A FRUSTRATED Telstra has finally belled the cat on the tortuous negotiations over the national broadband network.
The real significance of the company's statement to the ASX yesterday lies in the implicit warning to government that Canberra needs to urgently come up with some creative accounting to make this deal possible.
Telstra pointed out there was a "significant gap" between what it and NBN Co considered to be an acceptable financial outcome. In very deliberate phrasing, it also noted that these negotiations were currently being conducted on a "business to business" basis.
That is a polite way of saying that NBN Co, which is supposed to run as a commercial operation, can't or won't agree to pay another commercial operation, Telstra, what it thinks its assets are worth.
But Telstra noted the company was discussing ways in which this gap could be bridged, "recognising that the government has highlighted the national interest benefits of the NBN and reform of the telecommunications industry".
The invitation could not be plainer. If Canberra views this new broadband network as a national interest issue, it should help out with some form of extra public funding or assistance that will allow the two businesses to reach a commercial compromise. But right now it looks more like a case of lose, lose, lose -- for Telstra, for NBN Co and for the government. So far the government, despite being just as desperate for a deal, has not been willing to provide any such additional financial assistance beyond the $4.7 billion of public money already committed. Even if it had the money, this would be politically devastating.
And it is this huge financial mismatch that is far more crucial than whether or not the government has its NBN legislation stalled in the Senate. In fact, the delay in the bill until after the budget suits the government, as it attempts to see whether or not a deal with Telstra will actually come off.
It's another reason Canberra is sitting on the implementation study that reportedly says a broadband network is viable without Telstra's co-operation -- but will also point out the complications of this and of the whole project.
That leaves a lot of uncertainties and nasties for the government to explain away as the opposition seeks to attack.
But it is also true that time is running out for the government to have a credible account of progress on its big broadband plan before the next election. That's why no one can afford to delay much longer on announcing a deal -- or not.
Communications Minister Stephen Conroy wants Telstra to understand that no matter how painful failure to reach a deal would be for the government, it would be bloodier still for Telstra. Think of it as the nuclear option.
Either Telstra signs up within a few weeks or the government deploys every punishment it can against the company and scrambles around to negotiate a series of deals with Telstra's competitors.
These alternatives would be piecemeal rather than national in scope, slower rather than quicker to set up and the costs potentially even more expensive and unpredictable -- even without the need to compensate Telstra.
It is certainly not Canberra's preferred outcome -- just as it is not Telstra's, which knows it will then face the full wrath of a vengeful government. It's why Telstra was negotiating "constructively" and some modest progress has been made. But the remaining numbers gap of billions of dollars requires a big leap rather than just more incremental steps.
David Thodey doesn't think he can persuade his already irate shareholders that it is a good idea to undervalue (on its figuring at least) Telstra's assets -- access to its ducts and a migration of its traffic -- while effectively writing off its copper network before it has to. NBN Co's Mike Quigley isn't interested in compensating Telstra shareholders for lost value, but simply assessing what makes the best business case for NBN Co as a commercial project and what it might cost him to use alternative suppliers.
And one roadblock preventing the government considering any additional help to get around this is that Labor outsmarted itself with the way it has consistently described NBN Co as a commercial project. If it were to alter that wording to emphasise the investment as a nation-building project, the supposed $43bn cost would have to be added on to the federal budget -- which Canberra is absolutely determined to avoid.
Thodey also knows that the government will be ready to punish Telstra and that it will almost certainly get legislation passed that gives the minister wide discretion, including cutting off access to spectrum, forcing it out of Foxtel and generally trying to ensure it can't compete with the new fibre network.
What a bloody mess.
Source: The Australian, 20 March 2010
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