Broadband trap snaps shut on Conroy

IN the past month or so the ball has begun to drop in the federal Government's $10 billion-plus game of Broadband Lotto.

A major error by Stephen Conroy was to pick both the technology and the speed for the broadband network

It is looking increasingly less likely that Stephen Conroy is holding the winning ticket.

Conroy developed his plan for a national broadband network early last year as a political play to take advantage of the Howard government's poisonous relationship with Telstra and its gross stupidity in leaving the telco intact at the time of the T3 sale.

As a piece of populism Conroy's plan did the job nicely - especially in the bush, where voters, who already thought they had their very own $1 billion project called Opel - were convinced they would get fast broadband in the near future.

Conroy has been caught in a trap set by Telstra, but its execution was of his own making.

In 2005, instead of cutting a deal with the Government and regulators to build a better fixed-line broadband network, Telstra, which makes spectacular profit from its near-monopoly, stretched out its expensively manicured paw for Government handouts by way of $2.6 billion in cash, plus softer regulation.

When John Howard said no, the company's US management packed away the cricket bat and ball and pulled out a baseball bat, aiming it squarely at the heads of then communications minister Helen Coonan and the competition watchdog. Cue the return Telstra's proposal that the Government hand over several billion dollars and let it build the network, courtesy of a Conroy rewrite, the only difference being that there would be a "tender".

Apart from a dearth of detail, Conroy's policy has three main problems:

• It is, as AAPT chief Paul Broad so eloquently put it, "arse-about" - letting the bidders define the regulatory process rather than the Australian Competition and Consumer Commission and the Government doing it upfront so everyone understands the rules.
• Telstra will pull its usual stunts of legal challenges, go-slows, refusal to put its traffic on the new network and threats to build its own network if anyone else wins.
• The financial crisis has removed any outside industry bidders, and possibly the Optus-lead Terria, from the process due to dearth of banks willing to lend much money at all to anyone - and certainly not when Telstra is likely to pull any of the actions mentioned above.

Those are just the core problems. There has already been a six-month delay in Conroy's timetable due to Telstra's standard stalling tactics, and it seems even more issues are emerging each week as the deadline for tenders - three weeks away, on November 26 - draws closer.

Telstra has reiterated its promise to play its own game if it is guaranteed an 18 per cent after tax return on capital - about 50 per cent more than a regulated utility return. The cost remains anyone's guess, with Telstra putting out a variety of estimates, ranging from the initial $5.7 million to as much as $25 billion.

The Terria consortium is teetering, with three members quitting and a confession that fundraising is not locked in.

Telstra now says it may take five years to build the network in the five major capital cities and maybe three more for the rest.

On that front, Conroy must now rue his decision to can the previous government's regional broadband plan which was to be built by the Optus-Elders consortium Opel. That also had a fair whack of politics in its motivation, but it would be offering services now. Eight years is a long wait.

Frankly, with $4.7 billion in taxpayer funds being promised for the project, the winning bidder should be made to build it inside-out - service the uneconomic regions first, not cities that already have broadband speeds of up to 24Mbps.

Another major error by Conroy was to pick both the technology and the speed for the network. Both camps - Telstra and Terria - admit privately it would be wasteful to run fibre to 98 per cent of the population, and the real figure is more like 90 per cent.

In any case, 12Mbps is now looking slow and will be a joke in five or eight years.

More than 50 per cent of people get double that already if they are prepared to pay.

Senior executives across the sector are openly questioning the one-size-fits-all approach.

The minister would do well to stop, reconsider and take a long, hard look at his cart-before-the-horse broadband policy. So far, however, like the tree standing by the water, he will not be moved.

Heck, even Sol Trujillo, the tough-talking king of Australian telecommunications has been forced to change his strategy.

Yesterday, the man who dismissed the world's leading internet search company three years ago with phrase "Google Schmoogle" was forced into a deal with the same group after wasting millions on a home-grown search service for Sensis.

Conroy should take note and change his strategy too, before it's too late for Australia.

sainsburym@theaustralian.com.au