LONG-TERM NATIONAL TELCO NETWORK AT RISK – FEBRUARY 2002
Stop on long-term infrastructure investments
A recent report in the AFR by Christine Lacy takes a pessimistic view of the long-term health of our national telecommunications infrastructure.
We have often remarked on the fact that Telstra has been under-investing since the late 1980s – especially in the CAN (customer access network). This state of affairs has also been flagged by the industry, and notably by ATUG, several times over the past five years.
But, according to the report in the AFR, the situation is going to get worse. Telstra is now seeking to align its capex with short-term revenues, so that projects with a lag of more than two quarters (yes – only two quarters!) between outlay and revenues were unlikely to be tolerated. Also, it appears that the financial industry is worried that the return on current investments is lower than that earned from previous investments.
This is another clear sign that Telstra is putting short-term shareholders interest ahead of the long-term future of our national telecoms network. According to the AFR article, this cost-cutting exercise is simply aimed at boosting the per-share valuations derived from the discounted cash-flow models used by market observers.
Who is looking after the long-term interest?
And I am afraid that we have not seen the end of this financial squeeze. With no significant competition to worry about, Telstra can turn the tap down to a trickle, supplying new services and products according to its own very conservative, risk-averse agenda – not customer demand.
Mind you, when making their overseas investments they took the opposite view. Within a year they had already bartered away $1 billion and Australian consumers and businesses are paying the price for this mismanagement.
I find it unacceptable that Telstra is abandoning its long-term obligation to look after the country’s national infrastructure. The government should seriously consider the structural separation of Telstra. Regardless of my support for this option, I would still prefer Telstra to reorganise itself without regulatory intervention – and in such a way that much more separation exists between their 15 or so major revenue streams. This would make it easier for new companies to independently develop, deliver and market their own e-services.
Telstra holds the government to ransom
Already a large number of influential organisations – Microsoft (twice already), Cisco, Sun Microsystems, HP, Computer Associates, as well as ATUG, AIIA, IIA, SPAN and others – have warned the government that we are lagging behind. But, as with many other issues, the government employs selective deafness, and takes an arrogant and undemocratic stance by ignoring what its citizens and businesses are saying.
Let’s assume for a moment that the present government – and in particular its Minister for Communications, Senator Richard Alston – suddenly does see the light and develops a telecommunications vision for Australia. At that point we can expect Telstra to jump up and down, telling the Minister that a vision is good, but that they can’t deliver on it without massive government subsidies!
The fact is that Telstra no longer sees itself as the caretaker of our national telecommunications infrastructure – its focus is on very short-term profit-generating activities.
Telstra’s new capex strategies
According to the AFR article, Telstra divides capex internally into four broad categories:
The first is baseline spending on upgrades, and the care and maintenance of the ubiquitous copper access network. This accounts for about $2 billion a year.
The second category is spending on information technology and software. This is increasing as a percentage of total outlay and amounts to hundreds of millions of dollars. It is driving Telstra’s increasing depreciation charge.
The third category of spending is on the development of large-scale generational platforms, such as the code division multiple access mobile networks, and the asymmetrical digital subscriber line network. The development of Telstra’s third-generation mobile network over the next several years will also be accounted for here. These are lumpy outlays that have seen total capex peak in recent years at $4.7 billion, but which are now being managed for a smoother impact.
The final category is spending on growth investments like technology laboratories to develop new applications, services and software. This amounts to hundreds of millions of dollars a year.
It is, of course, the third category that is causing me the most concern – even alarm. It provide the perfect scenario for a network meltdown. As I have mentioned in the past, once affordable broadband becomes available the large increase in demand will see enormous pressure building on the current network during the 2003-2005 period. By that time the network will have suffered a 20-year period of under-investment which, under the present plan, will have deteriorated even further.
See also:
Global – Analysis of the telco market in 2002 and beyond;
Global – Regulatory – Structural Separation;
Global – Industry Analysis – High-Level Strategic Thinking;
Global – Industry Analysis – Carrier Disaggregation;
Global – Industry Analysis – Forecasts 2002, Review 2001;
Global – Industry Analysis – Telco Restructuring;
Industry Analysis -The Telco crisis in late 2002.
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