BuddeBlog

The accidentally tabled report is also providing some further food for discussion about the future of the company.

True, Telstra is in a difficult position, as it faces significant challenges that cannot be addressed without making some major structural changes to the way the company operates and sees its future.

This restructuring will be extremely difficult – under the previous management this topic was taboo and so the company is now suddenly faced with having to make decisions on the run, which is never a good thing to do.

However, this is a problem of its own making. The rest of the industry and the government have been discussing these issues for five years and are therefore in a much better position to plan their future.

This is clearly evident in the government plans. These are well thought through and give Telstra (and the Opposition for that matter) little room to manoeuvre. There is no way that these issues can be solved without structural changes. Telstra knows this and intellectually accepts the fact.

This new situation gives the company a unique opportunity to do a whole-hearted job here – to seize the bull by the horns and develop a long-term strategic plan for the company, albeit under pressure.

There is no simple solution, nor would it be in the company’s interest to simply decide between an option A and B. The valuation is an interesting element of it but it has not encouraged me to look at the situation differently.

The fact remains that the copper network is steam train technology and it should be remembered that the best ever steam train was built right at the end of the steam era. It could travel at 120mph, which is still a good speed even by today’s standards. However that era was over by then, and those very fast steam trains were scrapped at a value far below their original cost.

The same situation exists in relation to the copper-based network. Whether it is right or wrong, good or bad, that is the reality and there is no doubt that this will form a key element of any valuation discussion.

The end of the steam train era didn’t mean the end of the basic railway infrastructure however. That had, and still has today, an enormous value.

The current circumstances offer Telstra an excellent opportunity to jump from the age of copper into the new fibre era. What a fantastic opportunity, since everybody agrees this is where the future lies. There are many choices available to it and many new financial opportunities. For this it will have to think outside the box and to a certain extent ignore the current political and shareholder kafuffle. Telstra should not use the misguided tactic of delay – this could be presented to them by the Opposition who doesn’t have either Telstra’s not the national interest at heart but whose gaol simply is to derail the plan –to do a half-hearted job or to slide back into the comfort zone of the old copper era.

In the end it will come down to true leadership and nothing else. The question is: can the current leadership now make some important decisions quickly – decisions that will secure the company’s future and its future profitability. In my opinion the answer is yes.

Here are some of the options:

• It can sell certain parts of itself to NBN Co;
• It can still milk the copper network and generate profitable revenue for the next 3-5 years;
• It can divest the digital media elements of the company and create very significant new shareholders value;
• It can offer its infrastructure to NBN Co and take on outsource work for that company, which will deliver ongoing income;
• It can be the key builder of the value-added ICT infrastructure – on top of the basic pipes – needed for the various sectors that are going to form the basis of the digital economy;
• It can exploit the retail fact that it has 10 million customers;

…. and there are no doubt more options.

None of these options are mutually exclusive and combinations are possible. If Telstra plays it well I see more ups than downs.

Will this be easy? No. It will certainly require top quality leadership to guide the organisation through, and great vision will be needed to identify where the true value of the company lies and how to best develop strategies that will deliver the right outcome.

There is no doubt about the difficulty the organisation is experiencing, and I certainly don’t underestimate this. An acute juggling process will be needed to bring all the different elements together, but it can be done and I have faith in the capability of the current Telstra leadership.

Paul Budde.

See also:

Australia – National Broadband Network – Competition and Regulations

Australia – National Broadband Network – Design and Deployment Strategies

Australia – National Broadband Network – Early Projects

Australia – National Broadband Network – Industry at crossroads

Australia – National Broadband Network – NBN Co and Infrastructure

Australia – National Broadband Network – Overview & Analysis

Australia – National Broadband Network – Telstra

Australia – National Broadband Network based on Trans-sector model

Australia – National Broadband Network Trans-sector projects

Regardless of whether the information in the wrongly tabled ACCC report on Telstra is damaging or not the most important issue is that it breaches the trust relationship that has been slowly re-established between the government and Telstra. It was therefore good to see the Minister apologising to Telstra’s CEO.

The company showed leadership by not immediately reacting to the report, but nevertheless it will not have been impressed by this accident.

As it is also not in the interest of the government it does appear to have been an honest mistake and not a deliberate leak. Nevertheless it has been a very careless and potentially damaging affair.

The major damage is not so much to the negotiations between the government and Telstra; the government, of course, already had all that information. Also most of the information was more or less known at a high level within the industry, albeit not at the detailed level provided in the report.

The main harm resulting from having this information made public is that competitors and others (such as the Opposition) can use it to get a deeper understanding of some of the issues Telstra has been grappling with and the accounting and strategy methods that Telstra has been using in these situations. It can also be used by competitors to check some of the issues that they themselves have been dealing with, and obviously people are already meddling in it for their own reasons.

It is important to make the point, however, that the report reflects a totally different Telstra. It goes back to a period when Telstra was at war with the government and wanted at all costs to protect its monopoly. Information that dates from such a period will be heavily tainted by the strategy of that time.

Under the new management Telstra’s position, strategy and relationship with the government is totally different and it is likely that a report written about Telstra today, with the company focussed on the future rather than the past, would be very different. Also, at this point in time, Telstra would probably have used certain information differently. Most data can be used to either undermine a case or to support one; it is often a matter of spin.  In that respect the information in the report is less relevant.

Despite the unacceptable error, I believe that the relationship between Telstra and the government is sufficiently robust at present to weather this storm.

