FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
Date: For the period ending 15 December 2005
TELSTRA CORPORATION LIMITED
ACN 051 775 556
242 Exhibition Street
Melbourne Victoria 3000
Australia
Indicate by check mark whether the registrant files or will file annual reports under
cover of Form 20-F or Form 40-F.
Indicate by check mark whether the registrant by furnishing the information contained in this
Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b)
under the Securities Exchange Act of 1934
If Yes is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
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22 November 2005
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Office of the Company Secretary |
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The Manager
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Level 41 |
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242 Exhibition Street |
Company Announcements Office
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MELBOURNE VIC 3000 |
Australian Stock Exchange
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AUSTRALIA |
4thFloor, 20 Bridge Street |
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SYDNEY NSW 2000
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Telephone 03 9634 6400 |
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Facsimile 03 9632 3215 |
ELECTRONIC LODGEMENT
Dear Sir or Madam
Deferral of Regulatory Workshop
Telstra has previously indicated that it would host a regulatory workshop for
institutional investors and analysts this week.
The workshop will not be held this week, but will be scheduled in the near future.
Telstra will issue invitations sufficiently in advance of the workshop to allow guests to
make arrangements to attend.
Yours sincerely
Douglas Gration
Company Secretary
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Telstra Corporation Limited |
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ACN 051 775 556 |
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ABN 33 051 775 556 |
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29 November 2005
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Office of the Company Secretary |
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The Manager
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Level 41 |
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242 Exhibition Street |
Company Announcements Office
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MELBOURNE VIC 3000 |
Australian Stock Exchange
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AUSTRALIA |
4thFloor, 20 Bridge Street |
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SYDNEY NSW 2000
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Telephone 03 9634 6400 |
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Facsimile 03 9632 3215 |
ELECTRONIC LODGEMENT
Dear Sir or Madam
NFF Policy Council Dinner
For your information, please see attached a speech to be delivered tonight in Launceston
to the NFF Policy Council Dinner by Doug Campbell, Group Managing Director, Telstra
Country Wide.
Yours sincerely
Douglas Gration
Company Secretary
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Telstra Corporation Limited |
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ACN 051 775 556 |
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ABN 33 051 775 556 |
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Address by
Doug Campbell
Group Managing Director
Telstra Country Wide
NFF Launceston Dinner
November 29, 2005
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I welcome this opportunity to speak given so much has happened in recent weeks. |
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Telstra senior management is working even harder than normal to
engage with our customers, staff, shareholders and stakeholders to explain the
importance of the outcomes of the companys recent strategic review for all of us. |
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The CEO has said on many occasions that his focus is on
what telecommunications Australia needs to compete in the 21stcentury, and
the critical part Telstra can play. |
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The strategic review is a plan to make a great company even greater |
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This would be achieved by |
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A company-wide one-factory model which will see us work together to
deliver better services to customers |
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New integrated services targeted to business and consumer segments
that have different needs and value services differently |
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Simplifying processes and systems |
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Cutting the number of business and operational
support systems. |
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Reducing duplication and complexity of networks |
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This should result in Telstras costs structure being leaner and more
efficient. |
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The CEO also made a number of technology announcements aimed at creating the networks
and services we will need in the 21st century supported by extensive staff
training to aid the transformation. |
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A next generation IP network, an investment of more than $10 billion
over five years of which $2-3 billion is incremental over existing plans, with the
IP core in place by the end of 2007. |
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The new IP network will have 77 times the capacity of the current network. |
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By the end of 2009, it will bring customers the latest
voice, video, data services on a common IP (internet protocol) network. |
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It means more and better services for customers. |
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Telstra will upgrade its access network by providing IP-based
equipment to four million service addresses, giving these customers access to
speeds of 12Mbps or greater. |
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A $200 million field staff training program to provide Telstra people
with the skills in building, running and maintaining next generation networks. |
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The review outlines significant decisions regarding investment in our networks in
order to deliver the standard of telecommunications Australia needs. |
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However, many of our plans are hampered by a lack of regulatory certainty. |
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I know people are tired of Telstra talking about regulation but it is not an
academic pursuit, it has real consequences for service delivery and the price of those
services to customers. |
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You have probably already heard about the negative impact on rural and regional services
of an impending decision by the ACCC on the pricing of wholesale access to the Unbundled
Local Loop (ULL). |
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ULL is the lease of copper wires from the Telstra exchange to customer premises. |
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Under the ULL scenario Telstras competitors install their own equipment in Telstras
exchanges in order to take over the last mile relationship to customers homes and
business premises. As a result, other carriers can provide customers with basic telephone
services and broadband products from their own equipment, piggybacked on Telstras network
or bypassing Telstras network on their own inter city network. |
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Rather than set prices on an average cost basis across Australia that has
traditionally been the approach in telecommunications and in many other industries the
ACCCs proposal is to set the prices based on local costs. |
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This would be done by dividing Australia into four bands with costs in each band set at
dramatically different levels. |
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Therefore depending on the exchange to which you are connected your carrier could
have access to wholesale pricing |
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for that copper line at $13 a month in metropolitan/urban areas and up to $144
in rural/remote areas under ACCC proposals.
