the deal with the Labor government.

From a policy viewpoint, the opposition claims its simpler rollout will be quicker five years as opposed to 20 years and vastly cheaper than the present plan, resulting in more affordable access.

But the trade-off will be the failure to separate Telstra from the fixed line. There is a potential cost for that for taxpayers, particularly if Telstra management ever becomes as irascible as in the Trujillo days.

Both sides of politics made a hash of the privatisation of Telstra. The Hawke and Keating governments cemented Telstra's monopoly powers by merging Telecom with OTC and the Howard government, in its rush to grab the cash, failed to address the problem of transferring a monopoly utility into private hands.

Those decisions will continue to haunt taxpayers regardless of which party forms government. But Telstra's death sentence has been quashed.

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