Australia - ongoing broadband debate

Fibre-free Conroy caught up in telco muddle

WHEN it comes to the promise of a new high-speed broadband network, Communications Minister Stephen Conroy is the man in the messy middle.

That's because he's caught between what Telstra believes is reasonable in terms of pricing and what the Australian Competition and Consumer Commission clearly thinks will be highly unreasonable.

At the New Agenda conference in Melbourne yesterday, Conroy took up his position literally, sitting between Telstra chairman Donald McGauchie and ACCC chairman Graeme Samuel, for what was a volatile debate. And a crucial one.

Kevin Rudd had already told the conference that broadband was a "fundamentally transforming technology of the future". The commitment to provide the new fibre network was certainly one of Labor's most effective and popular campaign promises, bolstering Labor's appeal that it was better placed to meet the challenges of the future. The catch once in government is establishing who pays for this and how much. Not to mention if and when it will be delivered to a long-suffering Australian public.

The earliest construction can begin will be by year's end in a process that will take four to five years. But before that is even possible, there's still the great price war to be fought over the next several months.

The Government is promising $4.7billion in public money to help pay for the proposed network. Telstra says it will put in $4.6 billion of its own money and use the government funds to extend the network into what otherwise would be uncommercial areas outside the big cities.

The basic dispute will be what Telstra will insist are the minimum necessary financial returns on its investment. Samuel will be just as determined to reject any charges he considers too high. And Conroy and his expert panel will have to decide how to play the inevitable difference.

This was always going to be a politically contentious issue given the effect of the decision on every Australian. Then there are Telstra's competitors, spearheaded by Optus, which are putting up their own proposal to build a fibre network. This is despite widespread scepticism in the market and the Government that the consortium's bid will prove realistic, particularly given the obstacles and the opposition from Telstra. The suspicion remains that it is more designed as an attempt to increase the political pressure over Telstra's pricing proposals.

But the really bad news for Conroy out of the conference debate was the spectacular demonstration of just how far apart the main players still are. The animosity wasn't too hard to pick. After all, none of those involved are shy, retiring types.

The minister initially tried to play the role of grand mediator and to focus the audience on the wonderful world of high-speed broadband that awaits the nation, including the radical difference it will make in areas such as education and health.

But the sniping from either side of him was sharp and the entrenched positions obvious.

Last year, Samuel effectively blocked the Howard government from doing a deal with Telstra on the prices Telstra wanted and a politically desperate Howard government was willing to accept.

"Thank God for Graeme Samuel," Conroy said at the time.

"I thought he was God, he certainly behaves like it," quipped McGauchie in response yesterday, voicing Telstra's familiar refrain that the regulator has far too much power in telecommunications.

"It has become characterised by regulatory overreach to the point of micro-managing the industry, inconsistent decision-making, distorted incentives, regulatory gaming ... and, most importantly, an infrastructure investment climate that distorts investment and stifles innovation," McGauchie declared firmly.

Far too firmly for Samuel, who didn't appreciate the description at all. "In every decision the commission makes, we have in mind the welfare of all Australians," he said, insisting that the long-term interests of Australian consumers were helped by competition. He pointed out that despite Telstra's propensity for taking legal action, the courts had repeatedly backed the judgments of the ACCC.

This led to some heated exchanges about who was suing who. Conroy joked about scenes from the British political satire Yes, Minister as he revealed that Telstra was suing him given that he had replaced the former target, Helen Coonan, as minister. Samuel commiserated with him about being sued. "So am I," he said. The ACCC chairman then made jokes about McGauchie admitting to the illegal activity of predatory pricing and said he had two people waiting up the back. McGauchie retorted that he would name Samuel as his co-defender, given that Telstra's absurdly low prices on some wholesale services were entirely the fault of the regulator.

Ravi Bhatia, chief executive from another smaller telecommunications company, Primus Australia, insisted that the regulation of Telstra had been "gentle and light-handed".

How could it be otherwise, Bhatia not so politely inquired, given Telstra's margins were so high and it was the most profitable telco in the world? McGauchie looked as if he would implode at such calumny.

Beneath the banter, the tone was deadly serious. Conroy understands exactly what is at stake, and not just for the country. If he can't get a fibre-to-the-node network ready to go by year's end, he will have a very, very unhappy Prime Minister who is able to cause him even more difficulties than even McGauchie or Samuel can.

It's one reason Conroy has been so careful to appoint an expert panel to advise him on the bids, with the winner to be announced in September. The ACCC will not be part of this panel but will provide a detailed report giving its views on the pricing proposals. This is unlikely to be relaxing bedtime reading for Conroy or McGauchie.

The key will be how the Government decides to handle the differences of opinion and to what extent it will be prepared to forgo a return on its own $4.7 billion investment to effectively improve Telstra's.

The political commitment from the Government is for speeds of at least 12megabits per second for 98 per cent of the population, a speed that is likely to increase with time.

Telstra is, of course, threatening to just walk away and invest the money in other projects, including overseas, if it doesn't get the return on its investment. The Government could always call Telstra's bluff, but that would be risky.

What it means for the consumer is that Australia may finally have a high-speed broadband network but that the services won't come cheap.

"For too long, political indecision and conflicts have blocked the path to an improved broadband future," Conroy said. "The Rudd Government is clearing this path and making sure Australia in on track to reap the benefits of the broadband revolution." He'd better watch out for all the pitfalls on that path.