Ian Davidson, Glenn Milne, the Telstra scandal du jour, and strange bedfellows

(Above: ah memories, the first careless rapture of endless Telstra floats culminating in T3, aka the third Turkey).

Well it's the crisis of the day, and might well end up La Semaine du Goût, as sundry gourmet pundits make a meal out of the Telstra affair.

But what on earth could bring together such diverse gourmets as Glenn Milne in The Australian, and Kenneth Davidson, scribbling in that well known left wing rag The Age?

Well Davidson is a long time Telstra supporter, through think and thin, as offensive in his own way as a Collingwood supporter. So naturally you get a load of nonsense explaining how virtuous Telstra has been dudded in Protection racket is bad policy.

Be careful what you wish for. Telstra's competitors - such as Optus, AAPT and Primus, who have led the charge for breaking up Telstra into two companies in order to protect their own arbitrage businesses - may have shot themselves in the foot.

I think what Davidson meant to say is that a protection racket that supports Telstra is good policy, but a protection racket aimed at keeping some other players in the game is automatically bad policy. And hopefully they've shot themselves in the foot. Which surely means that Telstra blew its legs off a while ago in its bid to get the role of the Black Knight in a Monthy Python sketch.

Forget about competition, level playing fields, cheaper, faster telephone and internet services. What is unfolding in the policy announced by Communications Minister Stephen Conroy is a $43 billion protection racket designed to keep Telstra's competitors in business.

The competitors are basically marketing and billing organisations. With the assistance of the Australian Competition and Consumer Commission, they are allowed to tap into the telecommunications network at the telephone exchanges at a price that doesn't reflect the cost of building the network, and then resell the capacity at a price that allows them to undercut Telstra in the profitable major city markets. Telstra, of course, is expected to build and maintain a network that covers the whole country.

Yep, let's forget everything that might matter, and let's get down to bleating about poor hapless Telstra. Sure it's an 800 lb gorilla, but show the love.

Sadly, there's no love here, here no love (nor even much in the way of cash). You see, it's passing strange that we get our telephony and broadband services from a pipe that doesn't belong to Telstra, and to which we resorted because Telstra refused to maintain the hopelessly antiquated copper pipe it deemed sufficient for the intertubes (and that cable passed our door only by chance, and the result of a previous deluded competition policy by the Keating government which saw rival cables strewn around the big cities like visual graffiti).

But Davidson won't hear anything against the wonderful Telstra (let's hope he gets to work within the bullying upper level management culture some day). So he gets even more indignant, harking back to the good old days when Telstra announced it would build its own broadband network.

This cosy arrangement in the name of competition was threatened by Telstra's announcement in 2005 that it would begin upgrading the network by rolling out fibre to the node at the end of the street as part of the evolutionary upgrading of the network - as has occurred over the past 100 years.

The point was that it would bypass the exchanges and put the arbitragers out of business.

Uh huh. So where is this grand vision, this Sol dreaming of a vast new set of intertubes, ready for action ... why just about right now? You know, shutting down outmoded copper, and allowing us all to live the dream, wired, interconnected and downloading away like a Murdoch journalist looking for some free digital content.

Well it was, in the usual way, a lot of hot air, with Telstra preferring to pursue the quick easy fix of profits from the wireless sector. As for the bush, try finding anyone who has a kind word about the way Telstra treats its difficult rural customers.

Then Davidson goes into full bore luddite mode:

Copper wires, properly maintained, can give speeds up to 50 megabits, which is more than adequate for any need a household might conceivably imagine.

Um, so explain to me again why Telstra announced its own very new and wonderful broadband network in a bid to get Australia at least a little way back up the OECD charts?

But what would I know. I always found dial up perfectly acceptable and more than adequate for what I could conceivably imagine. But then I was a bear with very little brain, and couldn't conceivably imagine all the fine things I now use my broadband service for. And I dare say people were happy with the model T Ford and the steam train, but you know these days - even as a bear with little brain - not a day goes by when I don't think of how lucky I am to have absolutely nothing to do with Telstra's degraded hopeless useless copper wire.

Proper maintenance? Go jerk the chain in a suitable place.

But Davidson casts the runes, and sees it all explained in Tasmania:

In Devonport and Hobart, where the Tasmanian Government has been experimenting with building fibre to the home at Commonwealth expense, shows nobody wants it while the cheaper copper alternative is available.

The mind boggles. What could a sensible government do with $43 billion to invest over eight years? Think global warming. Think of the infrastructure such as electrification of rail lines, urban public transport, base load renewable energy, conservation and recycling water, which will be needed to reduce our carbon footprint in order to ensure that the world will be a fit place to live for our children and grandchildren.

Oh yes, won't someone think of the children. Which seems to be why Davidson yearns for the longevity of copper.

