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Federal

Jul 25, 2017

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In one of his first meetings as Communications Minister, Mitch Fifield met with executives from state-owned China Telecom weeks before he met with representatives from Telstra, Optus, or Vodafone, Crikey can reveal.

The admission is contained in over a dozen pages of diary appointments of Fifield’s first three months as the Minister for Communications, obtained by Crikey after an 18-month battle to get the logs under freedom of information law.

China Telecom doesn’t have a major presence in Australia, and was only established here in 2011, mainly focusing on business network services. The company barely registers in the news in Australia, even in the local technology press. Nevertheless, the company was able to secure an early meeting with the new minister. Just a week after being sworn in, Fifield’s diary records that on September 29, 2015, Fifield held an “introductory meeting” with the telco’s representatives, sandwiched between media interviews with The Australian and The Australian Financial Review

According to the diary entries, his meeting with the telco was even before meeting with NBN Co executives — he is one of two shareholder ministers for the NBN. That meeting, with the chief executive officer, chief financial officer, chief operations officer and other executives didn’t happen until the following day, on September 30. Fifield did not meet with any other telecommunications companies  for over another week, when he met with Telstra’s chief executive officer, chief financial officer and head of government relations on October 9. Optus did not get a meeting with the minister until October 21, and Vodafone had to wait until October 30. John Stanton, the head of the telecommunications lobby group, Communications Alliance, had a meeting with Fifield on November 2.

A spokesperson for Fifield did not explain why China Telecom scored the first meeting before other telecommunications companies or what the meeting was about, simply stating that “the minister meets a wide range of stakeholders”.

[If Huawei is OK within Defence, why sensitivity about the NBN?]

Infamously, another Chinese state-owned telecommunications company Huawei has been banned from supplying technology for the National Broadband Network. Proposed changes to legislation that governs Australia’s telecommunications network infrastructure would also give the government power to direct commercial companies not to use technology or make changes to their network that may impact the security of their network. This has been viewed by the sector as an attempt to extend the NBN-Huawei ban out to the rest of the industry. The legislation received bipartisan support from the parliamentary committee reviewing the bill, but the legislation did not pass prior to the Parliament rising for the winter break.

Fifield’s office had long fought releasing his diary under FOI law, going so far as taking Crikey to the Administrative Appeals TribunalCrikey sought access to the first three months of Fifield’s diary in his time as Communications Minister in 2015. Fifield’s office refused this request at the start of January 2016, but earlier this year, Information Commissioner Timothy Pilgrim overturned this decision and ordered Fifield’s office to hand over the 15 pages of the diary. Fifield’s office then appealed the decision to the Administrative Appeals Tribunal, at the same time as the AAT also received an appeal from the Prime Minister’s Office for a similar FOI request from The Australian. That appeal appears to still be ongoing.

[Access to Fifield’s diary denied]

Last month, Fifield’s office offered to settle the case, committing to providing a printout of the relevant diary entries for Fifield as minister — minus the personal entries, and personal information like phone numbers — rather than providing an exact output of the Microsoft Outlook email program diary similar to what Attorney-General George Brandis ultimately handed over after Labor’s epic battle over his diary. Crikey accepted this offer to settle the case.

Crikey will have more coverage from Fifield’s diary in the coming days.

Federal

Nov 17, 2016

5 comments

The biggest media story today should be Nick McKenzie and Richard Baker’s revelation that the metadata of Telstra, Vodafone and Optus customers is available for sale in India via call centre employees. It’s frightening, disturbing — and illustrates just how dangerous to Australians the government’s mass surveillance regime is.

Crikey warned repeatedly that data retention would create a vast trove of personal and highly revealing information about every Australian that would inevitably be targeted successfully by thieves. Last year we suggested such information might be hacked, but McKenzie and Baker have shown there’s no coding skill required — you just need to bribe an employee with the right access.

[The Chinese surveillance company safeguarding Australian democracy]

If it’s relatively straightforward for an Indian company to secure metadata on Australians — the three companies involved would cover nearly every adult and most teenagers in the country — then it would be equally straightforward for organised crime and state intelligence agencies of other countries to secure the same information. Almost certainly they already have. Looking for an Australian intelligence or Defence official to compromise? Looking for a witness in a criminal case? Their metadata will show you who they’ve called, when they called and how long the calls lasted, not to mention where they have been at all times the phone was on, enabling you to assemble a comprehensive picture of their medical, relationship and social circumstances.