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Recent media suggests that the ACCC is close to a decision with little regard to
the impact on Telstras ability to service rural and regional Australia as a result of the
loss of business in the cities after competitors cherry-pick key markets. |
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In an interview on Business Sunday two days ago, the ACCCs Graeme Samuel said the
Governments $800M |
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Broadband Connect program will encourage budding rural infrastructure builders, so that
country customers need not fear price increases as a consequence of the ULL determination. |
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He conveniently fails to point out that ULL covers both voice and
data services. |
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If the government continues with plans to fix voice line rentals,
while acknowledging through the ULL pricing structure that some customers are just
much more expensive to service it creates a major gap between the revenue
possible from band four services, and their costs. |
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Will there be a Government subsidy to compensate for
this? |
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But returning to broadband, Mr Samuel says that, as a result of the construction of
alternate internet services by competitors because of the Broadband Connect program,
country people dont need to rely on Telstra. |
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I wonder if he discussed that line with the Minister? I think he used the term
Telstra is not the only game in town. |
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Yes we are facing aggressive resale competition, but if he wanted to
check who is actually building the ADSL infrastructure in rural Australia, he
would find that Telstra is the only game in most towns. |
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It is important to note that other companies have already had access to government
funds via HiBIS to build broadband infrastructure, and none of the large players did. |
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Some companies such as SPT and AUSTAR have announced plans to build broadband
infrastructure in regional Australia, but not of the scale necessary to serve small rural
communities. |
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In the past 12 months Telstra has provided ADSL access to over half a million rural
lines. Of the exchanges yet to be upgraded, 80 per cent have less than 300 customers. |
3G
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With the announcement this month of our City-to-Country 3G vision Telstra will also
be providing wireless broadband services across our CDMA and GSM networks. |
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It is a centrepiece of our strategy to create a national next generation mobile
network, providing: |
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faster speeds, wider coverage, better and more mobile services |
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All our mobile customers city or country will have access to the
same retail suite of services, whether it be the traditional mobile phone call or
new video and entertainment services or wireless broadband internet. |
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The recent development of 3G services on the same radio spectrum as CDMA, and
equipment improvements by vendors, now mean 3G can provide the same coverage as CDMA. |
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Beginning early next year we plan to rollout 3G on all existing GSM and CDMA sites |
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3G will therefore cover the combined CDMA and GSM footprint |
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The existing CDMA network and Telstra and Big Pond Wireless Broadband services will
remain in place until the national 3G service is providing the same or better coverage
and services. |
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Our existing CDMA customers will get the coverage they enjoy today plus many more
services when the new retail 3G service is available. |
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The network changes will take place over a few years, so customers
can upgrade their service in the same way they do today but we will also be
offering attractive handset deals to support the take-up of new and better
services (eg video calling ) |
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Wed expect the majority to take up one of our special deals, as on
average customers upgrade their handset about every two years. |
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This significant investment in the Australian community is pro-growth,
pro-shareholders, pro-country. |
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Its a long-term vision and the timeframe will allow a smooth transition for
customers to faster, more advanced mobile services. |
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We will operate both the CDMA and new 3G services concurrently for a period of time to
facilitate the transition. |
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This is an historic opportunity to put all our customers on a single superior network
to share in the development of the same technology in the future. |
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Telstra is adding significant community value to the $115M invested in basic mobile
infrastructure in rural Australia under the Besley, Networking the Nation and Estens
programs. |
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80 per cent of that investment was in site acquisition and tower
construction, and that will be retained and built upon to provide the types of
data services not dreamt of when the first of these projects was undertaken. |
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By moving to a single technology we can ensure the best and most focussed investment
in the further development of that network. |
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Currently, with every advance in a given technology, Telstra is
forced to make investment decisions between networks; |
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This is the best chance to ensure high speed wireless broadband services to our regional
and rural customers in the medium term. |
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This will be done through the concurrent installation of a super fast wireless
broadband services called High Speed
Downlink Packet Access (HSDPA) across the entire network. |
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The service is currently being deployed by the largest US mobile operator. |
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With use of a PC card with a lap top, or fixed modem with a desk-top computer, it
