Telstra could have its very own improvised explosive device (IED) buried in
its copper wires, just waiting for Stormin' Stephen Conroy to drive by in
his fancy NBN. It's enough to add yet more risk to the great unknown of
whether anyone would want to invest in the minister's back-of-the-envelope
$43 billion business plan.
Just as primitive IEDs continue to cause massive grief for the world's most
advanced military in Iraq and Afghanistan, Telstra's old-fashioned copper
wires could yet blow a large whole in Conroy's fanciful fibre enterprise.
There's a hint of that tucked away in the dubious document tabled,
accidentally or not, by Conroy. Never mind what the tabling says about the
minister's attention to detail or the Australian Competition and Consumer
Commission's difficulty in dealing with valuations, there are a few
interesting paragraphs on page 47 that seem to confirm speculation that
access costs to Stormin' Stephen's fibre network while be vastly more
expensive than the present network.
Wouldn't it be funny if the Government plunged $43 billion on a network only
to find that a great many customers were happy to download their pirated
movies a little less quickly when it's at a much cheaper cost.
The paragraphs in question canvas the ACCC's view of linking access prices
to the depreciated values of the assets. The ACCC claims the historic cost
of the fixed common access network (CAN) is about $17 billion while its net
value is about $8 billion.
"It appears that around 58 per cent of the historic value of copper cables
has been depreciated. In addition, 40 per cent of the value of ducts and
pipes, 64 per cent of the value of pair gain systems and 72 per cent of the
value of radio bearer equipment have been depreciated," the ACCC report
"Linking access prices to depreciated asset values may create concerns over
large jumps in prices when assets are actually replaced. For example, assume
that an asset cost $100 to build, has a useful life of ten years, has been
depreciated on a straight line basis over this period, and its replacement
cost is not changing.
"In the last year of the asset's life, the access price would be based on a
net (depreciated) value of $10. In the following year when that asset is
replaced, the access price would be based on a gross (yet to be depreciated)
value of $100.
"There may therefore be a large and sudden increase in access prices."
In other words, the regulator would set a much lower access price for the
depreciated copper assets than the fancy, expensive and un-depreciated new
Just how much is that promised faster download worth to the average domestic
consumer at a time when other utility charges will be soaring as the carbon
charge starts to bite?
Dodgy, untested business case
No wonder Conroy is bending, if not breaking, Australia's usual precepts of
private property rights as he seeks to bludgeon Telstra into submission. He
has a dodgy, un-tested business case for the Rudd Government's biggest
infrastructure spend and the last thing he wants is competition. Ironic,
If I remember my high school economics text book, there was a simplistic
definition of communism being when the state owns and controls the factors
of production, while socialism is when the state controls the factors of
production. Conroy's attempt at de facto nationalisation of the Telstra
network takes his ALP left faction an ugly step closer to some of the
efforts of tin-pot South American regimes.
In dealing with this unprincipled method of ramming through the minister's
pet project, Telstra has the option of giving the bully what he claims to
want - real separation - but doing it in such a way that the network company
is in effect a powerful IED that can extract fair compensation from the
Completely splitting Telstra - distributing the hived-off company as
pro-rata shares to existing Telstra shareholders - could leave Wireless
Telstra free to do what it has been doing best without any ramifications
from the competitive tension Wired Telstra could create with expensive NBN.
That might be the only way to escape the commercial blackmail presently
being applied by the Federal Government. It would certainly make any
institution or individual think twice about putting their money behind
And that's already going to be a hard sell. The only thing we know for sure
about future communications technology is that it won't be what we presently
Michael Pascoe is a BusinessDay contributing editor.