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AAPT is Australia’s third largest telecommunications carrier offering local, national and international voice, data, mobile, pay TV and Internet services to business, corporate, government and residential customers. AAPT is a wholly-owned subsidiary of Telecom New Zealand and is one of only three Australian telecom providers to own and operate its own national voice and data network.

For further information please see: 2007 Australia – Telco Company Profiles – 2nd Tier Telcos.

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Both understand telecoms
It is good to know that the two politicians who are most important to the telco industry both have an excellent understanding of it. They share the view that telecoms is important for the country and is a very important enabler in areas such as e-health, education, smart grids for energy savings, etc.

Senators Coonan and Conroy are also committed to making government funds available to provide a nationwide service that offers equivalent services at similar prices around the country. Importantly, this includes the funds needed to make infrastructure investments in regional areas.

And I believe that, from an industry perspective, most will agree that if we set the politics aside we will be able to work with either Senator Coonan or Senator Conroy.

Senator Coonan
Senator Coonan has certainly earned the respect of the industry as she has had to deal with some situations which were outside normal business practices. At a recent telco CEO dinner we expressed our gratitude to her for the support she gave to fundamental policy issues such as the safeguarding of a competitive environment.

That’s not to say there were no worrying moments for the industry. The Minister did come tantalisingly close to doing a deal with Telstra, and the industry should be grateful to the ACCC and the Treasury for making sure that this didn’t happen.

Unfortunately the Minister inherited a messy telecoms portfolio. Most of the problems that we are currently encountering would have been totally avoidable if the government had acted properly in the first place, during their first eight years in government.

Senator Conroy
Senator Conroy has made himself very accessible to our industry. He has consulted extensively with the players, taken an interest in new developments, and discussed options and plans as to how Labor can assist in developing some of the new national opportunities.

I am reasonably confident about ongoing industry cooperation under a Labor government; however, in the event that Senator Conroy becomes Minister for Communications, he will have a rather complex situation to deal with. He will need to take into account not just Labor’s plans but also the Broadband Connect (OPEL) and Expert Task Force issues. He needs to be strong and to base his approach on a sound regulatory foundation. Such an approach would earn him the support of the industry.

It would be great if Telstra were prepared to participate in this debate, but otherwise he would need to be decisive and immediately initiate the structural separation process that he has indicated he supports.

Foundations are not right
Without a sound regulatory basis any investment from either side will largely be wasted, and that would mean billions of dollars down the drain. Building on sound foundations could also cut the estimated costs of $5 billion into half. In one way or another we need equivalent and transparent access to the future FttH networks, either through commercial wholesale arrangements (as in the Netherlands, Sweden and Denmark) or through some sort of structural separation between infrastructure developments and the retail services provided over these networks (UK and New Zealand). I think neither the Minister nor the Senator would disagree with me on the need for this – it is just a matter how we get there.

Part of the Minster’s legacy is that under the sale of Telstra legal obligations now exist, which are making it difficult for her to begin a process of structural separation.

The Senator is on the public record as supporting structural separation, but he has subsequently gone extremely quiet on the issue. The fact that Telstra is supportive of the Labor infrastructure plans is also creating a sense of wariness amongst the industry players. How genuine is Labor’s commitment to structural separation? I believe Telstra is playing politics, as it knows only too well that it would be worse off under a Labor government.

Who will be the Minister
Who will the industry be working with after the election?

The Minister has already indicated her interest is in the portfolio of Attorney General and, as she has done a great job in the current Cabinet, she would certainly have a good chance of that position, if the Liberals retain government.

This would mean that we would lose our champion, and we all remember how bad things can get if the Minister does not give appropriate support to the industry.

But, equally, there is no certainty that Senator Conroy will become the Minister for Communications if Labor wins the election. My understanding is that he is genuinely interested in the portfolio but it would be up to a new Prime Minister to make the ministerial appointments.

So if a new Minister is appointed the industry would have to start from scratch. Telecoms is not an easy portfolio as it brings together rather complex technical, regulatory and political issues; and involves commercial and national interests across various disciplines, such as health, education, energy, communications, IT, science, etc.

The first year after the election will be crucial for the industry and it would be good if we had a Minister that we can rely on.

Lack of transparency
In the event of a Coalition victory it is to be hoped that the government has learned from projects such as Broadband Connect and Broadband Guarantee that a more genuine dialogue with the industry is needed, and that this should not take place behind closed DCITA doors.

I have grave doubts about this since, once again, the parameters set for the Expert Task Force for FttH are not transparent, leaving room for the possibility of negotiations taking place behind closed doors.

In the case of a Labor victory everything will hinge on the execution of the plan. They must be willing to consult with the industry and make any changes necessary to serve the country’s best interest.

So my questions are:

• In either case (a Liberal or Labor government) significant regulatory changes are required to safeguard the future large-scale national investments in telecoms infrastructure. Many countries see structural change as the basis for that process. How do the Coalition and Labor intend to go about achieving this?
• Can the Minister and the Senator tell us more about their personal commitment to the position of Minister for Communications?
• Can we expect an improvement on the cooperative models between the government and the industry in relation to their infrastructure plans? In the case of Labor, are they prepared to start afresh, with a genuine attitude of bilateral participation and collaboration.

