March 26, 2007
Horse 740 - Telstra: Yes, We Forgot
Corporately I don't understand how a company that posted a $3.18bn profit for the year 2005-06 can cry foul that it's being treated "unfairly" by government regulations. I would suggest that any company which has produced 9 consecutive quarters of record corporate profits must be doing fairly well.
The thing which really annoyed me this past week was a brochure asking people to support Telstra's Broadband Australia Campaign. This particular campaign relies on emotive grounds to get the public to support a corporation which they previously used to own and which was sold via Mr Howard's "mandate", and specifically the pieces of legislation which created firstly Telstra as a Corporation and secondly its privatisation.
Consider this excerpt:
"Send a clear message to government and regulators that backward looking regulation should not get in the way of high-speed broadband and a stronger economy."
"Telstra wants to invest billions of dollars in delivering high-speed broadband across Australia. But backward-looking regulations, which prevent Telstra making a competitive return, are stopping us from building this infrastructure."
What Telstra hasn't told you here is that there are esentially 3 pieces of legislation which they do not wish to comply with anymore: Telecommunications Act 1959, Sale of Telstra Act 1996 and the Sale of Telstra Act (T3) 2003.
The regulations provide specifically that:
In the course of building new infrastructure Telstra should provide a comparable service to country and city customers so as not to discrimnate between them. - s.208E Sale of Telstra Act (T3) 2003.
Fair enough you might say, but when you consider the vast distances which Australia covers, to do this is an investment which Telstra would have to now find funding for by itself which it previously did not. If a high-speed broadband service is provided in Melbourne, then the regulations provide that a "comparable service" must be provided to Karratha or Longreach by the same logic. Intruguingly s.19 of the same act drew in a "shading period" of 10 years from the end of the full sale of Telstra, which would mean that these are quietly dropped at the end of 2013, which has by the way been convieniently ignored.
"Government and regulators should give Telstra a fair go to invest in high-speed broadband, rather than subsidising foreign companies that send their profits and valuable jobs offshore"
Somehow a key factor has been silently forgotten here. I ask the corporation how much they actually paid to set up their copper wire network in the first place? $100bn? $50bn? $2bn? $100? Try jack squat. Telstra inherited its biggest single piece of infrastructure without paying so much as a single red cent for any of it - the reason was in theory that it simply didn't need to. Any investment which was forthcoming up until 2003 was paid directly out of Federal Government taxes. Subsidising foreign companies eh? There's a $29bn asset which Telstra never paid for, and was given for free.
Part of this relates to Investec's bid to install a $4bn fibre-to-the-node network. Investec has in theory joined with NZ Telecom, Optus, Cable & Wireless, Singtel and perhaps worryingly Macquarie Investment Corp to produce a joint venture called G9.
Telstra's own fibre-to-the-node network was canned in 2005 on the basis that traffic volumes on their own network would not warrant the initial investment in the first place, but they didn't tell us that in their brochure either.
If you happen to visit the offical website for this at http://www.nowwearetalking.com.au we happen to find this lovely piece of information:
Exactly one month after Telstra launched its Broadband Australia Campaign, the Federal Labor Party has promised to act on the issue, pledging $4.7 billion for a national high speed broadband network.
Um... didn't Telstra want to stop government subisidies? Where exactly does this $4.7bn come from? Oh my aching head.
"In Australia we only have a couple of million people on broadband and they don't even get 1MB. I think it's a disgrace. They can do it in Japan, they can do it in South Korea. We should be able to do it here" - Rupert Murdoch, Australian Fin Review 16 Nov 2006
It you read through the financial reports for the year ended 30 Jun 2006, the proposals for future broadband it would appear are to be funded by "Foxtel" which is 49% owned by Fox Networks. Fox being a News Corporation company doesn't actually trade on the ASX as they delisted and moved operations to the NYSE back in 2004; since Telstra is a 100% private company now, it in theory could be owned by anyone, provided anti-offshore regulations don't rule this out. I wonder if Telstra would cry blue murder if Sky Networks wanted to install their own fibre-to-the-node network like they have in the UK, Netherlands, Hongkong, Canada and Japan, without their approval.
Privatising a telco giant was never going to do anything for the minority who live outside the surban sprawl of the major cities; who still need a viable infrastructure to link the whole country, not just focus on what is good for Sydney and Melbourne. A private company is not going to waste money on little return, but zoom in on the cash cow. As a company its responsibility is not to the customers but the board and shareholders.
Fair enough, privatise Telstra and make these "leeches" actually work for their money as telephone and communications providers but maintain a government-responsible mechanism to take over, develop and maintain our future infrastructure needs. Perhaps (shock, horror) we need to take this responsibility away from the corporation and give it to people who need to maintain their communications skills at a very high level - military communications personnel. After all, they are the ones who are going to have to repair and maintain communications links in time of crisis.
In the meantime, could Telstra please remember that they are a special corporation who was borne of unique circumstances. No-one else was given $29bn for free. We don't hear Qantas, the Commonwealth Bank or GIO whinging do we?
Posted by Rollo at 12:29