These warnings were made at the time Malcolm Turnbull and George Brandis legislated the Abbott government’s mass surveillance scheme, but were unheeded. There weren’t even any requirements imposed on industry subject to the data retention laws about the security of retained data — and certainly no restrictions on offshore storage or accessing of data. And, in truth, it would be enormously difficult for retained metadata to be stored securely anyway — there is always the “insider threat” of employees who have access to the data passing it on, no matter how well stored the data is.

[Surveillance advocates hit us with their best shot]

There’s only one truly effective way to securely protect data, and that’s not to store it at all. No one can steal what you don’t retain.

If we had a half-decent parliamentary intelligence committee, it would immediately launch an inquiry into this breach, its implications for national security and whether the data retention regime that it endorsed needs to be amended. Instead, we have a committee that’s incapable of initiating its own inquiries, and which is currently led by a junior MP with minimal parliamentary or life experience, Michael Sukkar, who seems to be too busy attacking “elites” and endorsing Donald Trump to do his committee chair job.

And remember, this is all for a mass surveillance scheme that has zero actual benefit for reducing crime or terrorism or improving crime clearance rates. The only people benefiting from data retention are the crooks like those exposed by McKenzie and Baker.

Federal

Sep 5, 2016

5 comments

We’ve long known the Attorney-General’s Department and its portfolio agencies in Canberra are not merely among the most evil, but also the least competent, in the country. Now add to that laziness.

This is the portfolio that has, over the last 15 years, systematically destroyed some of the most basic freedoms and legal protections that Australians enjoy, and continues to push to undermine legal protections and give ever-greater powers and funding to security agencies.

But AGD and its portfolio agencies have done so with an incompetence that at times bordered on the comic. This is the agency that even today, many years on from beginning its push for data retention and a year after the scheme came into effect, still hasn’t defined “data”, that couldn’t keep its story straight on why mass surveillance laws were needed, changed its evidence to parliamentary committees, has still yet to pass a mandatory data breach notification bill (it’s only just reintroduced one) and was unable to answer simple questions from politicians.

Remarkably, we had to wait until now for AGD to say who would be receiving funding allocated by the government in 2015 to help offset the cost burden imposed on ISPs under AGD’s mass surveillance scheme: $131 million was allocated in the 2015-16 budget, now nearly 18 months ago, to help ISPs with the additional costs of data retention — even though it was estimated that the scheme would cost a minimum of $319 million to build and maintain systems for data retention in the format the government agencies want.

And that’s despite AGD and the government insisting ISPs and telcos were already collecting the information.

AGD very expeditiously siphoned off several million dollars of the money for itself almost immediately — but industry has yet to see a cent of it. Finally, eight months after opening up applications for the program and more than a year since the legislation passed into law, the department quietly announced the list of recipients on its website today.

[Data retention will hurt YOU, not criminals. Here’s how]

The biggest slice of the pie, unsurprisingly, goes to Australia’s largest telecommunications company, Telstra, which received close to $40 million, followed by Vodafone on $29 million and Optus on $14 million. Curiously, one of Australia’s largest fixed internet companies, TPG, received just over $1.4 million. TPG-owned iiNet is also separately listed receiving $814,000.

Many of the other companies receiving funding are internet service providers including BigAir, Bendigo Telco, Exetel, and M2. The government is also effectively paying itself with $1 million being paid to NBN Co to get its systems in order to comply with the legislation.

Crikey sought comment from NBN on what its obligations under mandatory data retention actually include. According to an FAQ from the department, it indicates that wholesale companies like NBN (i.e. companies that don’t supply services directly to end users) need to comply to hand over data such as physical address information.

A number of universities also received funding under the plan, with RMIT receiving $680,000, while University of Queensland received $576,000. The universities running their own networks with telco licences meant that they were required to build systems in order to comply with the mandatory data retention legislation.

Questions have been raised about the amount of funding allocated to smaller providers, but the government’s methodology was designed to give weight to smaller providers with a maximum average annual revenue of $3 million where the cost per user to build new systems in order to store all the data the government requires under the legislation would be much higher than for larger organisations.

“One of the consequences of a pure allocation on this basis is that smaller providers would be on average overcompensated relative to their estimated costs,” the department stated.

[Your guide to the data retention debate: what it is and why it’s bad]

Points are otherwise granted based on the number of services, subscribers, revenue and storage requirements.

The methodology document developed by PwC for the Attorney-General’s Department explains that 25 of a total of 100 points available for grant applications to be successful depend on the size of the organisation. Funds were set aside in the total allocation for smaller companies where the cost of compliance would be higher.

In a statement today Attorney-General George Brandis said most of the 180 companies getting funding would receive grants to the value of 80% of their implementation costs, and 50% of the funding would be handed over once a funding agreement was signed.

