Why Telstra Will Make The Local Loop Worthless
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COMMENT: I’ll hand it to Sol, he’s a shrewd businessman. It’s just a pity he doesn’t have Australia’s best interests at heart.

Not that I think he should, Trujillo is employed to make Telstra a viable concern, unfortunately!

Once the T3 legislation got through the Senate all bets were off. Telstra’s requirement to serve the national interest is directly at odds with its need to develop into a viable commercial enterprise (and to get a good price for the remaining Government stock).

The new Telstra CEO, Sol Trujillo, has made it abundantly clear to anybody that will listen, he has no intention of creating an environment conducive to the delivery of better communications services to the Australian people – unless Telstra is the company making ALL the money.

It clearly irks him that those freeloading upstart ISPs can piggyback on his network and make a buck off the big T’s investment. Even though Telstra still makes most of the profit, Sol clearly wants more wallet. Forget the fact that BigPond is the largest ISP in the country — or that the addition of BigPond wholesale customers delivers Telstra a near monopoly on Internet Access services despite regulation that attempts to control it — Sol knows the regulatory environment surrounding Telstra’s ADSL services leaves it vulnerable to marketshare erosion.

Unbundled local loop is a legislative certainty for Telstra and Trujillo’s best defensive stance is to make that service fundamentally worthless to any other company. Far better to invest in infrastructure Telstra can profit from exclusively.

If it wasn’t for the fact that the current GSM and CDMA mobile phone networks are a maintenance and management nightmare, or that his predecessor Ziggy Switkowski had rocks in his head when he signed the deal to piggyback the Hutchison 3G network, there would be no chance of getting a new wireless phone/data network out of the incumbent.

The added benefit of the 3G rollout is that it will provide both phone and data coverage in rural Australia making the existing copper infrastructure out there virtually redundant while fulfilling its Universal Access requirements to provide ‘adequate’ services in the bush. And if Telstra regulatory affairs boss Dr Tony Warren is successful in his quest to convince the Government Telstra should not have to share any new networks, all the better.

In a challenge so far resisted by the government, Sol refuses to allow Telstra to replace its antiquated copper infrastructure unless the regulator says Telstra can reserve it for its own private use.

Trujillo made it clear Telstra won’t build a new optic fibre network to deliver 21st Century broadband speeds to the country unless it can be guaranteed it won’t have to provide third-party access. He is only willing to take the chance with the mobile network because the current situation is totally untenable.

Without a new fibre to the node network, it will be a long time till technology can deliver widespread 100Mbps links to the home – except perhaps on Foxtel cable.

Telstra has the entire country over a barrel as it is highly unlikely any organisation or joint venture could ever profitably contemplate another network roll-out of the Optus/Foxtel proportions. Telstra is the only player even remotely in a position to deliver fibre optics and it’s unlikely to do that because there is a better strategy available to it.

Telstra’s announcement that it will offer a premium 17Mbps broadband service over the Foxtel cable TV infrastructure is in stark contrast to its efforts in the ADSL space.

Telstra is required to wholesale its ADSL infrastructure and Sol doesn’t like that. There’s no way he’s going to spend a dime improving it so that those leaching wholesale customers of his can provide a better service. Not when he has the ability to provide a better service on an exclusive basis.

Telstra’s half year results announcement revealed that the next upgrade to the ADSL network won’t now be complete until 2009! Telstra is deliberately dragging its heels in rolling out ADSL2 services because it is not in its competitive interests to do so. What’s worse is that the company throttles access speeds on the current ADSL infrastructure, making its cable network more attractive.

I am an iiNet customer and fortunate enough to be close enough to the local exchange to connect my ADSL2+ modem at better than 20Mbps across the same aging copper wire that Telstra and its wholesale resellers would connect me at 1.5Mbps max.

It might be Telstra’s biggest asset, but it’s the one it has to share with its competitors, so by making ULL pointless Telstra cripples its competitors.

Fixed to mobile substitution is eating away at wireline access anyway and IP Telephony will finish off any remaining vestiges of copper PSTN revenues quite quickly, so where is the actual value in all that copper?

A clear Trujillo strategy is beginning to emerge.

Step One: Put a stop to development of the copper/ADSL infrastructure.

Step Two: Milk that infrastructure for as much as possible, keeping ULL charges and direct line rentals as high the regulator will allow while slowly lowering PSTN call rates to act as a disincentive for fixed to mobile/VoIP substitution.

Step Three: Use the inflated revenues from existing 20th Century infrastructure to develop premium delivery platforms and services which it doesn’t have to offer on a wholesale basis.

Step Four: Cripple your competitors. To do this first restrict their profit margin by maintaining a highly competitive pricing regime in ADSL services. No profit means there’s no money to invest in co-located infrastructure effectively tethering them permanently to BigPond wholesale.

Step Five: Roll-out your high-speed cable and 3G wireless services at premium prices to maximise ROI. As time passes, the BigPond ADSL wholesale offering will become as hopelessly antiquated as 56k dial-up and suitable only for the Dodo’s of the ISP market to re-sell at $5.99 a month.

 

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