Rudd 3 years on

With the announcement of a deal between Telstra and the government on the terms of an exchange of customers for cash the question must be asked “Is it a good deal and who are the winners and the losers?”

Paying $9 billion dollars for Telstra’s customer swap sounds good at first until you check the announcement carefully. This is what Telstra and it’s shareholders will get after tax. So the real price is closer to $12billion pre tax and here we have a problem.

Simply put $2-3billion of your (the taxpayer) money has been spent on an aging network that does not even meet the  current requirements of urban Australians for a purely political headline. Telstra knows that effectively their copper network is bleeding and losing about a $1billion a year. In fact their own internal reports state that the copper network will cost more to maintain than it will receive in revenue by 2015.  The current cable network if it was not carrying Foxtel would never have made a profit in it’s history.

$9 billion to get the customer base was a fair price in normal commercial terms if tax was payable but this is not the case. On top of this Telstra is receiving a further $2billion for Universal Service Obligations something they have wanted to get out of for years.

From a financial point of view in the way it has been announced it looks like a win-win-win. A win for the consumer, the government and Telstra. Look closer and you will see the truth.

The winner without doubt is Telstra. They wanted $12billion in commercial terms and they got it and then some. Remember they are being payed $11billion in a post tax world as against looking for $12billion pretax. They also get rid of a network that had a best 10-15 years left in it operationally and only about 5-10 years financially. A big win possibly to the tune of  $5billion.

With 4G spectrum up for grabs shortly Telstra does not want to be tied to physical lines but wireless. You and most consumers have Laptops, NetBooks, smart phones and numerous other portable gadgets. Cables are just not the in thing.  Telstra is happy to give up the fixed equipment it has knowing the future is wireless technology. With 4G offering real life speeds at around 70Mbit it will do everything the NBN can do but is totally portable. This is a huge win dump the old for the new at zero cost.

Sitting on the government side it has a politically positive spin. We actually did something that may work out. As this can not even go to Telstra shareholders any earlier than the middle of 2011 it may not even happen if the playing field changes. Telstra has the ability to back out – the government does not.

It also has a policy win in that as most of the internet traffic will be via the NBN, enforcemnt of internet filtering as a service access requirement to the NBN means they no longer need parliamentary approval. Big brother censorship is now going into place. They also have a secondary policy for recording of all internet usage (including instant messaging and email) for a period of upto 5 years in place and the NBN makes that 100% feasible.

Finally the consumer/taxpayer. The loser without a doubt. Having paid a premium to get an aging network and a new network that still ties them to a cable they have paid a lot for nothing. With the government now able to insist on internet filtering (censorship)  they again lose out. By the time the NBN is fully operational it will be so far behind new technologies it will become a white elephant.

I always say – If private enterprise will not do it because there is no money in it you can be sure there will be three times the loss when the government does it. Welcome to your newest nightmare – the NBN.