will provide access to speeds averaging between 550kbps and 1Mbps. |
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Our commitment to retain and grow our business in rural and regional Australia
through this type of investment is the best manifestation of our commitment to a rural
presence. |
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Those who think that best way to gain an assurance of Telstras continued presence in
rural and regional Australia is through a licence condition are mistaken. |
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The best way to ensure our local presence is by the maintenance of a strong and
vibrant Telstra that is able to properly finance its activities in regional and rural
Australia. |
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One which has the opportunity to grow markets and make profits which can then be used
to enhance rural services on a commercial basis. |
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It is not by forcing on us a de-averaged broadband pricing construct that will rip
profits out of our city operations and hand them to competitors. |
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Competitors who have absolutely no investment commitment to country
Australia beyond the larger centres, or reselling of Telstra services. |
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No real commitment to rural presence. |
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In terms of Telstras Regional and Rural Presence Plan, the time for submissions
closed a few weeks back. |
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We are currently reviewing the submissions we received in order to
prepare a report to go to the Minister next month. |
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We also received lots of verbal encouragement that
people are happy with the services provided by Telstra Country Wide. |
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We know there are some expectations that cannot be met through the
plan, consistent with our need to retain some commercial flexibility, as
recognised by the Estens Committee report. |
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We appreciate the NFF taking the time to submit a response |
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We have carefully considered your response |
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As a result of NFF and other feedback, we have been working with the
Australian Communications and Media Authority to develop a more simple and
transparent compliance framework |
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We agree with the NFF that issues concerning the adequacy of regional and rural
telecommunications are matters for the Australian Government to address through the
regular review process, and the funding set aside as part of this. |
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We are unable to provide the level of detail in the Plan that a number of people have
requested in relation to future products and investments |
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Though this information is available through announcements we make
and commitments we give to our customers, the market and our shareholders. |
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We are not able to make commitments in the Rural Presence Plan that rest upon
long-range projections and financial commitments. |
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To do so would mean that any necessary commercial variation to one of
those commitments resulting from, say, new technological developments, could be
construed as a violation of Telstras licence to operate as a telecommunications
company. |
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I am sure you would not want anyone limiting your ability to adjust the way you run your
farming businesses at some point during a three-year period. |
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The NFF has raised many important policy issues service equity issues, CSG
timeframes etc that will continue to be part of our ongoing work with the NFF, outside
the Rural Presence Plan. |
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Telstra Country Wide is committed to working with you to deliver exciting services,
continuing the work we have done over the past five years; |
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Building a local presence; |
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Understanding local conditions; |
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Finding local solutions. |
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I personally have appreciated the good working relationship we have had with the NFF,
and look forward to continuing the achievements we have made together. |
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30 November 2005 |
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Office of the Company Secretary |
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The Manager
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Level 41 |
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242 Exhibition Street |
Company Announcements Office |
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MELBOURNE VIC 3000 |
Australian Stock Exchange |
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AUSTRALIA |
4th Floor, 20 Bridge Street |
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SYDNEY NSW 2000
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Telephone
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03 9634 6400 |
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Facsimile
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03 9632 3215 |
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ELECTRONIC LODGEMENT
Dear Sir or Madam
Telstra information to be sent to shareholders
Attached for release to the market is a copy of a letter from CEO Sol Trujillo and a
shareholder brochure to be sent to all shareholders shortly.
Yours sincerely
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556
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Telstra Corporation Limited
ABN 33 051 775 556
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Office of the CEO |
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242 Exhibition Street |
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MELBOURNE VIC 3000 |
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AUSTRALIA |
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Telstras strategy for growth
28 November 2005
Dear Shareholder
I am writing to you today to report on the results of our in-depth review of our business,
and communicate the outcomes of that review and our strategy for the future, which has the
potential to provide all Australians with greatly improved telecommunications networks and
services and the opportunity to create shareholder value.