Crikey understands many telecommunications companies had been frustrated with the lengthy delays in allocating the funding for the scheme, while also being required to be compliant with the scheme.

The allocated funding is only the cost for building the systems, not the operation of the systems. Brandis stated last year that a PricewaterhouseCoopers analysis had determined it would cost between $1.83 and $6.12 per customer per year to keep the data.

Companies

Apr 19, 2016

5 comments

Telstra’s second backflip on marriage equality in a week shows the difficult relationship the company currently has with the Catholic Church.

A week after news that the company would step back from campaigning for marriage equality after the Archdiocese of Sydney got up in a huff about it, Telstra has again backflipped saying the company will now advocate for same-sex marriage in the lead-up to the election.

In a statement first sent to staff and then released online, CEO Andy Penn said:

“It is clear that rather than Telstra stepping back we should in fact step forward and support our view for marriage equality and so that is what we will do. By renewing our active position, we acknowledge that we are at equal risk of inflaming a new debate but it is the right thing to do. It also remains very important that we continue to recognise and respect the right of the individual to hold their own view on this issue.”

The change came after staff internally expressed their displeasure with the less-than-stellar response from Telstra, which forced the company into releasing a second statement confirming it still supported marriage equality but wouldn’t do anything about it.

The third statement from Telstra on the matter shows the company clearly misread the initial reaction, but highlights the difficult balance the company has to find between its business relationships and public sentiment on the issue.

The company’s difficult relationship with the Church stems back to 2014, when Telstra lost its contract with Church Resources, a not-for-profit organisation that works with churches, schools, and other organisations to secure lower-cost deals for its 20,000 members. It’s an arm of the Catholic Bishops Conference (the one that is before the Tasmanian Anti-Discrimination Tribunal over the letter supporting existing marriage laws).

Crikey understands that Telstra’s falling out of favour with that organisation, after over a decade of holding its contract, wasn’t due to a conflict of values but the almighty dollar. Telstra wasn’t willing to budge on certain rates for some organisations associated with Church Resources, but Optus was, so Optus won the contract.

This created some problems for the churches. While Optus was offering a better deal in many places, Telstra has better mobile coverage across Australia. Some of the churches didn’t want to move over to Optus for this reason, and Telstra has been negotiating directly with many of these organisations rather than going through Church Resources.

In addition to the company’s 2009 $146 million contract to build out the network for Catholic schools, negotiating all these individual contracts for Telstra is relatively low value for Australia’s largest telecommunications company, but was, in aggregate, enough to cause the company to stumble last week in its support for marriage equality. Until the backlash.

Given the reported analysis it has done into the value of siding with the right side of history, Telstra has clearly come to the view that it is worth more to the company to risk offending the Catholic Church, with all its money, than to lose value in the eyes of the community, its customers, and staff by backing away from marriage equality at a time when the campaign is at its noisiest and messiest.

Companies

Dec 17, 2015

5 comments

The personal data of 31,150 mostly former Optus customers was posted on short-term job website Freelancer.com in major breach of their privacy, Crikey can reveal.

Earlier this week, Crikey reported that an employee of the telecommunications company’s debt collector ARC Mercantile had posted a spreadsheet of data of customers who owed a debt to Optus onto Freelancer.com, a job auctions website where potential workers bid to undertake a variety of short-term jobs or tasks.

Against the policies of both Optus and ARC Mercantile, the employee was seeking to get a Freelancer.com worker to analyse the data (which was the ARC Mercantile employee’s job) and uploaded a spreadsheet of the data earlier this year. The data included customer names, contact numbers, physical and email addresses, date of birth and debt collection history information.

The data has since been removed from Freelancer.com, and Optus has been attempting to track down the 51 people who accessed the data while it was online to have the data destroyed.

Optus has subsequently sent out a letter to customers who had their data posted online advising them of the situation and offering a free alert service for potential identity fraud. The company has said those who are affected might want to change their phone numbers.

optus2

Optus would not say how many customers were affected, but Crikey has learned that the breach affected 31,150 people.

According to an internal Optus document seen by Crikey, of the 31,150 people affected, only 164 remain Optus customers. They cleared their debts and had their services reconnected. The remaining 30,986 people remain disconnected.

Optus says in the document that while ARC Mercantile had been managing the debt of those customers, because of the breach, Optus has decided to manage the debt for those customers internally. Optus has not told Crikey that it intends to sever its relationship with ARC Mercantile.

