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Telstra pledges open access
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Telstra's wholesale boss tells Alan Kohler of Business Spectator that the telco is not at war with its customers, who are competing against it to build Australia's next generation broadband network, and hints at a contingency plan if it doesn't win the tender.
- Committed to providing open access
- Denies Telstra is at war with wholesale customers, many of whom are rival bidders in the broadband tender process
- If unsuccessful in the tender race, there is always a "plan B"
Alan Kohler: So Kate, if Telstra builds the fibre-to-the-node network under the NBN (national broadband network), will you be managing it?Kate McKenzie: Well, I’ll certainly be selling access to wholesale customers and hopefully I’ll then be selling a lot more access to a lot more customers. I guess one of the important motivators for the building of the FTTN (fibre-to-the-node) network is that at the moment only about 20 per cent of customers can actually get 20 megabytes of speed. The other two thirds in metropolitan regions can’t even get 12 megabytes and more than 50 per cent of people in the country can’t get 12 megabytes, so I would hope that if that were to come to pass there would be many more broadband services to be sold.
AK: And will you be selling access to Telstra retail as well?
KM: That’s not the way we do it. I would certainly be selling access to wholesale customers of Telstra and we would be having a specifically designed wholesale product set that suits the needs of wholesale customers and a lot of thought and effort is going into the development of those products as we speak.
AK: So the development of fibre-to-the-node products?
KM: Yes.
AK: And what will they look like apart from just being faster than the current products you’re selling?
KM: Well again, I’ve got to be careful here, because like everybody else you’ve spoken to on this topic, I’m bound by the gag and so a lot of that detail will be part of our response to the requested proposals that the government’s put out. So it is probably not appropriate for me to go into a lot of detail around that because there’s a lot of water yet to flow under the bridge before these things become clear.
AK: Can you tell me whether it will be very different to the products that you’re currently selling?
KM: In some ways yes, in some ways no. I mean, I guess how I would describe the fibre-to-the-node world compared with the world we’re currently living in is sort of like a once in fifty year renovation of your house where we’ll be moving to the next generation of technology. As I said, the idea is fibre would be moved closer to the premises of the people consuming the services and therefore more people would have access to higher speeds. We would propose the wholesale channel to be providing product sets that would allow wholesale customers to differentiate, for them to be able to put their own extra applications and functionality on top of the infrastructure based services that I would sell them. In some ways that’s not that dissimilar to what we do now, it’s just the next generation of technology with improved speed and improved functionality.
AK: So, the company has said, and the chairman and managing directors and others have said, that Telstra’s retail business will be dealt with by the network, or in terms of gaining access to the network, on an arm’s length basis and will be treated exactly the same as all of the wholesale access customers. How will that happen if you’re not the one dealing with Telstra Retail?
KM: Well, imposing me into that mix is probably an unnecessary layer of complication. At the moment, how that works is the factory which is the bit of the corporation that has all the network assets in it is neutral anyway, so it provides things to me under the terms and conditions that I seek for my wholesale customers and it provides things to retail under the terms and conditions that they’re seeking for their end markets. I would expect that in the FTTN world, you’ll get even more differentiation than we’ve got now, so it’s a good thing for the wholesale business to be focussed on the wholesale customers. If you look at the BT (British Telecommunications) experience, by far BT's biggest customer is BT Retail, so I’m not sure that it helps the wholesale customers to be having everything driven by the retail part of the business.
AK: Right, but is Telstra saying that you will have exactly the same deal as the wholesale division of Telstra with the factory as Telstra Retail?
KM: We’ve always said we would be committed to providing open access, or the equivalent to, and absolutely we would be committed to providing open access on equivalent terms. Whether we would sell exactly the same products in the wholesale division as the sorts of things that retail would be seeking for their end customers, not necessarily. Just like it is now, we sell a lot of things in wholesale that retail don’t directly buy an equivalent of and I expect that would continue to be the case.
AK: OK, let me ask this then. Do you regard it as a failure that most of your large customers are trying to build their own network rather than deal with Telstra?
KM: I’m not sure which of my customers you are referring to.
AK: The G8. [An Optus-led consortium consisting also of AAPT, Internode, iiNet, Macquarie Telecom, Powertel, Primus, Soul, and TransACT]
KM: Well, you know they’re competing in a tender process. As you would expect, if they compete in a tender process, they’re going to express self interested opinions about what suits them. It’s part of the tender process. I wouldn’t expect anything different.