Telstra is a great iconic brand and a very important Australian company. There is no company
anywhere in this country that touches more people. This company also has more shareholders than
any other company in Australia.
We want Telstra to be healthy, vibrant and growing for our shareholders.
Before
painting a picture of the future I would like to re-state a few facts about the reality
that is facing our company today.
When I arrived here in July the first thing I did was set about reviewing this business. This
four-month journey has been about analysis and understanding based on facts and data. We have
been looking at our networks, our systems and our processes.
At the same time, we have taken a look in the rear vision mirror. Our costs have been growing
fairly dramatically, while our traditional fixed-line revenues have been decreasing as a result of
regulatory action, competition and migration to wireless and broadband networks.
Our strategic
review took account of all these facts and the answer was simple. To survive and prosper Telstra
must invest and innovate. That is what we plan to do, so let me outline how we intend to achieve
it.
The coming three to five years will be spent rebuilding the network, redirecting resources into
next generation services, reshaping the business, reconnecting with customers and restoring
investor confidence in the leadership, management, and financial performance of Telstra.
We will create new revenue sources to grow the business as we harness new technologies to develop
new applications to meet changing and differing customer needs.
We will be leaner and more efficient. We will stop doing things that add no value to the
customer experience. At the same time, we will do new things, expanding and growing in other
areas as we enter new markets and redefine old ones to create new opportunities.
We will
reshape the company into a cohesive and integrated enterprise one that is centred
around the customer and where infrastructure development and operations are driven from a single
factory.
You will also see increasing integration in the services we provide to customers as we move in
the direction of a one-touch, one-click, one-screen approach to removing complexity and
simplifying our products and the way we do business.
This overall strategy has the potential to provide our shareholders with improved returns on
their investment.
Clearly the biggest obstacle we face is the regulatory environment, that is why we are working hard
to achieve three key regulatory reforms:
Access to next generation networks if access to our future networks is regulated under Part 11C
of the Trade Practices Act, allowing foreign-owned competitors access to our new networks what
are the benefits to us in investing?
Operational separation we believe the list of designated services that we should separate
should be limited to the core services which are provided over the copper network and not
interfere with our ability to provide consumers and businesses with truly integrated services,
and;
Unbundled Local Loop prices for access to Telstras unbundled local loop should not be below
our cost. Telstras shareholders have the right to recover the companys costs, rather than
stand by and watch competitors cherry pick lucrative customers. Our rural and regional customers
should also be very concerned about the likely impact that de-averaged prices would have on the
costs of providing telecommunication services.
These are crucial issues facing the future of this company you invest in as they have significant
value-destroying potential. That is why we are advocating strongly on your behalf.
We believe a competitive market place is a good thing but you as a shareholder should not be
asked or required to subsidise other companies that we compete with. Many of these companies are
large multinational companies, some much larger than Telstra.
Telstra acknowledges that some regulation is necessary and should remain. Regulations should
not, however, impede our ability to provide competitive returns to our investors.
The time for debate is now and I would encourage all shareholders to get engaged, ask
questions about the future of your investment, seek answers
and influence the future, not just of Telstra, but of the telecommunications industry as a
whole.
Transformations are never easy. However, I am confident that we are set on the right path. If we
are given the freedom to compete, I am confident we will create a new Telstra, a world-class
company where we will delight our customers, reward our shareholders, find employees satisfied
and eager to go to work each day, and serve the national interest by providing advanced
communications services to the people, enterprises and communities that make this a great
nation.
As always, I welcome your feedback on the future plans for your company.
Please
contact us with any questions or comments at Investor.Relations@team.telstra.com
SOL TRUJILLO
Chief Executive Officer
Telstras strategy for growth*
We have a chance to make a strong company great.We will do that by being innovative,by
offering integrated services to consumers,by employing market based management and by being highly
competitive. We are confident we have the people,resources and partnerships in place to succeed.We
expect to create new revenue growth and improve shareholder value.The story is truly one of
transformation.
