Conroy right to back panel's NBN call

Australia aiming to get trenches dug ASAP

Although Stephen Conroy gains nothing by dropping Telstra from the bidding process for his broadband network he had little choice over the weekend but to call the company's bluff.

The Australian communications minister could have overturned his expert panel's decision to exclude Telstra but chose not to because it would have exposed him to a legal challenge that could drag on.

By handing in a bid that did not meet one of four minimum conditions, Telstra was clearly willing to risk being shut out of the process.

Conroy was willing to go some of the way to keep Telstra happy, for instance, by accepting the company's 13-page proposal two weeks ago, but overlooking its failure to meet basic legal conditions would have been a very long bridge too far.

The minister's policy aim is to get a fast network connected to 98% of Australians without spending a cent more than the A$4.7 billion he and Prime Minister Kevin Rudd promised.

His political goal is even simpler: get trenches dug as soon as possible so that at least some customers are getting services within a year - that is, well before the 2010 election.

Conroy is already running behind schedule because he indicated before the election that he would like to have the first cables laid this calendar year. He cannot afford any more delay, and if that means Telstra is tossed, so be it.

Whether Telstra is in the game or not matters far less than the company thinks because Conroy has already succeeded in generating genuine competitive tension.

The Howard government was more vulnerable to Telstra's threats because it was usually negotiating directly with the company in a Parliament House conference room.

Conroy exploited that weakness mercilessly in opposition and knew to avoid it once he gained power himself. He has opened a market for good network proposals and created strong incentives for at least one or two bidders to come up with something compelling.

That means Telstra's rivals have a clear shot at the goal because their biggest threat has walked off the field.

Only Telstra knows all the strategies its legal experts have drafted so nobody on the outside should dismiss its ability to fight hard to the very end.

Delaying the new network has always been the company's preferred objective and it still has years to frustrate the construction of a national broadband network.

But it was in the company's own interest to remain part of the negotiating process and it was in Conroy's interest for his expert panel to suggest he keep negotiating with the company.

Now it would be legally and politically dangerous for cabinet to do what Telstra chief executive Sol Trujillo clearly prefers - reject the panel's findings and talk to Telstra directly.

Everything suggests Telstra will be proven wrong on each of its key assumptions.

First, Telstra believes its lobbying efforts will eventually trump the formal process. Just last week it was button-holing state ministers in the hope they would raise concerns with Conroy at a ministerial council on Friday. (They didn't).

There is nothing to stop Telstra raising its concerns directly with federal cabinet ministers now that the company is out of the formal process, which outlawed lobbying.

Several key cabinet ministers are not likely to be receptive, however, given that Telstra always ruled out letting the government take equity in a network joint venture to generate a commercial return.

The second assumption is that Telstra can use its legal armoury to stave off any major change to the industry and thereby protect existing revenue and earnings. But it was only in March that the High Court unanimously rejected Telstra's claim that giving others access to its network breached the constitution.

The third is Telstra's assurance that only it can build new networks properly.

Conroy, however, has been in the portfolio long enough to know that telephone companies outsource construction work these days.

Conroy's comments show he is sure that once the regulatory regime is defined and the commercial rate of return is known, a bidder other than Telstra will be able to attract investors and big network builders. — Australian Financial Review

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Tags Networking & Telecomms IDNBNTelstra

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