Telstra Pulls The Plug On Fast Internet

The Age

Tuesday August 8, 2006

KATHARINE MURPHY, CANBERRA with AAP

PLANS to build a national high-speed internet network in Australia are in disarray after Telstra yesterday pulled the plug on negotiations to build the $4 billion system.

Telstra's decision leaves most Australian businesses and households mired in the communications dark ages, with broadband internet speeds among the slowest in the developed world.

The decision has also further complicated the Howard Government's plans to offload its remaining majority stake in Telstra - just weeks before it was due to make a decision on whether to proceed with the sale.

Telstra told competition regulator Graeme Samuel early yesterday it would not continue with its proposal to build the national high-speed fibre network.

The decision followed weekend negotiations between senior company executive Phil Burgess and Mr Samuel, chairman of the Australian Competition and Consumer Commission, over the rules governing a new network.

The Age believes that Mr Samuel contacted Mr Burgess last Friday amid market speculation that Telstra would axe the fibre network plans, although negotiations with the ACCC continued until early yesterday.

Telstra argued it could not justify the project under regulations proposed by the competition watchdog. A major sticking point was the amount it could charge rivals such as Optus for wholesale access to the network.

Mr Samuel said Telstra's decision was "perplexing", and that its ideas on regulation were vastly different to what the Government and the ACCC believed was in the best interest of consumers. "The only approach to telecommunications policy taken by the senior management of Telstra is that any regulation is inappropriate and should be disregarded," Mr Samuel said.

But he played down the significance of the decision, saying that Telstra's competitors were developing their own plans to upgrade their infrastructure.

Broadband is high-speed internet, delivered in Australia at up to 30 times the rate of dial-up, but at only a fraction of the speeds available in other developed countries. Fibre optic cables were planned to replace outdated copper wiring. Broadband allows for better transmission of data, especially video, and for more sophisticated business uses.

Finance Minister Nick Minchin said Telstra must make decisions "in what it regards as the best interests of its shareholders". He said the company's decision would be assessed by Canberra before a decision was made on the sale.

Financial markets marked down Telstra for the move, stripping 2 per cent from its share price yesterday and adding to pressure on the proposed sale.

But Communications Minister Helen Coonan told reporters she "wouldn't necessarily accept" that Telstra's actions would affect the share price and the sale. She said the Government would discuss T3 in coming weeks "and come to a view about whether to proceed with the sale, and if so, how to do it".

She said yesterday's decision also presented an opportunity to take stock of other telcos' plans. "There's certainly a consortium of competitors that have talked about a rival network."

Negotiations between Telstra and the ACCC over the fibre network had been proceeding for months, and the Government was waiting on their resolution before determining how and when to proceed with the sale.

Following the recent collapse of Telstra's share price and losses suffered by many Australians on their participation in the second release of Telstra shares, the Government has signalled that it may not offer shares to the public in the final Telstra sale. Instead it may opt to park its stake in the Future Fund, or to split it between the fund and allocations to large financial institutions.

Telstra, under the leadership of controversial chief executive Sol Trujillo, has been running an intense campaign to convince the ACCC and the Government to soften regulations governing telecommunications.

Senator Coonan again rebuffed the campaign yesterday. "We'll continue to regulate for all telecommunications companies in a way that encourages competition because ultimately that's the best deal for consumers," she said.

Labor communications spokesman Stephen Conroy said the collapse of talks on the broadband network was an indictment on the Government and its lack of leadership on infrastructure.

He said a fibre-to-the-node network would be a significant step forward for Australia's antiquated telecommunications and "would go a long way to redressing Australia's status as a broadband backwater".

He said Senator Coonan's lack of leadership meant Australia would now miss out. "The Howard Government has no plan for delivering world class broadband infrastructure to Australia," Senator Conroy said. "The minister should be in there knocking heads together to ensure that Australia gets this infrastructure". -- With AAP

© 2006 The Age

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