Overarching themes of Sols Strategic Review
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Increasing revenue by providing new
integrated services targeted to business and
consumer segments that have different needs
and value services differently, with a
seamless one click, one touch, one button or
one screen approach. |
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Cutting costs through simplifying processes
and systems and reducing duplication and
complexity of existing networks by operating
under a one factory approach which will lead
to new efficiencies. |
New strategy at a glance
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Introduce next generation IP network and IT
systems, an investment of more than $10
billion over five years, with the IP core in
place by the end of 2007. |
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Reduce the number of Telstras 52,000 full time equivalent positions (including contractors) by
between 6,000 and 8,000 over three years. |
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Replace the CDMA mobile network
with a national 3G GSM network which
will offer the same or better coverage than is
currently available. |
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Cut the number of different
network platforms by 60% and the
number of business support and
operational support systems by 75%
within three years. |
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Strategic suppliers
arrangements with global leaders such as
Ericsson, Alcatel, Cisco, Accenture and Siebel
to build the next generation network and develop
a world-class customer database. |
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Introduce a $200 million staff training
program to provide Telstra people with the
skills in building, running and
maintaining next generation networks. |
OUR VISION
To give the customer a powerful, seamless user experience across all devices and all platforms in a i Click, 1 Touch, 1 Button,
1 Screen way whether that customer is an individual, small business, large business or government agency. |
New commitments to shareholders and
customers:
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25% of Telstra new revenue growth will come
from new products by the end of 2008. |
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We expect Sensis to double its revenue
base to $3 billion within five years. |
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80% of Telstras internet customers will
have broadband in three years. |
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25% of customers will be on 3G in three years. |
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Subject to the Boards twice yearly
declaration and review of the business and
regulatory environment, it is our intention to
pay a dividend of 28 cents per share per annum
for each of the next three years. |
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Telstra management will continue to advocate
for a regulatory regime that is fair and
encourages investment. |
*Refer to back page for regulatory caveat and disclaimer
Transformation centred around the customer*
Each part of the company,whether
it is the back of house building
next generation networks, or those
working directly with customers, has
a crucial role to play in
transforming the business.
Strategic Marketing
The first key pillar in
transforming this company
The goal of Strategic Marketing is to
transform Telstra into one of the
best customer-driven marketing
organisations in the global
telecommunications industry. Heres
how well do it:
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Implementing a simple
straight-forward process that
puts the customer at the centre
of everything we do. |
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Reorganising marketing and
channel functions around market
managers who will have full
accountability for our market
performance and profitability
around customer segments. |
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Establishing a clear focus to
win the market through intimate
knowledge of our customers. |
This strategy requires the right
systems and tools and we are
developing these tools today.
Companies that have successfully
executed this type of customer
knowledge system upgrade have seen
dramatic improvements in efficiency,
cost, revenue and churn reduction. We
anticipate similar financial
improvements as we complete our work
over the next 18 months to two years.
One Factory Chief Operations Office
The second key pillar in
transforming this company
So, how will we implement our strategy?
How are we going to make these
fundamental changes? Well, it will
begin in the Factory with our
networks and IT systems.
The Factory is the engine room that
executes on our strategy. It will
provide the platform through which we
will deliver innovative, integrated
services available only from Telstra.
Guiding it are these four simple
principles:
PRINCIPLE 1: Do it once
PRINCIPLE 2: Do it rightfor the customer
PRINCIPLE 3: Do it in an integrated way
PRINCIPLE 4: Do it at low unit cost
Along with a world-class next
generation network, we will also be
delivering a single, nationwide 3G GSM
mobile network, with extended range
equal to or better than CDMA.
We will
deliver dramatic cost reductions, plus
new capabilities to enable sustainable
growth, and our customers will have a
truly differentiated experience, only
available from Telstra.
Broadband
Broadband is the key to the
future of Telstra,whether it be on a
fixed platform, whether it be on
wireless
Can you imagine an Australia with very
high speed wireless broadband
connectivity covering 98% of the
population? We can and in that future
world well use computers, handheld
devices and phones in ways we cant
conceive today.
In the world we are heading to,
networks, handheld devices and
services will converge and no-one
will be in a better position to make
sense of this for our customers than
Telstra BigPond.
