While many had their wires crossed, Telstra raked in the copper
Remember that old sexist line trotted out in dozens of Hollywood movies in the post-war era that changing one's mind was a woman's prerogative?
Remember that old sexist line trotted out in dozens of Hollywood movies in the post-war 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 take a look at Telstra.In late 2009, the entire corporate world was whipped into a state of outrage over the federal government's plans to bust up the monopoly that had a stranglehold over the nation's telecommunications industry.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.Churlish as it may be to boast "I told you so", your columnist nevertheless must confess to feeling a little isolated in September 2009 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 during that time. Telstra shares edged past $3.50 this week, capping a solid 18-month climb from their $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, conduit and customers to the NBN company, Telstra shareholders suddenly have found themselves owning stock in a corporation with a future.Prior to the NBN deal, Telstra largely relied on cutting costs quicker than its revenue declined 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 now desperately clinging to power, courtesy of the predicament in which Speaker Peter Slipper has found himself, 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 long-suffering Telstra shareholders.The short answer is, not very much. For Telstra's management has struck a very clever deal, one that largely insulates the company from any change of plan on the NBN rollout.Given the triple-barrel shotgun pointed at their heads by the Communications Minister, Stephen Conroy - the forced sale of its Foxtel stake, the sale of its 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.Soon after the NBN proposal, they packed their saddlebags and headed east into a golden sunrise, leaving new chief executive David Thodey and chairman Catherine Livingstone to pick up the pieces.The $11-billion deal comprises three main payments. The first is $5 billion for a 30-year lease over all of Telstra's fixed-line infrastructure. Thanks to some clever negotiations by Telstra's Tony Warren, the company receives that money even if the broadband 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. Those customers who refuse to switch over, who simply want to maintain their old service, will continue to pay Telstra for the privilege.The final component is a $2 billion payment for providing what's known as the universal service obligation, to provide a telephone at a fair price for all Australians. Prior to this 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 is buffered by retaining existing revenue.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 significantly more modestly priced than that of the federal government.The main cost saving under the Coalition would come from running a fibre-optic cable to those little grey Telstra boxes or nodes dotting street corners rather than running it into virtually 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 a newly elected 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 already have been held with the federal 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 ALP.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 plan in place, resulting in more affordable access.But the trade-off will be the failure to completely separate Telstra from the fixed line. Clearly there is a potential cost to that for taxpayers in the future, particularly if Telstra management ever becomes as irascible as during its Three Amigos phase.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 the jury is in on Telstra. The death sentence has been quashed. Anyone can change their mind.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free
Join the Conversation...
There are comments posted so far.