Telstra – future scenarios Analyses by Paul Budde: 22nd September 2003

Scenario 1 – Fish eats fish, eats fish – Telstra new takeover target

Telstra is massaging the trans-Tasman political environment for economic harmonisation, with the aim of softening the market for a takeover of Telecom NZ (if you need more info on this ask me for a separate article on this topic).

However the company might itself fall victim to globalisation. If it continues to under-service the Australian market it might create an opportunity for an overseas player to come in, take over the company and utilise the pent-up demand that exists in this market (Telstra aims to only have 1 million broadband subscriber by 2005, while the market demand across the board is currently estimated at around 2.5 million).

Telstra is now three years behind its overseas partners, and with no significant new network infrastructure investments under development that gap will only widen. At some stage the Australian network will need to be upgraded and if Telstra refuses to do this others might step in and do it for them. With the new technology this might not be so far-fetched – not only can a new nationwide network be built on technologies that are a fraction of the price that Telstra has paid for its network, the maintenance costs of these new networks are equally low and this opens up opportunities for companies that are not necessarily as large as Telstra.

Scenario 2 – Over-regulated and irrelevant

If the company isn’t careful it will end up with an over-regulated and far too costly network, mainly concentrated on voice, while others walk away with the far more lucrative and much less regulated data market. While they are making money from these data services, the companies can afford to offer voice (VoIP) as an extra, at little or no cost to customer.

If this scenario eventuates I can envisage a distraught Telstra knocking on the door of the government, complaining that it is left with a costly network and costly obligations to provide a national service – while others, who have none of these onerous responsibilities, walk away with the big money.

However, if this should ever happen, it should be remembered that Telstra had the same opportunity as everyone else to alter its business models to prepare for the new world. It was their choice not to do this.

Unfortunately, that being the case, I am sure that it will be the Australian taxpayers who will pay the price for, either by bailing Telstra out or by providing massive funding for an out-of-date network – which will, by then, be even more obsolete than it is today.

Scenario 3 - Mortally wounded after privatisation

Although I think it is unlikely, let us assume for a moment that Telstra does become privatised.

This will unshackle the government and, sooner rather than later, a telecommunications policy will be introduced, aimed at catching up with the rest of the world. Over the last five years Telstra has slipped three years behind in broadband developments and, given its current plan of one million users by 2005, it will be at least four years behind by that time. This will be unacceptable from a national interest point of view. Both of Howard’s Willing Coalition partners, Bush and Blair, are pushing broadband – Blair, in particular, has been instrumental in lifting the broadband penetration in the UK from 3% to 23% within an 18-month period.

Inevitably, the Australian government will eventually follow the lead of its counterparts and begin to stimulate the broadbanding of Australia. The Minister for Communications Richard Alston, is one of the most knowledgeable communications ministers in the western world, and if he wasn’t such a political animal Australia could have been right up there with the rest of the world. He certainly knows what is required, but he can’t deliver because of Howard’s telecoms agenda, which only has one item on it – the privatisation of Telstra.

Remove that issue and I believe Australia’s telecommunications policies would change completely.

Scenario 4 - A SingTel takeover – not an impossibility

I hate to think what this will mean for Telstra and its shareholders. It has willingly been a political football in the privatisation debate, using the situation to strengthen its monopoly and cash itself up. However, if it were to be removed from its position of privilege its value would certainly not be much higher than BT, AT&T and others. It is absurd that Telstra should be valued at nearly 50% more than companies such as these. I maintain that the government has an obligation to explain this price difference in its privatisation campaign, so that any new shareholders enter the game with their eyes wide open.

But the bottom line remains – Telstra will only have itself to blame if any of the above scenarios eventuate. It has had plenty of time and plenty of cash to prepare itself for the future but it has willingly decided not to do this.

It is not too late, but time is running out fast. Globalisation remains a fact of life and, while Telstra might be a big fish in the Australian pond, in the international pond this is not the case. Time and time again it has shown that it has very little understanding of how to operate in the international market, where it will be no match for companies like SingTel, which has already positioned itself as the leading regional telco. Who knows – through Optus, Telstra could end up being gobbled up by SingTel in the not-too-distant future.

Scenario 5 – Telstra’s infrastructure monopoly remains in place

Never, ever, underestimate Telstra.

It could maintain its supreme position in the market and drip-feed the markets according to its own agenda, completely disregarding the national interest. This would have severe consequences for Australia’s economic position. As an enabling industry the telecoms industry should double its share of GDP before the end of the decade, and you only have to look at countries like Korea to see that this isn’t impossible.

However, like their policies on pay TV and digital TV, the Australian Government could continue to hinder economic growth through ineffective telecommunications policies and, instead, foster Telstra’s monopoly – especially since the privatisation process could be dragged out for another 3 to 5 years.

And it is not that leading Australian companies and organisations are unaware of the situation. On the contrary, organisations like ATUG and SPAN, and regulators such as ACCC and ACA, have been clearly flagging the economic consequences of the current government’s policies (or non-policies). However, to date, most of their comments, advice and suggestions to the government have fallen on deaf ears.

It is said that a country gets what it deserves, and if this country fails to understand the importance of its knowledge-based infrastructure then we will simply have to accept that we are going to miss out on these new developments.

Links:

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