Angus Kidman27 November 2008, 4:17 PM
"They describe it as a proposal... they believe it can be considered."
Telstra's non-compliant bid for building the National Broadband Network is yet another reminder that if you privatise a national resource like telephony but don't put sufficient regulatory measures on top of it, chaos will ensue.
After keeping the market guessing for weeks as to whether it would submit a bid at all, Telstra took an unexpected halfway step, submitting a warmed-over proposal that didn't meet the guidelines for submissions and which is conditional on various changes to the NBN scheme and a guarantee that operational separation (Telstra's ever-present nightmare — please don't take our massive profit advantage!) won't be imposed.
In its media statement announcing the "bid", Telstra emphasised that it wasn't interested in helping to contribute to national infrastructure unless it could also turn a massive profit.
"Telstra’s proposal is subject to a number of conditions for the life of the project, including no further separation of Telstra and regulatory certainty," said chairman Donald McGauchie, pointing also to Telstra's unwillingness to undergo a 12-month negotiation or provide information about its existing network structure. "Each of these unresolved issues causes unacceptable risk at a time of significant economic uncertainty, resulting in the Telstra Board deciding it is not in the interests of shareholders for Telstra to put forward a fully detailed bid at this time. With separation, the NBN simply cannot and will not be built. There is no business case."
The in-house memo sent to Telstra employees from CEO Sol Trujillo was even more aggressively capitalist. "This proposal has a sound business case," Trujillo wrote. "It would not be value-destroying for Telstra, its employees and its shareholders."
Once again, separation was the major bete noire. "You only have to look at the experience of other telecommunications companies around the world where separation has been implemented — BT, British Telecom, and Telecom New Zealand — and how their shareholder value has been dramatically eroded." Trujillo wrote. "The Board will not put employees or shareholders in that position."
Rudd government Broadband Minister, Senator Conroy, today hit back at Telstra's incomplete bid. "Obviously, Telstra has put in a proposal. They describe it as a proposal. They describe it as they believe it can be considered," he told Macquarie Southern Cross Radio network.
Telstra's bid is to provide capacity to just 90 per cent of the population, which is below the NBN goal of 98 per cent. That might not be a deal breaker (it's likely any proposal will have to fill in at least 10% of the network with point solutions like broadband), but the refusal to comply with the general terms of the tender could well be.
Conroy wasn't encouraging in his words about Telstra, today, though. "The perception that because one or other of the bidders has said ‘ah, look, on the available money all we can do is bid to 90’ is a misunderstanding of the process that we're involved in."
"Labor's election commitment is that we'll reach 98 per cent of Australians, and that's what we will deliver through this process. The fact that any of the bidders may be saying hey, we need more government money to reach 98 per cent is not a shock," he said.
"This is a competitive process. It's an open and transparent competitive process. And what you're seeing is some very hard-nosed commercial operators trying to put in bids and proposals that are actually designed to draw more money out of the Commonwealth. It's no surprise."
"The RFP's quite clear. We are committed to put in up to $4.7 billion. That's what the RFP says, not one dollar more," he said, in a stern rebuke to Telstra.
Telstra's plan proposes that an entry-level 1Mbps plan be made available for $29.95 a month. Telstra's statement emphasised that this would be four times faster than current plans at similar prices, but didn't say whether a similar 200MB monthly download would be imposed. (Frankly, if that's your limit, then you're probably better off with slower speeds to minimise the risk of going over.)
Again, Conroy didn't seem enthusistic about Telstra's proposed pricing and speeds. "Let me be clear," he told Macquarie Southern Cross Radio. "The two biggest arguments that will be holding up the discussions over the next eight weeks will be about the pricing and about the reach. And that's why I've got a competitive process, because what we - this country need - is fast, affordable broadband."
The government has received six bids from Telstra, Optus (as the face of the rival Terria consortium), Acacia and Axia -- a Canadian company that has done fibre rollouts in numerous countries, and two state-based bids from the Tasmanian government and ACT.
The government's expert panel will take eight weeks to assess the bids and make a recommendation to the government in January.