What Telstra's competitors hoped was that, by splitting Telstra in two, they would keep their privileged access to the copper network. Not so. As the experience in Tasmania makes blindingly obvious, the only way customers can be induced to take up the fibre-to-the-home option is if the copper network is closed down.

Under the plan, the copper network will become progressively redundant as the NBN network is rolled out. Even with the febrile imaginings of the ACCC as to what constitutes competition, it cannot set a wholesale price for access to the new network that is lower for Telstra's competitors than for Telstra retail.

Without scope for arbitrage, the competitive advantage to Telstra's competitors disappears. Even with the arbitrage handicap, Telstra still holds 70 per cent of the fixed-line market and would be able to drive its competitors out of business, based on a level playing field.

It is bad public policy. Even worse, it is politically disastrous.

It is a blackmail attempt by the Government designed to force Telstra (owned by 1.4 million voters) to divest itself of a copper network, which generates cash flow of around $6 billion a year, and make it worthless within eight years. It is doing this in order to replace it with a system that nobody wants or needs at a cost to households and businesses for access to the telecommunications network 30 to 40 per cent higher than now.

Oh go cry a river. Why am I reminded of people who after the IT crash at the start of the millennium deciding that the Internet was just a toy and real business would flourish elsewhere without its help (tell that to Wal-Mart. Can Amazon Be Wal-Mart of the Web? - registration may be required).

Well news flash for Davidson. The copper network is past it, and is getting more and more past it by the day. It would have to be replaced anyway, as the proud broadband network announced and never built by Telstra suggested. And why wasn't it built? Because Telstra chucked a hissy fit about its pricing and monopoly control, and thought it could bully boy and bluff the Federal government.

All this is known by anyone who has half a clue and has been tracking the Telstra game playing these last few years, but not, it seems, Davidson.

The way this policy was arrived at cannot bear the most superficial examination. When the Opposition stops staring at its navel, it will realise this is Rudd Labor's equivalent of WorkChoices with the same capacity to destroy the Government.

A choice between Telstra and Chairman Rudd? And the Liberals if in power would fall for the current dummy spit by the inept players at Telstra? Well there's hysteria and then there's stupidity, and to equate the fate of Telstra with WorkChoices is sheer stupidity.

Heaven help the day I agree with Alan Kohler, but if you want a more sensible analysis of where Telstra went wrong, take a look at Sue Trujillo on ZDNet Australia as he charts the day Telstra went off the rails and turned into bungle city.

The story of how Telstra lost its network is one of hubris and bungling, of misreading the play in Australia by men from the US who thought they knew everything already. Shareholders should never forget this.

Telstra should by now be the owner of a monopoly fibre to the node network – that is, its customer access network should have been modernised and the company should still be a private monopoly.

Well them's the breaks.

As for Glenn Milne, under the header Heavy-handed threat is spooking investors?

Well Milne sees the NBN as all Chairman Rudd's idea and Conroy as his puppet. And the fuss as a clear example that the Rudd government is heading towards North Korea, carrying out the plans announced by Ruddstra in his The Monthly article. Yep, an attempt to introduce competition into the telco sector is by its nature an ideological attack on free market ideology. Why Charlie Aitken tells him so:

Charlie Aitken, for one, thinks Rudd's Monthly essay represents a more permanent state of mind. And he thinks last week's Telstra decision proves it. Aitken, formerly of Citibank, runs Southern Cross Equities, part of Australia's largest independent stockbroker and financial advisory groups. He's the investment adviser to the institutional stars: the MacBanks, AMPs and Future Funds of the stock market world.

In his latest client newsletter Aitken puts the proposition that the Telstra break-up marks the arrival of the "real" Rudd government (my phrase not his). Writing the day after Conroy's announcement Aitken says: "Our elected representatives in Canberra have shown their true colours yesterday in relations to Telstra (TLS)."

He writes: "It has reminded me we are dealing with a very different regime in Canberra; regulatory and legislative risk is clearly increasing across a variety of sectors."

Oh yes and the sky is falling in as the sacred cow of Telstra roasts on the spit of its own incompetence.

Milne heads to the far side of nonsense to use the Telstra matter to conjure up a whole of government socialist strategy (from the emissions trading scheme to banking, as if anybody would have intervened in the banking arena if the world hadn't comprehensively been fucked up by risk taking banks).

There's only one upside to the rant. And that's the way Milne doesn't actually break Milne's Law by mentioning North Korea. Pity really since Telstra lovers, if they have their way, will see us with a monopoly and broadband heading in the direction of North Korean quality control and censorship. Just like Senator Conroy. Hey, I've just broken Milne's Law again.

Meantime, the world is a weird and wonderful place.

Glenn Milne and Kenneth Davidson in the same double bed with Telstra? Well we don't have much time on this site for Senator Conroy, but he must be doing something right ...

(Below: more Nicholson cartoons here).