Strange how all it took to turn a feral 800lb gorilla into a compliant pussycat was one announcement. Telstra has even gone to the trouble of establishing a joint board-management committee to deal with the Government on regulatory and NBN issues, and backgrounding journalists that it is willing to consider “voluntary” separation of its network from its retail arm.

The Government announcing it will build its own gorilla, one that will weigh in at 8000lbs, evidently focussed the minds of the Telstra board. The message was delivered to Telstra by two of the Government’s heaviest hitters, Terry Moran and Ken Henry, reinforcing that the Government meant business and that the era of the Trujillo-Burgess corporate delinquency was to end with their departure.

So far this Government has shown a preference for working closely with large corporations. In particular, its response to the financial crisis has involved almost hand-in-glove cooperation with the major banks, although that has done nothing to curtail the Big Four’s gouging and rapaciousness. But is also significantly reworked its compensation arrangements for its ETS White Paper following extensive and detailed discussions with major polluters, and involved major employer groups in the development of the Fair Work Bill. “We’re all in this together,” the Prime Minister likes to say about the economic crisis.

Last week, however, the Government showed its willingness to cooperate with the corporate sector had a very definite limit, and Telstra had exceeded it. There was no outraged complaints of the sort Swan and Rudd engaged in on the banks’ failure to pass on the Reserve Bank’s interest rate cuts, no cave-in to rentseeking try-ons of the kind witnessed on the ETS — but an indication the Government was prepared to address both the infrastructure and regulatory problems behind the tortured relations between Telstra and its competitors for the last decade.

In truth, one would have to conclude, Telstra had not been a particularly smart company, and not merely because it failed to lodge a compliant NBN bid or in effect declared war on the Australian Competition and Consumer Commission. It has one very strong card, its copper network, and it overplayed it so much the Government will now step in both to remove it and to deal another, better card to itself.

Nor has Telstra’s HFC cable been an unalloyed success story. Foxtel, which Telstra half-owns, didn’t make a profit until 2006, partly because Telstra’s other partners in the Foxtel venture, News and PBL, were gouging Foxtel via Fox Sports, which controls premium sports content. Telstra, inexperienced in the ways of the media sector, presumably didn’t realise that controlling the infrastructure isn’t much good if you don’t have the stuff to pump through it.

Telstra could have short-circuited the structural separation debate itself very easily — by providing access to its network by third parties on the same basis as it gave its retail arm, and by not trying to litigate competitors and regulators to a standstill. Indeed, it can do that right now. But earlier this year, Telstra’s regulatory affairs manager, David Quilty, was talking about unilaterally seeking an “independent” assessment of its access charges by a third party selected by Telstra rather than proceed with negotiations with the ACCC.

And inevitably, Telstra’s idea of “voluntary” separation will be well short of that sufficient to ensure transparency and minimise incentives for favourable treatment of Telstra’s retail arm.

But with Telstra on board, the NBN network would suddenly start to take shape beyond the ethereal form of a government press release and ambitious words from Kevin Rudd and Stephen Conroy. By the 2010 election, the network company could be up and running, with the makings of a network already in place courtesy of, say, a 25% Telstra stake and another in the hands of Optus.

Lindsay Tanner and Conroy are said to loathe Telstra, but this is a government that sticks to business. It needed to draw a very big, and very expensive, gun to secure Telstra’s cooperation, but it appears to have worked for now. Best to keep that weapon at the ready, though. And maybe take the same approach with the banks.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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