THE DISTILLERY: Telstra swagger

Jotters probe Telstra's 4G rollout, while one predicts an increasingly hostile battle between Virgin and Qantas.

Telstra’s superior market position and power was on display yesterday for all to see, as chief executive David Thodey pulled the trigger on 4G-network upgrade. One commentator says Telstra should be careful not to usher too many fans into the theatre for fear of overcrowding that would spoil the play, while another believes the move is a savage blow to its rivals.

Also in this morning’s shot from The Distillery, we’ve got some great thoughts on Australia’s involvement in treaties and trade agreements and the legal vulnerabilities that come with it – think Philip Morris – along with an inside word on negotiations with the US on banking oversight.

But first, Business Spectator’s Stephen Bartholomeusz describes Telstra’s 4G rollout as a "logical” move, though he harbours some qualified concerns about whether the telco is winning too many customers too fast.

"Mobiles and mobile broadband have been the success stories for Telstra ever since David Thodey took the momentous decision to compete more aggressively on price rather the relying purely on the network quality advantage Telstra has enjoyed over its rivals. That the decision happened to roughly coincide with the meltdown in Vodafone’s network produced a massive bonus. Telstra’s aggression most visibly damaged Vodafone, which is now spending $1 billion to upgrade its network, but Optus, too, was affected and chose to protect its margins rather than compete head-on with Telstra for market share. Success, however, can bring its own issues and the sheer volume of new customers and the growth in wireless broadband traffic is said to be having a discernible impact on Telstra’s Next G 3G/HSPA network, the source of its competitive advantage.”

Fairfax’s Malcolm Maiden is similarly complimentary of Thodey, but says the rollout is a "missile” to the Telstra’s competitors.

"How Telstra got to this position is something for its competitors to analyse, but they appear to have misread what Telstra was doing last year, when it trialled a 4G service on 1800 megahertz spectrum in the first half, and then, in September, launched it in capital city central business districts and 30 regional and metropolitan centres… By launching early on spectrum that became available as its old 2G mobile service wound down, Telstra has secured first-mover advantage. It has sold more than 340,000 4G mobile devices including 160,000 4G smartphones since it launched the service a year ago, and by June next year will have built 2000 1800 MHz base stations that can be adapted to offer 700 MHz when the spectrum is available. The group is aggressively advertising its 4G offer at a time when it has the market to itself.”

Fairfax’s Peter Martin has a cracking story this morning that tells the other side of a yarn that was brought up by The Australian’s Rowan Callick on August 23. The story begins with Philip Morris Asia’s attempts to leverage a trade agreement between Australia and Hong Kong to secure an arbitration hearing over plain packaging.

"But the almost comic attempt to get mileage out of the treaty (moving from Australia to Hong Kong in order to complain that it was being discriminated against because it was from Hong Kong) masks a broader, more serious attempt to turn trade treaties into instruments that allow corporations to sue governments. The World Trade Organisation allows no such thing. Its disputes settlement procedure allows a nation to haul another nation before a disputes settlements panel, but not corporations to do so. That could be why on Friday it will be Ukraine that will ask the WTO to set up a panel to hear its plain-packaging dispute with Australia rather than a tobacco company. There's a suspicion that Ukraine is acting on behalf of a tobacco company, perhaps fuelled by its ranking on the Transparency International Corruption Perceptions Index (at the corrupt end of the scale, sandwiched between Russia and Zimbabwe) and by the fact that it has next to no tobacco trade with Australia.”

Now, Martin is a step further down the road than Callick. The journalist from The Australian deals only with arbitration, not fully-fledged lawsuits. In fact the News Limited writer doesn’t use the word ‘sue’ in his piece at all.

This discussion is terribly complicated and equally fascinating. The World Trade Organisation allows individual countries to take each other to task and there are provisions that allow for actions like the plain packaging under for health reasons.

But there is also evidence of multinational companies getting countries to shill for them at the WTO. Would an alternative appeals system work?

Callick makes the point that Australia’s position on this admittedly complex matter isn’t entirely consistent and is proving a stumbling block for free trade agreements with some Asia Pacific nations.

In other international news, Fairfax’s banking writer Eric Johnston takes us behind the scenes into the federal government’s lobbying of the US authorities to ease up on the anti-tax avoidance laws.

"The US rules, the Foreign Account Tax Compliance Act, which are due to come into effect from July next year, are designed to assist the US government track down overseas assets and income of US tax evaders. However, they require banks and investment funds to identify all US customers, report to the US tax authority and potentially withhold customer funds on certain types of income.”

It’s a good story, worth some more reading.

The other big corporate story from yesterday was of course Virgin Australia’s results, which, unlike rival Qantas Airlines, included a profit.

Fairfax’s Matt O’Sullivan reports comments from Virgin chief executive John Borghetti that the price war between his airline and Qantas Airlines is the most aggressive he’s seen in his 40-year career, bigger than the forward to the Ansett collapse. Business Spectator’s Stephen Bartholomeusz says yesterday’s numbers support the view that Borghetti has changed in a terribly short period of time. Bartholomeusz and Fairfax’s Adele Ferguson both emphasise the importance of the corporate travel market and expect an increasingly hostile battle between Virgin and Qantas.

Fairfax’s Insider columnist Ian McIlwraith equates the standoff between DuluxGroup and Alesco Corporation to a hostage situation, adding that someone’s bound to get hurt. The Australian’s Bryan Frith is on the same issue with the best headline of the morning: "Way for Dulux to paint itself out of a corner”.

Meanwhile, The Australian Financial Review’s Chanticleer columnist Tony Boyd explains how GrainCorp is buying growth and stability by picking up the Integro edible oils and fats business from Goodman Fielder.

The Australian’s John Durie was the only columnist to really tackle the government’s decision to axe the carbon price from 2015. The writer says the sharemarket bump yesterday on the new reveals the market’s fragility, but little more. The policy shift is three years away and likely to do very little.

In more reassuring news, The Australian’s Barry Fitzgerald heard some encouraging words from Minmetals chief executive Andrew Michelmore about future mineral demand from China. Michelmore’s take is that China is undergoing a "sensible” adjustment in demand, but also Beijing’s leadership transition has delayed some of the decision-making. That’s temporary.

The Australian Financial Review’s Matthew Stevens says we should keep monitoring the dispute between Grocon and the CFMEU. The long-time union antagonist also alleges that the illegal practice of installing "black hats” in a workplace - that ostensibly work for the company, but only perform union work – still occurs, but negotiations take place without the lawyers into the room.

And finally, The Australian Financial Review’s economics editor Alan Mitchell explores some of the affordability issues surrounding the national disability insurance scheme. Before you call him heartless, he says quite clearly, "Obviously a country that earns $1400 billion a year in national income can afford $7.5 billion a year for a disability insurance scheme.”

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