Paul Budde

See also:

Australia – National Broadband Network – Competition and Regulations

Australia – National Broadband Network – Design and Deployment Strategies

Australia – National Broadband Network – Early Projects

Australia – National Broadband Network – Industry at crossroads

Australia – National Broadband Network – NBN Co and Infrastructure

Australia – National Broadband Network – Overview & Analysis

Australia – National Broadband Network – Telstra

Australia – National Broadband Network based on Trans-sector model

Australia – National Broadband Network Trans-sector projects

The accidentally tabled report is also providing some further food for discussion about the future of the company.

True, Telstra is in a difficult position, as it faces significant challenges that cannot be addressed without making some major structural changes to the way the company operates and sees its future.

This restructuring will be extremely difficult – under the previous management this topic was taboo and so the company is now suddenly faced with having to make decisions on the run, which is never a good thing to do.

However, this is a problem of its own making. The rest of the industry and the government have been discussing these issues for five years and are therefore in a much better position to plan their future.

This is clearly evident in the government plans. These are well thought through and give Telstra (and the Opposition for that matter) little room to manoeuvre. There is no way that these issues can be solved without structural changes. Telstra knows this and intellectually accepts the fact.

This new situation gives the company a unique opportunity to do a whole-hearted job here – to seize the bull by the horns and develop a long-term strategic plan for the company, albeit under pressure.

There is no simple solution, nor would it be in the company’s interest to simply decide between an option A and B. The valuation is an interesting element of it but it has not encouraged me to look at the situation differently.

The fact remains that the copper network is steam train technology and it should be remembered that the best ever steam train was built right at the end of the steam era. It could travel at 120mph, which is still a good speed even by today’s standards. However that era was over by then, and those very fast steam trains were scrapped at a value far below their original cost.

The same situation exists in relation to the copper-based network. Whether it is right or wrong, good or bad, that is the reality and there is no doubt that this will form a key element of any valuation discussion.

The end of the steam train era didn’t mean the end of the basic railway infrastructure however. That had, and still has today, an enormous value.

The current circumstances offer Telstra an excellent opportunity to jump from the age of copper into the new fibre era. What a fantastic opportunity, since everybody agrees this is where the future lies. There are many choices available to it and many new financial opportunities. For this it will have to think outside the box and to a certain extent ignore the current political and shareholder kafuffle. Telstra should not use the misguided tactic of delay – this could be presented to them by the Opposition who doesn’t have either Telstra’s not the national interest at heart but whose goal simply is to derail the plan -to do a half-hearted job or to slide back into the comfort zone of the old copper era.

In the end it will come down to true leadership and nothing else. The question is: can the current leadership now make some important decisions quickly – decisions that will secure the company’s future and its future profitability. In my opinion the answer is yes.

Here are some of the options:

• It can sell certain parts of itself to NBN Co;
• It can still milk the copper network and generate profitable revenue for the next 3-5 years;
• It can divest the digital media elements of the company and create very significant new shareholders value;
• It can offer its infrastructure to NBN Co and take on outsource work for that company, which will deliver ongoing income;
• It can be the key builder of the value-added ICT infrastructure – on top of the basic pipes – needed for the various sectors that are going to form the basis of the digital economy;
• It can exploit the retail fact that it has 10 million customers;

…. and there are no doubt more options.

None of these options are mutually exclusive and combinations are possible. If Telstra plays it well I see more ups than downs.

Will this be easy? No. It will certainly require top quality leadership to guide the organisation through, and great vision will be needed to identify where the true value of the company lies and how to best develop strategies that will deliver the right outcome.

There is no doubt about the difficulty the organisation is experiencing, and I certainly don’t underestimate this. An acute juggling process will be needed to bring all the different elements together, but it can be done and I have faith in the capability of the current Telstra leadership.

Paul Budde.

See also:

• Australia – National Broadband Network – Competition and Regulations
• Australia – National Broadband Network – Design and Deployment Strategies
• Australia – National Broadband Network – Early Projects
• Australia – National Broadband Network – Industry at crossroads
• Australia – National Broadband Network – NBN Co and Infrastructure
• Australia – National Broadband Network – Overview & Analysis
• Australia – National Broadband Network – Telstra
• Australia – National Broadband Network based on Trans-sector model
• Australia – National Broadband Network Trans-sector projects

While global Internet bandwidth expanded by around 64% in 2009; Internet traffic was expected to grow by over 70%. A study by Telegeography found that much of the demand is coming from the emerging markets, such as the Middle East where traffic growth is expected to reach 116%. In contrast the US will grow by 56%.

Telegeography states that network operators continue to build enough capacity to handle demand, with operators expecting to bring an overall 9.4Tb/s of extra capacity online in 2009.

Telegeography also observed that:

• International Internet traffic grew 74% in 2009 (a rise on the 55% recorded in 2008);
• Prices continued to decline, especially for high capacity ports.

For further information, see separate report: Global – Internet – Search Engines, Websites & Internet User Statistics.

Around two-thirds of all Internet users are non-English speaking. A significant barrier remains for many of the potential users as Internet domain names are in a restricted set of Latin characters, most commonly used to write English. Speakers of Arabic, Chinese, Japanese, Korean, Tamil, Thai and other languages are at a disadvantage.

Internationalized Domain Names (IDNs) [www.icann.org/topics/idn/] are domain names represented by local language characters. Such domain names could contain letters or characters from non-ASCII scripts (for example, Arabic or Chinese). Many efforts are ongoing in the Internet community to make domain names available in character sets other than ASCII as at least 50% of Internet users use scripts based on languages other than Latin.

ICANN has been testing addresses using non-English characters for a number of years and in late 2009 it was announced that it would most likely approve the use of domain names written in other languages. If the approval goes ahead ICANN will accept submissions for non-English domain names and the first available addresses would become available in mid 2010.

For further information, see separate report: Global – Internet – Search Engines, Websites & Internet User Statistics.