How Telstra Could Win Back Our Hearts

  • The real competition is international
  • NBN really about eliminating Telstra
  • The alternatives, and lack of real options

Understanding the Australian telecommunications industry mostly means understanding Telstra, and then the rest. In few places in the industrialized world does a private company have such a stranglehold on such a vital utility as communications, with such implicit government support.

                      gorilla

 

 

This shouldn’t necessarily be a bad thing – a national champion that offers a AAA Rated security for ‘Mum and Dad” investors, with a market model that literally can’t lose (Telstra makes plenty of money from disgruntled citizens who think they’re not connected to Telstra) seems like the height of mixed-market liberal economic reform: using market pressure to keep a utility monopoly innovative, removing the complacency and stagnation that firms like this face when supported by direct taxpayer investment. The only problem? It hasn’t worked from Day One, and Telstra refuses to apologize or acknowledge this. And it could have been (and one day might be ) so very different.

What Telstra Is

telstra network

 

Telstra is an incumbent telecom carrier. In context this means that they are a private monopoly owner of a formerly state-owned utility. This started in earnest under John Howard, who took steps to privatize all of Telstra in stages, allowing small investors to buy shares in a company that provided almost all last-mile access to individual homes.

Last Mile

Last Mile access is 99.9% of all the investment, headaches and moneymaking in developing a national communications network.
The scale of a national telecom network is enormous, even with a tiny population like in Australia. Less than 20 individual lines links the entire country for overseas traffic. The domestic network terminates at about 5000 points around the country , generally at telephone exchanges.

The Last Mile, from exchange to end user, is in the copper telephone wire from these exchanges to the actual user premises. In Australia, this means 12 million individual connections, and rapidly growing as Australia builds new homes and splits large homes into multi dwelling units. It’s a big job: but owning this part of the chain gives you all the leverage. It means that everyone has to go through you and pay a tariff to reach paying customers.

In the wider points of the network, there’s more competition, but less money to be made. Duplicating a big pipe into the country is relatively easy: duplicating a 5000 node network is fiendishly difficult. Duplicating a network of 12 million nodes and constantly growing is beyond the scope of almost any private company, which is why it was left to governments in the first place.

What Telstra has done to upset people

too far from exchange

Tough Luck

The idea of privatizing a big public utility is to use market forces to encourage employees to deliver the best service possible, because they’ll be incentivized by the money. And for investors, it’s a safe bet to invest money in a company that can’t really fail to deliver a profit, unless that particular utility goes out of fashion (for instance, if you invested in a formerly state owned gas utility just as a breakthrough comes along in clean nuclear tech).

But Telstra has generally focused on squeezing as much value out of its existing copper network as possible, while extracting automatic revenue from it. Problems with the network that needs investment? No sweat, just jack up access fees to cover it - what are customers going to do- not pay, and have no connection? Regulator doesn’t like that? No problem, we’ll just stall until a new government comes along.

At the same time, Telstra has used powerful lobbyists to reduce the obligation to provide a quality service – that might mean getting rid of Grade of Service guidelines guaranteeing audio fidelity, proximity to an exchange to service a broadband signal, or guaranteed turn around times on faults.

In other words, Telstra has not used the market to encourage better performance, it has used its monopoly to guarantee more money in Telstra coffers. True, it shares this largesse with shareholders, and reinvests into its mobile network - a mobile network for voice and data that might be terribly fast, but increasingly irrelevant for how Aussies want to use the web. Small download allowances, high latency and frequent dropouts – these can’t be overcome easily unless you build 12 million towers.

Identity Crisis

telstra atlas

Yeah, but, not quite


Telstra pays its salesmen well, and encourages every branch of its workforce to have sales on its mind. Billing, tech support – it doesn’t matter, part of the ‘solution’ to any problem should involve spending more money with Telstra.

This is good if you want to make money, but bad if you want to provide a utility. And Telstra seems dead-set on proving it wants to do the former. Why not just go into finance, and leave the running of a telecom network to a company committed to doing just that?

Because Telstra is not the gutsy, competitive, free market champion it thinks it is.
It’s got the same problem that a government run company does. It doesn’t have to do much to stay ahead, so why do anything at all? Changing anything requires several layers of approvals, all while the customer waits. The customer can go elsewhere – or can they? In the case of ADSL (still the most widely available means to achieve a reliable broadband connection) Telstra still makes money. The customer can kind of vote with their feet, but the consequences to Telstra are minimal. You’re still paying them.

British Telecom  openreach



BT in the UK is a close analogue. Like Telstra, it is a private incumbent provider. Unlike Telstra, it has applied a certain pride to the role of being the country’s backbone, maintaining steady upgrades to its infrastructure and working closely with the UK government to make sure they can be trusted to act in the best interest of the nation. They make profits.

BT also decided early on to draw a line between their retail and wholesale arm, calling their wholesale arm Openreach. It keeps ‘BT’ out of a customer’s mind when applying for a service, if they happen to have a problem with BT. Telstra ostensibly did the same by calling their internet retail arm BigPond and their mobile arm MobileNet, but they retained the Telstra name for both their wholesale and retail telephony arms, clouding the issue – and have in the past gone through fits and starts in blurring the line between their wholesale and retail operations.

Maybe it’s culture- the UK is a major hub for the European internet, and a British man (Sir Tim Berners Lee) was one of the web’s architects. The UK has also always had a soft spot for government or crown bureaucracies who handle vital interests with a certain ‘good of the nation’ attitude.

Australia has been similarly inclined in the past, but throughout the 80’s and 90’s have sought a more American style liberal economy with little to no state involvement. This is all well and good when it comes to goods and services, but underlying infrastructure requires a focus on performance over profit. It’s what taxes were made for.