Optus has not said it intends to pre-emptively forgive all of the debts of the 31,150 customers, but the document reveals Optus is prepared to pay compensation for those affected, including for phone number changes, passport replacement and other ID changes. There is also the option for “discretionary credits” to be issued to resolve debts for customers who complain about having their data exposed.

Crikey asked Optus to confirm the figure yesterday, but the company again refused to comment. Optus has over 9 million active mobile services.

ARC Mercantile has also declined to state whether the employee who was seeking to outsource his or her own job had been fired, stating simply that “all necessary disciplinary action” had been taken.

The Australian Privacy Commissioner Timothy Pilgrim was informed of the breach by Optus and ARC Mercantile.

Companies

Dec 15, 2015

5 comments

Some Optus customers’ personal data has been accidentally released to more than 50 contractors on the short-term job website Freelancer.com.

Optus uses ARC Mercantile to recover outstanding debt from customers who have failed to pay bills. An employee of ARC Mercantile, against company policy, posted a job to Freelancer.com, a jobs auction website, where potential workers bid to take a variety of short-term jobs or tasks for businesses. The job was to analyse data contained in a spreadsheet containing the personal information of Optus customers who owed money.

A spokesperson for ARC Mercantile would not tell Crikey what punishment the employee who posted the data on Freelancer.com faced, but said “all necessary disciplinary action” had been taken.

Crikey has seen one of the letters sent out to customers regarding the data breach, and according to the letter, the ARC Mercantile employee posted details including name, contact number, date of birth, physical address, email address, and debt collection history information.

After Optus learned of the breach, it commenced legal action in the Supreme Court of New South Wales to force Freelancer.com to disclose how many people on the site accessed the data. Late last month the company was ordered to disclose that 51 people had accessed the customer data.

Optus has notified the Privacy Commissioner and has written to the people who accessed the data asking them to destroy the spreadsheets they might still have. ARC Mercantile has also set up a credit alert service to monitor the credit files of customers affected for potential identity fraud over the next 12 months and has suggested those affected might want to change their phone numbers.

A spokesperson for Optus would not confirm how many customers had been affected by the breach, telling Crikey in a statement:

“Optus has become aware that an employee of a third-party supplier posted a document containing customer data to a public website. This action was unauthorised by Optus and its supplier, ARC. As soon as Optus became aware of ARC’s action we acted swiftly to remove the data and conduct a full investigation into the incident. ARC is co-operating with Optus and is undertaking all due diligence requested by Optus including reporting the matter to relevant authorities.”

Australian Privacy Commissioner Timothy Pilgrim said in a statement that he was informed of the breach by both ARC Mercantile and Optus and praised them for reporting the breach.

“We are pleased to see that Optus has notified affected individuals about this incident. Notification can be an important mitigation strategy that has the potential to benefit both the organisation and the individuals affected by a data breach. The OAIC strongly encourages notification in appropriate circumstances as part of good privacy practice.”

Earlier this month Attorney-General George Brandis released an exposure draft for mandatory data breach notification legislation. Under the legislation, which was originally planned under the former Labor government in 2013, businesses with annual turnover of over $3 million and government agencies would be required to notify customers and the privacy commissioner on “serious data breaches” that created “a real risk of serious harm” to those affected by the breach.

While many companies, including Optus, are becoming more proactive in disclosing data breaches when they occur, some businesses fear the reputation damage such disclosure can have on their brands.

Online shopping giant Catch of the Day waited three years to inform customers when it suffered a data breach compromising credit card details and user login details. To date, the company has never explained why it waited so long to inform customers of the breach.

Federal

Nov 26, 2015

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Has Labor found the smoking gun that proves the Coalition’s NBN plans are about to fall in a heap? Or is it just another political beat-up?

When then-NBN Co under the former Labor government secured an $11 billion deal with Telstra to migrate its ADSL and cable internet customers over to the NBN, it also signed an $800 million agreement with Optus to shut down Optus’ cable network and migrate customers onto the NBN.

Optus and Telstra built the cables in Sydney, Melbourne, and Brisbane in the 1990s for pay television before eventually using them to deliver broadband faster than that on ADSL. The two sets of cables combined cover around 3.2 million premises, but there is a lot of crossover because the two companies were vying for the same customers.

None other than Malcolm Turnbull, who was opposition communications spokesman at the time, slammed the announcement that Optus would shut down its cable (also known as HFC, or hybrid fibre-coaxial) network. Turnbull argued Optus could have easily upgraded its cable network to compete against the NBN, and viewed paying the company to effectively shut down what he saw as a still-viable network was a waste of taxpayers’ money — although it would eventually be paid back through NBN revenues.

