Today’s exclusion of Telstra from the federal government’s $4.7 billion national broadband network selection process says that something has gone horribly wrong with the relationship between Telstra and the federal government.

The fracturing in the relationship will have big implications for Telstra shareholders, the other NBN bidders and users of broadband services in both city and regional areas.

It may well be that the breakdown in the relationship will result in Australia getting improved broadband infrastructure in the metropolitan areas faster than would have occurred under the NBN with Telstra involved.

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Telstra chief executive Sol Trujillo made it clear in an analysts call this morning that the Telstra board has a range of options that it will pursue if the exclusion from the NBN process ultimately results in it not winning the NBN contract.

Trujillo’s performance on the conference call, which excluded questions from the media, was typical of what you would expect.

He attacked the federal government department responsible for the NBN process and virtually accused them of incompetence.

He made the NBN expert panel appear irrelevant by repeating earlier messages that the outcome of its deliberations would not affect Telstra’s ability to pursue its preferred option of negotiating directly with the Minister for Broadband Stephen Conroy or Prime Minister Kevin Rudd.

He issued a veiled threat to the government by saying that any final NBN decision that excluded Telstra would be met with the full force of the company’s financial power in terms of investment in competing infrastructure.

Trujillo also attempted to pre-empt any decision that might involve handing the NBN to someone else and giving them legalised access to Telstra’s network.

He labelled such potential action as the sort of thing you would expect in North Korea, Cuba or some other ‘extreme’ place. He said no government in the world had attempted to build a NBN by excluding the incumbent provider of telco infrastructure.

One example of cooperation occurred in Singapore, where Singapore Telecommunications is working with a consortium which won the tender for an NBN network in that country. SingTel set up a company that will own access to the SingTel ducts. That company will later be sold.

One of the key bits of information to come out of the Telstra conference call today was from the company’s general counsel Will Irving. He said that there was no legal reason why Telstra should have been excluded.

He said that the company had complied with the requirement to have a plan for small and medium sized enterprises.

On the one hand, the fracturing in relations between the government company that holds the key to the pace of development in the critical area of telecommunications could be seen as a bad thing.

Telstra could adopt a capital strike and slow down the pace of development.

But at a time when its competitors are ramping up their broadband reach with ADSL2+ services, a capital strike would harm its business rather than assist it.

Telstra could accelerate its investment in wireless. That is likely to happen anyway. Not to mention that wireless broadband is probably the only viable option for those in rural areas.

Telstra could launch legal proceedings against the government and against the ultimate winner of the NBN contract. This would slow down the NBN implementation but it will not stop it.

The more likely response from Telstra if it loses out on NBN will be to ramp up its investment in its HFC cable network which passes 2 million homes in the major cities.

It could extend this network which runs across the top of the telephone poles in major cities.

Another possible response will be to build its own fibre network services in densely populated areas. Telcos in Europe have been able roll out fibre in densely populated areas and make money from the increased range of services offered.

However, Trujillo was today keen to emphasis that it will take five years for the NBN to be built. He also stressed that if Telstra is not involved it may take even longer.

His soothing message for Telstra shareholders was that they have no need to fear Telstra not winning the NBN.

But it would not be surprising if analysts and investors now start to factor in the risk to Telstra from the government passing legislation that makes viable the NBN bids of rivals.

Trujillo’s final dramatic quote to the analysts was “Nothing Stops Telstra”.

But so far, it has to be said, that whenever Telstra has taken on the government it has lost.

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Peter Fray
Peter Fray
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