Telstra threat on broadband tender

Australia’s tender to build a high-speed national broadband network is descending into farce, with incumbent telco Telstra yesterday saying it would not bid unless the government promises there will be no structural separation of its business.

In an interview with The Australian Financial Review, Telstra CFO John Stanhope said the company would not bid for the tender to build the network, along with A$4.7 billion of government money, “if we don’t have those assurances.”

The threat ratchets up the tension between Telstra and the government, with the communications minister having declined on a number of occasions to rule out separation of Telstra’s wholesale and retail businesses.

With only two serious bidders to build the network likely – Telstra and the Optus-led Terria consortium – the loss of one would cast doubt on the credibility of the process. Terria has already lost three of its members in recent weeks, Telecom New Zealand’s AAPT, Canberra-based telco TransACT and small telco Soul, and has admitted that it has not yet secured funds needed to complete the network. The widding bidder is likely to need A$6 billion to build to the 98% of homes the government has stipulated must be served by the proposed network.

Telstra has said it wants to make a 17% return on any investment in the network. So if the government does not separate its two units, Telstra’s rivals are likely to be charged premium prices to access the network to help the company make that target. That will reduce rivals’ ability to offer consumers competitive prices.