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Thursday, 05 June 2008 17:25

Telstra fumes at 15% hike on cost of FTTN broadband claim

By
The T4: Tell the Truth Telstra website, has published a report from the Centre for International Economics (CIE) claiming Telstra would charge 15% more for broadband services if it wins the FTTN network. Telstra has slammed the report as “bogus” – who’s right?

The report, titled “The Telstra Return on a National FTTN Network: Community Impacts”, says consumers would pay nearly an additional $1 billion ($897 million) a year “to Telstra for high-speed broadband services, based on Telstra’s initial estimate that the network would cost about $9 billion to build (scenario 1)”.

Although dormant for some time, the T4: Tell the Truth Telstra website has recently roared back into life, not only with a host of consumer complaints against Telstra over the past few months, but now with a report slamming Telstra’s attempt to win the bid to build the National Broadband Network (NBN) with Fibre to the Node (FTTN) technology.

The report claims that Telstra has “publicly said [the rate of return] it would demand was relatively high” and “may be consistent with the abuse of market or monopoly power.”

An executive summary of the report is available here, while the full report is also available to download.

A second scenario from the report says that: “Telstra CEO Sol Trujillo has recently claimed that network build costs could escalate to $15 billion. If this was the case, Australian’s would pay an additional $1.4 billion a year for broadband services.”

A third scenario from the report says: “Last year Telstra proposed with the then federal government to build a broadband network to capital cities and the Gold Coast at a cost of $4.6 billion. If Telstra were just to build this network, it would cost consumers an additional $443 million per annum.”

The CIE report then claims: “Based on the $9 billion build cost (scenario 1), were Telstra to maintain its plan to seek protection on broadband prices for 14 years it would extract $12.6 billion from Australian consumers.”

The report suggests that “all of these build-cost scenarios would increase inflation, reduce national growth, lower wages and reduce national consumption.”

David Forman, executive director, Competitive Carriers’ Coalition said that: “The CIE Report supports the industry’s greatest concerns: if Telstra is allowed provide a monopoly high-speed broadband service it will have a significant negative impact on Australian consumers and the economy.”

Please read on to page 2 for more from Forman and for Telstra's response!


Forman’s comments continue: “At a time when interest rates are increasing, food costs are on the rise and petrol prices are at an all time high, this is a simple proposal to strip money from Australian families to satisfy the greed of Telstra’s insatiable monopoly demands.”

Forman continues for several paragraphs more (in quotation marks):

“The additional 15 per cent cost consumers would face under Telstra’s FTTN model is equivalent to charging a private ‘Telstra Tax’ on broadband services. There is no point building a new network if customers can’t afford the service.”

“The difference between such a private tax and a normal Government tax is that it all flows to Telstra. As a nation we cannot afford to let Telstra recreate another monopoly.”

“Telstra has for three years offered only small glimpses of what it was demanding from successive Federal Governments and has refused to reveal publicly the full detail of its plan to build a fibre to the node network. It is clear that it has something to hide.”

“This analysis shows why Telstra has not gone public.”

“No responsible Government could agree to Telstra’s exorbitant terms for return on investment and price protection. The cost to the economy and to ordinary Australian is too great.”

Telstra spokeswoman Kate McKenzie told the Australian Broadcasting Radio network that the report is “bogus”.

"I guess if you pay somebody to say what you want them to say, they say it”, said McKenzie.

"At this stage, I don't know how they can possibly make such an assertion because not only do we not know exactly what network's going to be built, we don't know what cost it is.”

What else does Telstra’s Kate McKenzie say, and what are my own personal thoughts on the issue? Please read on to page 3.


Telstra’s spokesperson, Kate McKenzie continued saying in her ABC Radio interview: "This is a completely bogus report that has been bought and paid for by a bunch of competitors who want one thing only - to stop the building of Australia's national broadband network and keep their current cosy arrangements.”

"We don't know what price we're going to charge and presumably, they don't know those things either”, concluded McKenzie.

My comment here is that given Telstra’s existing high prices for wired and wireless broadband, it’s only natural to assume that Telstra would likewise charge high prices for broadband delivered via any new national fibre network.

Therefore, even though McKenzie says “We don’t know what price we’re going to charge”, one only need look at history to get a pretty clear idea of what Telstra’s charges might be, even though unrelated companies like investment firms like to note that “past performance is not an indication of future performance.”

Humans are always reprimanded for not learning from history – so why should the history of Telstra’s actions be any different this time?

Quite how this will end up is still anyone’s guess, but Telstra looks like they’re in the box seat to win the FTTN network build-out and the future closure of ADSL 2+ networks, destroying the businesses of existing ISPs in competition with Telstra, as Internode’s CEO Simon Hackett has publicly expressed concern over.

Given Telstra’s closure of the CDMA network, its desire to close ‘old’ networks and thus removing any backup networks, to save money, is also a historical fact.

So, will we learn from history, or ignore it? That’s a question only the Federal Government of Australian can answer, although expecting honesty and forward thinking actions from politicians beyond the next electoral cycle would also be ignoring the lessons of history.

If Telstra does indeed win the FTTN bid, we can only urge them to consider that such a network would indeed go a long way to abolishing the tyranny of distance Australians know only too well, both within Australia and thanks to its distance from the rest of the world.

But replacing the tyranny of distance with the tyranny of high prices won’t magically transform Australia into a clever AND connected country, but one in which the digital divide is wider than ever, between the digitally connected and the digitally disconnected.

If Telstra truly wishes to do its part in ensuring Australia becomes the knowledge nation, in addition to one that rides upon the sheep and miners’ backs, then realistic pricing – and realistically large download limits – should be its number one priority if it does indeed win the FTTN tender, especially if there is no structural separation as its competitors so dearly wish to see enacted.

What ultimately will happen will shape Australia’s digital legacy for decades to come, long after most of Telstra’s current workforce is no longer there. As a patriotic Australian, I can only hope the right decisions for all Australians are made whoever wins the tender.

What do you think? Will Telstra win the FTTN? Will the G9? Whoever wins, will realistic pricing be available to all Australians, or will the broadband network we end up with be too slow compared with other nations, and cost too much?


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Alex Zaharov-Reutt

One of Australia’s best-known technology journalists and consumer tech experts, Alex has appeared in his capacity as technology expert on all of Australia’s free-to-air and pay TV networks on all the major news and current affairs programs, on commercial and public radio, and technology, lifestyle and reality TV shows. Visit Alex at Twitter here.

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