At the time, though, Optus told the competition regulator it had effectively written off the cable network as an asset and had no plans for major upgrades to the HFC network even if the NBN did not buy it out. Tech media reported the network would need significant upgrades in technology in order to be competitive with the fibre-to-the-premises NBN.

Now, under the Coaliton’s “multi-technology mix”, both Telstra’s copper and cable networks and Optus’ cable network will be used to provide broadband services on the NBN. Negotiations to change the contracts signed under Labor with both companies were finalised in December last year, although Crikey understands the agreement with Optus was finalised well before the complex re-negotiations with Telstra were completed. Optus was keen to get out of the cable business and, for its part, is not receiving any more funding from the government to hand over ownership of the network instead of shutting it down as originally planned.

NBN has yet to launch services on the cable network, but it has trialed using the Optus cable network in Redcliffe in Queensland to 4500 premises. The company has said in trials it has recorded speeds of up to 100 Mbps (megabits per second) for downloads, and 40 Mbps for uploads.

Just before question time yesterday, Labor communications spokesman Jason Clare released a document (conveniently after Fairfax had been given the document) outlining potential issues with the Optus cable that could cause a cost blowout for the HFC component of the network by up to $375 million, and a delay out past 2018 for customers in the Optus HFC area to be connected to the NBN.

The “HFC Plan B: Overbuilding Optus” internal presentation dated November 3 states that the Optus cable network is “not fully fit for purpose” and is currently oversubscribed, with interference, and much of its equipment reaching the end of its life. Up to 470,000 premises that the Optus HFC network covers but are not covered by the Telstra HFC network might need to be connected instead by the Telstra HFC network being extended or using fibre-to-the-node using the existing copper lines.

The idea scenario, using a mixture of the above two options, would cost NBN between $150 million and $375 million more than originally planned. If NBN were to go full fibre-to-the-premises, as Labor had originally planned for those areas, it would cost an extra $600 million, according to the document.

NBN is downplaying controversy claimed in the document, stating it is a risk-mitigation presentation that is designed to prepare the company should it run into trouble connecting customers to the Optus network, and said there had been no issues in the Redcliffe trial, so far.

NBN boss Bill Morrow has always argued that taking ownership of the cable networks for the multi-technology mix, rather than shutting them down, gives the company the option to use those networks if required. If it turns out that the network isn’t fit for purpose for supplying at least 25 Mbps download speeds, the company will not use it.

Additionally, in the company’s three-year plan released just weeks before Turnbull became prime minister, the company forecast that the cost to build the network had gone up from $41 billion to between $46 billion and $56 billion. Blowouts such as those flagged in the presentation were accounted for in that forecast, NBN has said.

At the time, Turnbull told Crikey that there was still a lot of risk associated with the project.

“It’s a big, risky project. Which is why the government shouldn’t have done it in the first place. But it is too late to cry over that.”

Clare also asked the Prime Minister a question about the network just after the publication of the document — just his fourth or fifth NBN question since becoming shadow communications minister more than two years ago. Turnbull, not being across the document, deflected, defending the current work of the NBN. Communications Minister Mitch Fifield also appeared to not be across the issue in Senate question time yesterday.

Former communications minister Stephen Conroy, who keeps a close eye on all things NBN with a view to protect his legacy, relished at the leak of the document, telling the Senate:

“Now we are getting all of this debacle coming home to roost. How could a board make a decision to switch to a $56 billion network without knowing the costs at the time? How could the CEO today say that the board members did not know the costs when the board made a decision to shift to a network that is now costing $56 billion? This board was one of political hacks! They were incompetent and they did not know what they were doing.”

Conroy told the Senate the cable network was not up to the task:

“There is a reason we were going to close it down — that is, because it was not fit for use. We knew it, Optus knew it, and the whole country knew it, but not Prime Minister Turnbull. He decided he knew better than all of the engineers and all of the experts in the country, and Optus today are laughing all the way to the bank.”

A spokesperson for Optus said in a statement that the company had always said upgrades would be needed.

“Optus and NBN have always acknowledged that parts of the HFC network would need an upgrade to support the NBN’s product set. In advance of handover there has been and continues to be major investment into the HFC network to manage subscriber growth and capacity demand.”

Media

Nov 12, 2015

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Like white ants. Former News Corp chief John Hartigan, or Big Harto, was always good for a quote, and Crikey‘s media reports have been poorer for his departure from the country’s largest private news organisation. Which is why this gem from the Prime Media AGM on Tuesday (Harto is chairman) is so appreciated. We’re glad Fairfax’s CBD column picked it up:

“Who would have thought that Peter Tonagh would be running the company,” he said, referring to News Corp Australia’s new CEO.

