Telstra’s bullying prompted government step in to build broadband. Then the Coalition made a mess of that too.
Article originally published in The Australian Financial Review on 24 October 2019
By Kevin Rudd
In business as in politics, the truth will always out. We caught a glimpse of this at last week’s Telstra annual general meeting when board chairman John Mullen offered a rare “mea culpa” for his company’s intransigence during the tender process for the National Broadband Network more than a decade ago.
This stonewalling by Telstra was so obscene that then treasury secretary Ken Henry’s panel of experts persuaded my cabinet to recommend building a full-fibre NBN ourselves and recouping the money later through a public float.
As well as delaying the rollout of essential nation-building infrastructure, we now know from Mullen that Telstra’s mistake has halved the dividend to its shareholders and will cost the national carrier about $3.4 billion each year by 2022.
As punishment for his candour, Mullen has endured a firestorm of criticism from the likes of former Liberal minister Nick Minchin and right-wing media commentators. Minchin’s shrill response says much more about him than it does about the essential facts of the case.
The historical fact is that Telstra, under chief executive Sol Trujillo, wanted to extract from taxpayers every possible dollar in exchange for building a fibre-to-the-node NBN, believing the firm’s ownership of the established copper network meant they had our government over a barrel. Mullen was on Telstra’s board at the time and would know this detail intimately.
This behaviour was entirely consistent with Trujillo’s tactics more broadly, having earlier pushed the Howard government so far towards deregulation that late Liberal frontbencher Don Randall described Telstra as a “big, bad corporate bully and a corporate thug” bent on crushing its competitors.
“Telstra’s mantra was complete domination and thuggery, played out in a high-stakes game of aggressive bluff,” Randall told Parliament in 2009. “Telstra wanted to reduce the regulation that applied to it, limit competition and, in turn, cost everyday Australians more for the privilege.”
When the time came in 2008 for Telstra to submit its NBN proposal, its 12-page bid wasn’t even compliant with the tender criteria. It was then that Ken Henry and his team of technical and financial advisers convinced our cabinet that a public build of full fibre-to-the-premises represented the best option for taxpayers.
I vividly remember the day when Ken stunned us all with his panel’s recommendation. For a pro-market guy like me, the decision to establish a new state-owned enterprise to commence the single largest infrastructure project in Australian history was not taken lightly. However counter-intuitive, the sheer weight of evidence confirmed this was the right choice.
That plan has now gone haywire under the Abbott-Turnbull-Morrison government. It is now delivering much worse speeds, four years overdue, at a higher cost than if they’d just built it right the first time. Indeed, it killed the viability of the NBN by changing the model from fibre-optic to the premises to fibre-optic to the mythical “node”, leaving the last bit in copper.
The only person this made happy was Rupert Murdoch because it helped to protect his Foxtel cable network from web-based competitors such as Netflix, which have limited potential over copper. Even with this protection, Foxtel’s base of subscribers has more than halved over the past decade, dropping from almost 7 million in 2009 to less than 3 million today. Anyone who read Murdoch’s newspapers at that time would have struggled to spot the real news between the partisan hit-jobs on Labor and preaching about how “Australia needs Tony”.
Given Telstra’s history of obstinacy, I was stunned to read Minchin’s claim in The Australian Financial Review that Trujillo acted “honourably and appropriately” with his non-compliant NBN bid, which his own parliamentary colleague Randall lashed as “insulting”.
However, more shocking is Minchin’s opinion that, in retrospect, the Howard government should have accepted Telstra’s unsolicited offer in 2005 to roll out fibre-to-the-node broadband to 4 million addresses across Sydney, Melbourne, Brisbane, Perth and Adelaide for $4.7 billion.
Rather than ending the digital divide between city and country, the Trujillo-Minchin plan would have entrenched it. It would have choked off economic opportunity, stymied new services such as tele-health for regional communities, and further driven young people to the big smoke.
There remains a lot of myth making around the NBN, but hopefully Mullen’s candour will help put some of this to bed.