Paul Budde

See also:
Australia – Government Broadband Policies
Australia – Government Policies – Federal Opposition Policies – 2001-2007
Australia – Structural Industry Changes
Europe – Structural Separation Developments – 2007
Australia – FttN plans from Telstra and competitors
Australia – FttH Market – Analyses
Roundtable – Strategies for Fibre-ing Australia

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Telstra cuts wholesale rates in dying markets

In September 2006, the ACCC rejected Telstra’ March 2006 proposal in which it announced a cut of 32% to its wholesale local call charges, to encourage people to make more use their home phones and the fixed network as part of a package of proposed wholesale pricing changes.

The pricing was proposed in a new undertaking lodged by Telstra with the ACCC at that time.

Of course, there is no such thing as a free lunch, so, at the same time, Telstra was seeking an increase to 2.18 cents per minute on fixed network cost recovery to terminate a call on its fixed network in 06/07.

The wholesale discount was quite a clever strategy from the incumbent, and it has used it successfully in the past. The discounts it is providing are on services that are rapidly dying out, so maximising any revenue out of an asset that is already written off makes sense from its point of view.

Furthermore, by dangling this carrot it also has, in the past, successfully prevented others, such as Optus and AAPT, from moving more quickly into building their own new networks. This is one of the main reasons AAPT has been caught, and why Optus is suffering. By falling for the inducement of more attractive resale margins in the past, and of even further discounts now, these companies were able to obtain some easy revenue.

The future, however, is in broadband and applications – not in voice. This is where Telstra is fighting with the government, the regulator and the industry, and this is where the real action is.

So fortunately the ACCC didn’t fall into this trap. As I indicated at that time I didn’t think that the industry would be caught twice.

Telstra wants to retain its stranglehold

While there was a glimmer of hope during the early 00s that the wholesale market would thaw, the reality is that the telcos maintain a very tight control over this market and have no intention whatsoever of relaxing their hold. Sol Trujillo’s blunt request for an outright monopoly sets the scene for further developments. He also vehemently opposed any separation that would create a more wholesale-friendly telco environment.

This means that the traditional telco market in Australia will unfortunately have to rely completely on regulation. This is certainly not a scenario that I would like to promote. I feel that in certain areas we are definitely over-regulated, but it is impossible to relax any of these regulations because of Telstra’s uncompromising stand.

In the meantime the broadband/Next Generation Network (NGN) market allows companies to build new services on top of the infrastructure, making them less dependent on the very low access margins.

Companies building their own infrastructure are, of course, also making themselves less dependent on wholesale services; however there are significant risks involved, as Telstra has plenty of opportunities to undermine these developments by price dumping and other monopolistic trickery.

FttN – the need for industry cooperation

When Telstra launched its FttN plans I was one of the first to congratulate the company upon this visionary approach – and in particular upon the speed with which it proposed to introduce the new network.

However, at the same time I also mentioned that Telstra would have to sit down with the industry to discuss industry cooperation. What would be the migration path from DSL to FttN, and how would the rest of the industry be able to link into the new network?

Despite Sol Trujillo’s initial statement on his arrival in mid-2005 – that we, as a country, had to discuss these issues – he has never accepted any of the numerous invitations to become engaged in that discussion, one which he himself proposed. Instead he opted for a campaign of rhetoric, aimed at undermining government policies and telecommunication regulations.

Fortunately this bullying campaign has largely failed, with both the government and the regulator standing firm on all the issues Trujillo attacked.

From the very beginning I have maintained that he was bluffing. There was no way that Telstra would not roll out an FttN network, as this would amount to cutting of its own life blood. The company simply doesn’t have a choice if it wants to stay in the telecoms business.

On several occasions both Graeme Samuel and Minister Coonan said they were sure there was a way whereby Telstra would be able to get a decent return on its FttN investment and, at the same time, establish a network that would allow wholesale access on economically viable terms for the other providers.

When Telstra finally sat down with the regulator this concept quickly came to life and Telstra began to show a more positive attitude, however by June 2006 there still was no solution.

This change in Telstra’s behaviour did cause concern within the industry, as they were worried about a possible deal behind closed doors between the ACCC and Telstra. The ACCC immediately issued a press release to debunk that rumour. It has indicated that there will be a proper, transparent and open public debate on the issue before any decisions are taken.

The issue is rather simple, but as a result not easy. There should be an open end-to-end network on a wholesale level, into which the other players in the market can link. Ideally all players should be able to use this ‘network of networks’ on a commercial but equitable basis. This would reduce duplication, increase network efficiency, reduce costs and would give us a great opportunity to build a nationwide network.

If we take the government’s $3 billion of regional network funding into account such an approach would provide by far the best outcome for everybody.

The soon to be formed industry wholesale association (see below) could play a key role in this process.

Structural industry changes are required

Furthermore, a privatised Telstra will be forced by the financial market to better utilise its assets. At present some of these assets are hardly used (eg regional backbone infrastructure) simply to allow the company to keep prices artificially high.

This can’t go on forever.

The Ofcom ruling in Britain on the operational separation of BT will set a trend for a slow and long-lasting process of industry restructuring; which will coincide with a push for better asset management. A separated network division will surely be interested in maximising its assets. The company’s 2006 results is a vindication of this development. Only because of its current vertical integration with the retail organisation, whose interests lie in making it impossible for others to compete with them, do we have such an artificial situation.

I am not an economist but even I can see that from an economic viewpoint alone, this will have to change.

See also: Australia – Operational Separation of Telstra

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