“It shows the level of disruption when you’ve got someone of his background coming in to the CEO [role]. It wasn’t all that many decades ago that I recall Rupert Murdoch just never countenancing having a management consultant anywhere near the building because he had a view, that wasn’t dissimilar to mine, in that once you let them in they’re a bit like white ants, you can’t get them out.”

Tonagh spent 15 years at the ­Boston Consulting Group. — Myriam Robin

Writing about Keith Murdoch. Today’s Crikey newsletter contains an extract from Before Rupert, the first unauthorised biography of Keith Murdoch, written by Tom D.C. Roberts.

The introduction reveals the difficulties of writing about the Murdoch family legacy, which was carefully guarded by Keith’s wife, Dame Elisabeth Murdoch, and is now no less dearly protected by her son Rupert.

When Roberts started, he writes, the only three large works on Keith Murdoch had been commissioned by the family or by the Herald and Weekly Times in Melbourne. In 1970, another full-length authorised biography commissioned by the family, written over five years by Charles E. Sayers, was never published, after Rupert Murdoch withheld permission upon receiving the manuscript.

Roberts sought no particular assistance or permission from the Murdoch family, he writes, relying mainly on the documentary evidence Keith Murdoch left behind. But getting access to some source documents — particularly those held at the Herald and Weekly Times, was not always straightforward. “It was only after a period of months and multiple letters, emails and vetting via the telephone that I had been granted access to the records of the HWT — the media company with which Keith had been most closely associated and that Rupert in 1987 had brought back into the family fold,” Roberts writes. He adds that he was asked by the HWT chairman, Julian Clarke, to specify the exact dates and topics he wanted to pursue — these were checked before he was given access to them. He was provided with a desk in an anteroom to the chairman’s office to pursue the files. When he asked for access to 90-year-old company minutes, he was only given photocopies of specific pages. The full tomes, which had been hauled out from storage, were left “tantalisingly on a side table”. Roberts does not reveal whether or not he took a peek. — Myriam Robin

Swallow that pride. As predicted by Crikey, that loss of the English Premier League broadcast and live streaming rights to Optus has forced the Murdoch clan and their courtiers to swallow their collective pride and make a quick move to try to lock up the pay TV rights for the NRL before anyone else can grab them. After spending weeks bagging the NRL for daring to deal with the Nine Network and daring to exclude Fox Sports and Foxtel, the Murdoch’s News Corp Australia now wants the rights — but not without the typical Murdoch thrust for a deal from a weak negotiating position.

But the bottom line is that without the NRL rights, the value of Foxtel and Fox Sports will drop dramatically, and in turn slash the share price of News Corp (and the size of the Murdoch’s fortune). The NRL dominates the most watched program lists on pay TV with over 65% of the top 100 programs each year an NRL game. The 100% of Fox Sports and the 50% of Foxtel would have a balance sheet value (including debt) of close to $4 billion for News Corp — although the 50% of Foxtel doesn’t not appear directly in the accounts. That value could halve from 2018 onwards if the pay TV rights were grabbed by someone else.

News Corp papers and now Fairfax Media outlets suggest News wants to deal only if Nine sells back the Saturday night game it has bought in the new post-2018 rights, and agrees to give Fox first crack at the weekend coverage with a game kicking off at 6pm on Fridays. News is also prepared to pay $15 million a year to have the simulcast rights to all NRL games each round (which is how the AFL rights are currently shared by Seven and Fox Sports). Nine is said to estimate the simulcast rights at more than $15 million a year (the total for that right will reduce Nine’s $925 million five-year deal). The Monday night game is disappearing (Monday night football is nowhere near as popular as it is in the NFL in the US). Four pay TV games will cause Foxtel’s audiences to drop sharply from 2018 onwards, which will cost it valuable advertising revenues. — Glenn Dyer

Video of the day. From Springfield to Wodonga — The Simpsons puts regional Australia on the map for the first time since their infamous visit in 1996.

Front page of the day. This week’s Aussie edition of The Spectator gives us a rap on the knuckles for not understanding how coal is good for humanity.

Companies

Dec 15, 2014

5 comments

It is hard to escape the feeling that the taxpayers have been had by Telstra, which has secured crucial incremental advantages in its new $11 billion deal to help build the National Broadband Network (NBN).

While the headline figure is the same — in 2010 dollars — as the NBN deal Telstra signed under the Labor government in 2011, this is a much better deal for Telstra, as Business Spectator’s Alan Kohler explained in this excellent piece this morning and as has been underlined by the investor reaction, which lifted the telco’s shares by 1.2% in a falling market.