The NBN

nbn rollout

Looks good: but will it last?

Of course, this is the point of the NBN – it’s not about delivering a ‘gold plated’ network for internet junkies, it’s about removing Telstra’s monopoly status. The fact that it will be faster and better is a result of technological advancement: recreating a copper telephone network would be ridiculous - copper was only used because it was already there. And buying the existing network would cost roughly the same but fail to resolve the technical issues with it.

It boggles the mind why people would want to stop it- the only company who would benefit from staying with the copper access network is Telstra, and even their shareholders don’t want it. The main alternative peddled by the Coalition in opposition is bringing fibre to about every 200 homes, and then utilizing the existing copper network for the rest of the way.

That’s not bad, and it’s what we would have had ten years ago if Telstra had been primarily concerned with making sure we had a good network. It’s also not clear if this would remove Telstra’s monopoly, or just concentrate it down to a last few hundred metres, rather than a last mile. Shadow Comms Minister Malcolm Turnbull has said that an NBNco under his aegis would own the entire copper network - but he has never factored in the cost of buying even a shortened copper network from Telstra into his cost projections. There just seems to be this idea that under a coalition government, Telstra would grow bored with making money and start giving away prime assets.

In fact, Fibre-to-the-Node (FttN, as opposed to Fibre-to-the-Home or FttH) is ONLY about bringing faster broadband, and does NOTHING to remove the real problem: a private monopoly. So any suggestion that the current NBN plan is merely about delivering faster porn and illegal downloads to basement dwellers shrivels in the face of the proposed alternative - a network that still does that, with none of the other benefits.

Could the NBNco, the government corporation, become another Telstra? Yes, absolutely. They’ll be a monopoly. But they’ll be accountable to voters and their representatives.

And in the end, even if they become hopelessly corrupt…we’ll still have a strong network that is hugely scalable to future needs, and can be easily built on in a way that the current network can’t. How much easier? Thanks to Fibre’s much better speed-over-distance capability, the number of interconnection points goes from 5000 to 121. This means a fault in one point of interconnect can affect 100,000 customers: but it also means maintenance and upgrades can immediately affect the same number.

Australia’s Telco

this is austraaaaaalia calling

22 tracks!!

The NBN will supposedly relegate Telstra to a position of having to compete down in the trenches with everyone else. No more protection, no more premium branding – they buy access from NBNco like everyone else. After all they’ve pulled, they’ll get devoured by aggressive competitors like TPG, or superior customer service providers like Internode and iPrimus…right?

Maybe, but not for a while. They’re still heavily involved in the rollout, and have been paid enough to account for their lost monopoly for several years. That gives them time to squeeze the last drops out of their current regime, and to shore up their reputation in the meantime. And if the coalition wins and starts to dismantle the current NBN, then the bones of it might get turned over to Telstra anyway. So then we’re dealing with a monster with better weapons.

Unless they find their soul. Telstra’s real competition doesn’t quite reside in Australia. Telecommunications has become a global game, with massive conglomerates looking beyond their borders for dominance. Spain’s Telefonica provides fixed and mobile communications for a huge part of Europe. Vodafone, a UK company, has a total subscriber base of 440 million, which is 7 times the population of the UK.


Telstra has had little luck expanding out of Australia, where it commands over half of a market of 22 million subscribers, making them about a third of the size of Qatar’s largest mobile provider. They have some customers in Hong Kong, a venture in New Zealand that they just sold to Vodafone, and that’s it.

In this part of the world, the Big Bad is Singapore Telecom (SingTel), with half a billion customers – and 100% ownership of Optus. Were Australia worth the effort, SingTel could crush Telstra eventually.

Vodafone has a foothold in Australia – one that loses them money. But if Vodafone wanted to come and build fibre networks, they could. They do it in the UK, where they compete directly with BT.

US telcos are a different animal – but if regulation ever tightens in the US, At&T and Verizon might see Australia as a place for expansion.

The problem with all of these is that none of these companies could be trusted to take on the difficulty of networking such a large, empty place. They would focus just on the juicy metro areas, extracting profits and not giving a hoot about the sparsely populated regional and rural areas.

So what? You might say - Telstra has demonstrated the same lack of interest. But Telstra’s head offices are in Australia. Their linesman, engineers and management are mostly Australian. They care. They’re in the DNA of this country – their exposure to this place makes them one of the best mobile networkers in the world. They’re the only company who could possibly care.

A Telstra that actually cares about the end result would be a huge blessing. Imagine a national carrier who wanted to be around 100 years, rather than one acting like a fly-by-night company extracting short term profits and then letting their hard-built infrastructure collapse. Imagine having pride as a Telstra shareholder, rather than biting your nails hoping that their latest PR bungle wouldn't threaten your 28c dividend.

If Telstra is unwilling to do it, another company would normally step in. But no Australian company can drum up that type of money from investors without that monopoly guarantee, because they couldn't pay back the initial investment for several decades. There’s just not enough people, not enough scale. If not the NBN, tt has to be Telstra. Unless we can find a foreign company that for some reason, really really cares about the good people of rural WA, where there’s 2 paying subscribers every 200 kilometres.

Conclusion


Telstra has squandered a golden opportunity to prove that privatization of public utilities can work – for more than just disinterested shareholders. They can boast all they like about owning half the market – but they started out with ALL of the market, and still exert their weight around, and STILL managed to lose 50% of subscribers; that’s how bad they’ve pissed people off.

But alas, for Australians, there’s little room for anyone else to do the job of being a sterling, dynamic infrastructure and utility telco, short of the government. If Telstra wanted to win back the hearts and minds of more than just the people franking their dividend each quarter, they’d have to demonstrate a commitment to doing what they say they’re here to do: provide telecommunications, not act as a finance company who happen to own a telecom network.