From
http://www.theaustralian.news.com.au...-30538,00.html
WHEN Communications Minister Stephen Conroy called Paul O'Sullivan late on
Monday to set up a meeting the following afternoon, no alarm bells rang for
the Optus chief.
The two had met regularly over the past year to talk about Australia's $24
billion telecommunications sector and its broadband future.
So O'Sullivan was stunned when Senator Conroy told him he was cancelling a
$958 million government grant to the Optus and Elders consortium, Opel.
"I disagree fundamentally with his approach but at the end of the day we
have to work together," O'Sullivan says. "The advice he acted on was poor."
But in a lovely coincidence for Conroy it clears the decks for the real
game: the planned national fibre-to-the-node network that Kevin Rudd wants
to reach out to 98 per cent of the population.
Conroy's seven-member expert panel met for the first time on Monday last
week in Melbourne. On Monday or Tuesday of next week, Conroy will release
tender documents to start the race to win the right to build the network and
pocket the government funding.
O'Sullivan has played it down, but losing Opel was a major blow for Optus.
The network would have given it the chance for first time in its 16-year
existence to offer network-based services outside the big cities.
It would also have helped to subsidise the $500 million extension of Optus's
3G mobile network, which provides popular mobile broadband services.
Optus is also struggling under an unprecedented marketing assault by
Telstra.
This is particularly and most worryingly true in its core business, mobiles,
which contributes 70 per cent of its profits.
O'Sullivan says the company has not lost market share in the sector but the
numbers belie his claims.
JPMorgan analyst Laurent Horrut's summary of the 2007 mobile market finds
that Telstra gained 1 per cent of total mobile revenue market share,
including equipment, Optus lost 2 per cent, Vodafone was flat and Hutchison
gained 1 per cent.
"Optus clearly stands out over the 12 and 24 months with material market
share loss," Horrut says. "In the past Optus was able to limit its margin
decline, in this period Optus margins also contracted by 4 per cent to 32
per cent."
Still, despite what it sees as shoddy treatment at the hands of the
department, Optus will still lead the G9 group of industry players and
investment bank Investec.
It's all part of an industrywide chess game on broadband that, until this
week, included Opel.
The big dispute on Opel is whose database of regional premises was right:
Optus's or the one used by the department.
The two sides were in violent disagreement about whether Opel had proved it
could cover the requisite number of homes in regional Australia with a
combination of WiMAX and copper-based broadband. It was a contract
effectively, and bizarrely, given and taken away by the same federal
government department.
Optus and Elders are exploring their legal options, but broadly it's
game-over and we now move on to the Rudd Government's single piece of
communications policy: a $4.7 million taxpayer subsidy for a
fibre-to-the-node network.
"The department points to the contract and says that's the contract and they
have to perform," Conroy said yesterday.
What is emerging is a very strong whiff of bumbling -- unkind people may say
incompetence -- by the department.
These concerns are not new. The previous minister, Helen Coonan, was deeply
unhappy with the departmental competence but only managed to shift its head,
Helen Williams, late in her tenure.
Williams' replacement, Patricia Scott, is seen as an economic dry with
little communications experience. The bigger problem, Canberra and industry
insiders say, is the lack of commercial nous or deep competence in the
department.
Conroy insisted it would not be the department but his seven-member expert
panel that will scope and make recommendations on the tender. The minister
was keen to push the department to one side yesterday and hang the blame for
Opel squarely on its shoulders.
"There is one member of the department on the panel; the department is
providing secretarial services," Conroy says.
"We have investment banker John Wylie, who does not need the department's
advice on the weighted average capital cost or rates of return.
"The department entirely was responsible for Opel. That is not the case with
this process."
Conroy expects there to be a be "a number of bids" for the FTTN network.
Certainly, fresh expectations of high, near-monopoly returns on capital put
into the market by Telstra in recent weeks will have encouraged the major
independent infrastructure players such as Macquarie Bank and Babcock and
Brown to have a fresh look at the project.
"We need a return north of 18 per cent because that is our average return on
other investments," Telstra public policy chief Phil Burgess says recently.
"You don't earn a low rate of return on a high-risk project."
Conroy says he accepts the proposition that a telco had a "technology
premium that is not present in a gas pipeline or electricity grid".
He would not say what that premium was, but it is doubtful it is more than
twice a regular 8 per cent, or so, utility return.
"There is no doubt that plenty of people will be running a ruler over the
project," one banker says yesterday.
German telco Deutsche Telekom has signalled interest in operations and
maintenance. Having missed out on the fibre component of Telstra's network,
Swedish equipment maker Ericsson and its rival Nokia Siemens will be
interested.
Leighton and Transfield will be directly and indirectly involved in at least
one bid.
Telstra is expected to lean on any companies that supply it not to work with
rival bidders.
"We are confident that our process will be transparent," Conroy says.
The Government preference remained an equity stake rather than return on
debt for the project, he says.
Right now the process is still unclear, particularly concerning the network
structure. Will the network be at arm's length or, if Telstra wins, simply
another arm of the telecoms behemoth?
Will the Government cast the net very wide and not be too proscriptive? Will
the G9 hang together? Will Telstra launch an immediate attack on the
Government tender document?
The situation has been further complicated by recent comments of the
competition regulator, the Australian Competition and Consumer Commission.
Chairman Graeme Samuel says: "There is no point in building a high-speed
network and charging inflated prices."
Citibank telecoms analysts Tim Smeallie and Phil Campbell noted this week
that Samuel in theory had no real authority to dictate capital returns, but
his comments were important because the ACCC would be advising the panel on
pricing and competition issues of each bid.
There is a strong whiff of bumbling over Opel 
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