For example, under the new deal the cost of remediating Telstra’s ducts and pits onto the government-owned NBN Co gets a key potential liability off the books for Telstra, and while chief executive David Thodey was coy about the numbers in an analyst briefing yesterday afternoon, he fairly crowed the result was “unquestionably better for shareholders”.

The dollar figures being bandied about are confusing because they are given in net present value terms — i.e. the value of expected future income — which is a familiar concept for many in the financial community but meaningless for many. This NBN-Telstra deal is really worth more like $100 billion, which is the total amount that will be paid to Telstra over the next 30-plus years for access to its infrastructure and, after yesterday, additional design, build and maintenance work.

That income stream will make Telstra a desirable investment for decades and is a remarkable demonstration of the power of this corporate behemoth, which has turned a fundamental threat to its former monopoly franchise into a goldmine and has got its arms around a competitor.

Communications Minister Malcolm Turnbull has claimed the Coalition’s multi-technology-mix will save $30 billion compared with Labor’s promised fibre-to-the-premise rollout, and he says it will be delivered up to four years earlier.

We will never know how much Labor’s FTTP rollout would have cost or how long it would have taken, so it is hard to argue, but there are two costs that must be balanced against any upfront saving:

  1. As technology commentator and futurist Mark Pesce was tweeting yesterday, we forego the higher growth that would have flowed from faster internet — he cited this Ericsson study that claimed a mere doubling of bandwidth increased GDP by 0.3% — boosting tax revenues by the way and dwarfing any short-term saving; and
  2. The taxpayer was always intended to sell off the NBN at some point; it is a safe bet that a pure FTTP network would have more value than a mixed fibre, HFC and copper network. NBN appears increasingly dependent on Telstra, and while the Australian Competition and Consumer Commission will be under pressure to make sure the two companies do not get too close, this is situation normal for Telstra, which loves nothing more than a standoff with the competition regulator. (One has to ponder whether Telstra might one day even bid for the NBN — a laughable anti-competitive outcome that would defeat the whole purpose of structurally separating its wholesale and retail arms and ending its infrastructure monopoly.)

To rub salt in yesterday’s wound, taxpayers have also been had by Optus, which has now sold the NBN a dubious-quality HFC network that it has absolutely no need for, given it overlaps almost completely with Telstra’s HFC network. There was a crazy logic to buying both HFC networks when they were to be shut down in pursuit of a greater good. It makes no sense at all to buy both networks when you can only use one. Optus is being paid to stay sweet.

There was a familiar divide yesterday between the savage reaction of technology specialists — many of whom are understandably fibre zealots and see the NBN as essential infrastructure to future-proof Australia — and the mainstream media, who see the NBN as a project like any other, with costs and benefits to be weighed responsibly. It is tricky to debate the potential benefits of something we’re not getting. But Turnbull was right when he asked Lateline’s Emma Alberici, in a terrific pre-election debate on the NBN, whether Australia was suddenly “so rich that we can blast away billions of dollars without worrying about the cost?” And if Turnbull was right then he is more right now, as the country has only gotten poorer in the intervening 15 months as the mining boom recedes ever-more rapidly and manufacturing crumbles.

So we will get what we pay for. At least yesterday’s NBN agreements are technology-neutral, so as the relative costs of installing different technologies shifts, NBN and its partners will be free to roll out the most efficient option. Hopes are emerging that fibre to the distribution point — which gets fibre right down the street, much closer to the home than FTTN, and can therefore deliver much higher speeds down the shorter lengths of copper that remain — will prove increasingly competitive. The householder will bear more of the final, unpredictable cost of getting from the street into the home, but at least they will have an upgrade path to pure FTTP. Not so the millions of homeowners who will be stuck with souped-up HFC and no upgrade path to FTTP at all — ironically, the richest third of Australian homes may end up with the inferior network.

Companies

Sep 16, 2014

5 comments

Australia’s competition and consumer watchdog gave internet service provider TPG the OK to build a fast broadband network in competition with the NBN last Thursday. Does that mark the end of the NBN as a viable monopoly wholesaler of internet access? Is it the end of the NBN as we know it?

A year after the Coalition’s victory, we already know two-thirds of us won’t be getting fibre to the home. If you get pay TV now, you’ll be stuck with mediocre hybrid fibre-coaxial cable (HFC). The rest will be relying on souped-up copper, the slowest option, for an indefinite period. The Vertigan review decided that would do, because we don’t need that much fast broadband anyway … but failed to take into account details like, oh, the internet of things, when every vehicle, appliance and other doodad jumps online. They’re still thinking about demand in terms of streaming video.