AK: It just seemed to me that if they were happy as your customers getting access to the Telstra networks on a wholesale basis, then they wouldn’t be bothered with the business of bidding to build a network of their own?
KM: Well, you know you can form your own conclusions about how serious they are about bidding for that network. I think they spend most of their time Telstra bashing, rather than talking constructively about what their plans would be if they would build it, but you know of course everybody involved in this process has a commercial interest to pursue, so you know I’m not sure that it’s either surprising or any kind of indication of happy or otherwise they are with the service that they’re getting from me currently.
AK: But are you trying to persuade them just to receive a service from you rather than to get involved in that process of building their own network?
KM: No, I wouldn’t say that’s my role at all. I think the way markets work, people make rational economic decisions to do what makes economic sense. I mean, I guess the thing that’s disappointing and we have argued for a long time that this very, very large and significant operator of the network is required and I think it’s disappointing that some of that noise that’s occurring is distracting us from the real issues here and resulting in a whole lot of pretty mindless Telstra bashing, but apart from that, I don’t see it as my role at all to convince them to go one way or the other.
AK: No, but most wholesalers that I would speak to, if their customers were bashing them, they’d be worried about that. It would be like "what are we doing wrong as a wholesaler? Maybe we need to talk to them, maybe we need to meet their objections in some way?" But in fact Telstra’s response to what you call a “Telstra bashing” is to get on the defensive and well, get on the attack in fact. You seem to be at war with your customers .
KM: Not at all. Not at all. The day to day reality is most of my customers and I get along pretty well. We have pretty sensible and rational commercial discussions. It’s really when the regulatory regime gets involved that it all starts to fall apart because people start to bargain with the regulator instead of us being allowed to have a normal commercial relationship. With a normal commercial discussion and the regulatory regime is not involved, we have very few difficulties.
AK: Except that they’re going to an awful lot of trouble trying to escape Telstra by building a network themselves?
KM: Well, it's all just part of the tender process. I’m not sure that the two things are necessarily the same thing.
AK: So, what can you say to them and to the market generally about what Telstra would do that would allay the fears? Clearly they have fears.
KM: I’d guess what I would say is what I’ve already said and what we’ve said repeatedly since the process started which is we’re absolutely committed to providing an open access network that would provide wholesale products to wholesale customers on equivalent terms and conditions to what the retail part of Telstra would be entitled to, but we expect that in this universe, the market would be able to grow because there’s a lot of demand. There’re lots and lots of studies that go into the economic benefits of having a high speed broadband network available. The sorts of efficiencies and productivities that people can get out of this network mean that the market should grow. There’ll be opportunities for the wholesale market to differentiate more, to move to a more sound commercial footing that doesn’t rely so much on regulatory arbitrage where wholesale customers can do their own value-add and compete out there in the market place. That’s the kind of market we’d like to see.
AK: And what do you think Telstra, in this tender, without obviously breaching the gag, what does Telstra have going for it that the others don’t?
KM: Well, we own the network so I would say that’s a pretty good opening start. I mean as I said to you before, what we’re really talking about here is a once in fifty years renovation of the network. It’s a major, major upgrade, but we own the network now, we run the network now, we understand where the leaky taps are, where the tiles are loose on the wall and so therefore we’re best placed to be able to fix it and move it into a 21st century network in a cost efficient and speedy fashion.
AK: And what happens if you don’t win the tender?
KM: Well, there’s always a plan B.
AK: What’s plan B?
KM: I don’t know that that’s something that I really want to talk about. We’re halfway through the tender process. We’ll be putting our best foot forward and hoping that we do win.
AK: Is it likely that the plan B might involve getting access to their network, or to the winner’s network, or doing something else?
KM: I mean look Alan, really the truth is who knows? It would be purely speculative. We have at this stage very little information about what any of the other tenderers would be planning to do. Certainly before Terria was formed and we had G9, their proposal basically required them to take our network off us and then offer to sell it back to us at inflated prices, so I’m not sure that in that world we’d be too interested, but who knows, who knows. I think we have to wait for the tender process to play itself out to see where that would end up and what sensible decisions we would make as a company in terms of responding.
AK: Thanks very much, Kate.
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