Huge? Massive? Historic? All of that, and more. This is an announcement that will roll through the ICT industry, over the media industry and across the Australian political landscape.

Kevin Rudd may not be too keen on tough decisions, but he doesn’t baulk at expensive ones. The Government has reversed the last 20 years of communications policy, hitting the reset button on infrastructure ownership and plunging completely into telecommunications infrastructure.

The Government is arguing that the re-entry of the Commonwealth into telecoms infrastructure is a product of particular circumstances. It’s temporary, said the Prime Minister, with the company to be sold off five years after completing the rollout of a national Fibre-To-The-Premises network, but since that will take at least eight years, it means the Federal Government will be owning and running a major component of our communications network until well into the 2020s.

Rudd also emphasised that the Government had tested the market and, in the midst of a global economic crisis, figured the market couldn’t do the job.

But you get the feeling this is the sort of announcement many in the ALP wanted to make while they were in Opposition, but Government ownership was so unfashionable it had to be reshaped into a joint public-private initiative. Now, the private sector is in retreat and big government projects are flavour of the month. It also complements the Government’s response to the recession. 25,000 jobs a year in construction, Rudd noted. 37,000 at its peak, constructing a network to enhance Australia’s productive capacity.

The decision is a major face-saver for Stephen Conroy, who has been under immense pressure as a result of a much-delayed NBN tender process. Suddenly he will be overseeing not merely the biggest infrastructure project in Australian history — $43b over 8 years — but a fundamental change in the Australian ICT industry. From feather duster to rooster in one announcement.

There are plenty of problems, but none are immediate. In the current investment climate, government-guaranteed infrastructure bonds are likely to be popular, so there’ll be no difficulty attracting investors. The eight-year build might frustrate voters, but the network can get off to a flying start if owners of unused fibre participate, taking an equity stake in exchange for providing existing networks.

The massive company that will result from the rollout might need the same sort of restraint as Telstra, but it will be strictly confined to wholesale services, removing the current Telstra problem of anti-competitive incentives. The risk of taxpayers losing money on the venture won’t crystallise, if it ever does, until years into the future — not merely after 2010, but probably after 2013 and probably 2016 as well.

The announcement also puts the Opposition in a deep quandary. In the Coalition worldview, there’s no role for government in building these things. It should be the private sector building them, efficiently and in response to the market. But that approach left many of us in the internet Stone Age. Voters will love this. The detail won’t matter a great deal — just the grand vision. To oppose it would — apart from adding to the Coalition’s image of relentless negativity — beg the question of what they would do with the company of they were elected, as well as serve Rudd’s agenda of painting them as impractical ideologues, while he looks the visionary.

The other loser is Telstra. Telstra can buy into the company, but — something that traders perhaps didn’t realise this morning — as a retailer will be subject to strict limits, to be determined as part of the regulatory arrangements now being developed. It is inconceivable that it could buy the company outright when it is eventually offered for sale — no competition regulator would permit it. The Government has also released a discussion paper proposing major changes to telecommunications regulation essentially aimed at fixing the problem of Telstra. You can’t help but think Telstra will spend the next few years paying the price of Sol Trujillo and Phil Burgess setting out to upset governments.

This is also a decision that almost certainly would never have been made while Kerry Packer was still alive and running the Nine Network. This is a TV killer. The new network will establish an additional high-capacity delivery mechanism for content into — and out of — each Australian home, with far greater capacity than free-to-air television. Existing content providers in free-to-air and subscription TV will have to migrate to the new network or watch their competitors, and new entrants do so — and they will do so anyway. Each home will have the capacity to send content out to a community of users. The fragmentation of audiences will accelerate massively. In the old days, this would have been nobbled, like Packer nobbled digital TV.

It will take days — perhaps weeks or months — to work through all the possibilities of this, technically, commercially and politically.

Peter Fray

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