Now we discover that if Telstra, Optus and others were to follow TPG’s lead and take advantage of a loophole in the Telecommunications Act to extend their existing fibre networks — really, an unintended consequence of Communications Minister Malcolm Turnbull’s decision to opt for the mixed-technology NBN — the business model of the NBN could be undermined completely, costing taxpayers billions.

NBN Co chief executive Bill Morrow warned on Friday: “If Telstra was allowed to go into this, and then Optus followed, then it becomes material in nature … yes, it becomes a problem.”

Down the gurgler goes the essential idea of using the once-in-a-century transition from copper networks to fibre as an opportunity to finally achieve the structural reform of our telecommunications industry, muffed in the privatisation of Telstra, by creating and ultimately selling off an NBN that has a monopoly on broadband infrastructure and sells access to retailers on a level playing field basis, under the watchful eye of the Australian Competition and Consumer Commission.

In other words, it is a complete disaster? Not so fast. Or not yet anyway. It is important to understand the ACCC was not making a general decision on whether TPG and others should be allowed to compete with NBN.

Rather the ACCC was investigating a complaint made earlier this year by NBN, which believed TPG was in breach of the anti-cherry-picking, or level playing field, provisions of the Telecommunications Act because it did not have the capability to deliver fast broadband services in January 2011.

“There is no doubt both Telstra and Optus also had the capability of delivering fast broadband at 2011, but it is not a foregone conclusion they will rush to copy TPG.”

To explain: the level playing field provisions bar anyone but the NBN from supplying fast internet access (defined as download speeds over 25mbps) to small businesses or homes, unless they do so on a wholesale-only basis and give competitors access to the network. This blocks retail internet service providers from competing with the NBN. But there was a loophole: anyone with a fibre network at the beginning of 2011 that was capable of being used to supply high-speed broadband to small businesses or consumers could continue to do so and extend the network by up to a kilometre. In hindsight, that looks like a mistake.

The loophole had particular relevance to TPG, which in late 2010 had spent almost $400 million buying PIPE Networks, which provided fibre to inner-city data centres and exchanges, and spotted an opportunity to cherry-pick high-value early-adopting customers by extending fibre to the basement (FTTB) of nearby multistorey apartment buildings, with fast internet supplied to units above through existing copper lines.

NBN complained to the ACCC early this year, arguing the PIPE network was dormant in January 2011. ACCC chairman Rod Sims told Crikey the regulator did a lot of work investigating the NBN complaint to determine TPG’s network capability at that time.

“Not only were they capable, they had customers,” Sims said. The ACCC had no grounds for legal action against TPG, and could not block its rollout of FTTB.

The desirability of competition for provision of fast broadband at the wholesale level played no part in the ACCC’s decision. “We weren’t giving a green light to anything,” Sims said. “We focused on the particular breach that was being alleged. We’re a regulatory/investigative body, not a policymaker. All we do is enforce the law.”

Analysts are unsure how big and profitable FTTB will be for TPG, and the company’s shares did not exactly soar — next week’s earnings update could shed some light. JPMorgan’s lead telcos analyst Paul Brunker wrote last Friday:

“TPG has made progress already on its build and we believe it has some live customers. However, we see the project as facing significant challenges and doubt that it will become a significant value driver for TPG in the fullness of time. …NBN Co is ramping up its own FTTB effort to limit the threat; while they are behind TPG (aiming for a Q1CY15 launch), this may be enough to make body corporates wait. The HFC network, when folded into the NBN as we expect, will become a significant competitor to FTTB proposals. Apartment builds involve complex negotiations with residents. Finally we question the number of apartments that will be economically viable.”

There is no doubt both Telstra and Optus also had the capability of delivering fast broadband at 2011, but it is not a foregone conclusion they will rush to copy TPG. Telstra, for example, wants to exit the infrastructure business — and will get paid handsomely to do so under its revised agreement with NBN.

The ACCC has now launched a long inquiry into whether TPG’s FTTB network should be declared as regulated infrastructure, to be made available to third parties, and the government will make it as hard as possible to compete with the NBN. Turnbull has flagged new telecommunications licence conditions requiring the owners of such high-speed networks to functionally separate their wholesale operations and open them up to competing retailers.

“This is a better outcome than if the government had mandated wholesale only,” wrote Brunker, “which we had thought likely given the regulatory challenge of overseeing multiple altnets [alternative networks].”

TPG is willing to offer wholesale access on NBN-like terms, and JPMorgan thinks it would make good returns on that basis, although functional separation could involve additional costs. Turnbull has left the door open to altnets — the question is who walks through.