From
http://business.smh.com.au/telstra-fires-first-shot-at-canberra-20080625-2wqf.html

An uneasy truce in relations between Telstra and the Government has existed
since the election, but now there are signs a return to the nasty days of
political brawling could be about to erupt.

Communications Minister Stephen Conroy has endured a relatively soft ride so
far in the portfolio compared to the combative feuds that were commonplace
between his predecessor Helen Coonan and Telstra's management.

However, Telstra has now fired the first shot across the Government's bows
with threats that if structural separation was ever ordered, the telco would
pursue "endless litigation'' through the courts.

The tender process for submissions addressing the regulatory aspects of the
new planned high-speed fibre network closed today and the majority of
Telstra's rivals want the separation to occur.

The stance of the Government, particularly Conroy, has been opposed to the
structural separation because it has been of the view that the network would
provide the equitable access to the infrastructure by Telstra's rivals.

An order to structurally separate would be a blow to Telstra. It would
essentially mean the telco's current wholesale and retail divisions would
remain in tact, but the network shifted to separate ownership.

Telstra, at the moment, concurs with a minimal level of operational
separation but the true model would see Telstra's retail, wholesale and
network units vertically divided but remain under the telco's ownership
umbrella.

There is resistance to structural separation in the financial markets, with
the opinion that the move would open the floodgates for "substitution
threats'' for technological intellectual property.

"We believe the long-term substitution threats from new potential access
technologies would make it unpalatable to third party investors or capital
markets,'' JPMorgan's Laurent Horrut said.

"An integrated incumbent telco can precisely hedge future substitution
threats by investing in virtually all access technologies.''

Even though there has been no evidence from the government that it seeks
structural separation, Telstra this week appointed chairman Donald McGauchie
as the chief chest-beater to warn the government that the telco is ready to
fight dirty if there is ever any action ordered.

McGauchie told a briefing in Melbourne that there were mixed messages
eminating from Canberra that the separation - which was initially floated by
Coonan in her final months in the ministry - could be back on the drawing
board.

McGauchie has always had strong ties to the corridors of power in Canberra,
particularly under the former government.

The former boss of the National Farmers Federation and the key player in the
waterfront waters dispute was handpicked by John Howard to become chairman
of the telco after it ousted Bob Mansfield.

There was even talk at one stage that McGauchie was groomed for a seat in
parliament on the coalition's side, but the right electorate could not be
found.

Most industry observers have been surprised that, until now, the new
government and Telstra have been relatively friendly.

It's a turnaround from this time last year when Telstra effectively
campaigned electorally against the former government after three years of
savage brawling.

The McGauchie position this week was a surprise - but again shows the telco
has not lost its sharp edge and maintaining diplomatic relations with the
government is not at the top of its priorities list.

Telstra's rivals have actively pushed for structural separation given most
now believe the prices they are charged to access the incumbent's network
infrastructure is inflated.

A report commissioned by Optus by British academic Chris Doyle found that
for fair access to infrastructure, structural separation was an equitable
solution.

"Current arrangements for dealing with discrimination in the Australian
regulatory environment are weak,'' Doyle said.

"At the very least regulatory policy with regard to the national broadband
network should adopt a more robust functional separation model as the case
of New Zealand. If policy makers wish to avoid the additional regulatory
intrusion and complexity of functional separation, then structural
separation would be the obvious alternative remedy to apply.''

The rollout of the broadband network to deliver high speeds to 98% of the
population is the only game on the table for Conroy at the moment.

He has been unusually quiet of late and there are reports that Kevin Rudd is
not happy at the pace at which the broadband projects is occurring.

The Prime Minister is obviously keen to avoid the sluggish rate of both
internet speeds and technology development that mired the previous
government.

Conroy missed parliament last week to attend an OECD forum in Korea.

Are there strong similarities between Korea and Australia's telco
environment? Hardly. It was an odd move for a cabinet minister to be abroad
and miss a week of the last parliamentary fortnight before the seven-week
winter recess.

The bidders to build the network have been pared back to just two, Telstra
and Terria, the former G8 consortium, after Macquarie slipped out of
contention.

There has no been no date set by Conroy by which he will announce a bid
winner.

From a policy point of view, an even more important aspect for the
government is how the new network will developed. There are currently two
options - a "roll out'' or a "roll in''.

The first encompasses the network being rolled out from the cities, which is
seen as an easier option as it builds on current infrastructure, and Telstra
argues this approach is cheaper.

In comparison, though, the Government stands to make significant ground with
a roll-in, as regional areas that currently don't have highspeed broadband
will be the first to receive it.

There could even be an emphasis on the indigenous communities, think
broadband in Wadeye. There are social policy gains that Labor can make.

Either way, the emphasis is now on Conroy to avoid the political spats with
Telstra that have held broadband back.

Instead, Labor has to ensure the election promise to deliver highspeed
access quickly and efficiently is maintained.