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From early next year BigPond will
offer free blogging publicly
accessible web pages that serve as
a personal journal. |
THE TRANSFORMATIONAL DECISIONS
1. Market based management
2. One factory model
3. Integrated company
4. Integrated services
5. Broadband focused
6. Next generation networks & IT
7. New customer experience
8. New economic model
9. Value based vs.price based
10.Fewer partners
11.Comms,info,transactions, entertainment
12.Australia 1st,2nd,and 3rd priority
13.Serving interests of all
14.Differentiation is the key
15.Return will drive resource allocation
16.Expand in core competency areas
17.Simplicity of use (one touch, click,button,page,screen)
18.Low cost model
*Refer to back page for regulatory caveat and disclaimer
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We will offer value added
content packages for different
market segments for example SME
Package; Gamers package; Family
package that will create
incremental revenue and increase
customer loyalty. |
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We have launched the BigPond
Movie Download Service in
partnership with Sony
Pictures. |
Consumer & Small Business
We are going to be focused
on a new customer experience at
literally every touch point
What this is about is three things;
speed, simplicity and mobility. For
consumers and small business customers
Telstra is changing everything that we
do, with the goal of becoming a truly
customer oriented organisation.
So how will Telstra put the customer first?
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We will be truly focusing on the
whole of customer, and, through
segmentation and market-based
management, catering to the
differing needs of customers. |
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Our offers will be more
targeted and we will execute
them through the right
channels. |
Business and Government
We can add value going
forward.It doesnt mean we are not
going to be price competitive,it just
means that we are going to take the
game to another level
The business segment is a dynamic,
competitive and exciting market
presenting many new opportunities.
We have three strategic priorities to
transform into an integrated carriage,
services and solutions business, over
the next three to five years:
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To lead the customer IP
migration and transformation. |
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To build an exclusive,
Telstra-only suite of products
and solutions. |
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To differentiate on customer
service and value creation to
target segments. |
Telstra will also provide an exclusive
suite of service and solution
offerings to drive growth.
Sensis
Sensis is one of the best
performing directory businesses
in the world
We are going to take Sensis to the
next level with a simple strategy. We
will make complex life simpler by
helping buyers and sellers do business
right across the value chain. To do
this Sensis will excel in six areas:
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Protect, grow and leverage
our core directory
business. |
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Extend into high-value
customer categories. |
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Add online transaction capabilities. |
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Leverage our world class
directory management capabilities
and newer search innovations into
geographic growth. |
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Maintain focus on cost management. |
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Pursue people, process and
technology excellence in
everything we do. |
In doing this we will maintain near
double digit organic revenue and EBIT
growth while preserving margins.
Wholesale
Our wholesale customers need
all the things that we can deliver
very well and maybe,being
candid,better than anybody else.
In wholesale, our recent strong top line
growth and the wholesale market dynamics
are threatened by regulatory pricing
decisions. We are at a fork in the road
and regulatory decisions will determine
our path.
So, weve resolved to set a course
for the wholesale business which
plays to our existing strengths.
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First, we need to ensure
that PSTN recoveries
reflect true costs. |
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We need to ensure that
Operational Separation improves
our customers confidence in
the wholesale business without
impairing our ability to
compete with other wholesalers. |
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We will continue to focus on
leveraging the scale of our
network
by driving volumes through our
channel. |
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Most importantly, we want to
deliver great service to our
customers, and improve upon the
standards we have previously set
ourselves. |
Our objectives are straightforward.
We will continue to compete hard for
traditional voice and data revenues,
relying on the superiority of our
infrastructure. We will especially
focus on improving the customer
service experience.
NEW NETWORK WILL HAVE REAL BENEFITS
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FOR TELSTRA |
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FOR CUSTOMERS |
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Simpler environment
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Simpler experience |
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Higher reliability,faster speeds
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Fewer outages,faster services |
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Common standards and platforms
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Same experience across multiple devices
and networks |
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Faster development and deployment
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Early access to innovative services |
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Lower unit costs
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Competitive pricing |
*Refer to back page for regulatory caveat and disclaimer
Resetting our financial targets for the future*
This is about creating long-term
shareholder value. At the end of the
day, all this work and all this
investment is aimed at growing the
business, growth that will come from
satisfying our customers like never
before. Satisfied customers will
drive growth in the business, in turn
growing shareholder value.
Obviously, there are things not in our control,
and one of these is the regulatory
environment. Our financial results
are largely dependant on regulatory
outcomes that will permit us to
undertake what has been planned
including regulations that will
permit us to earn a competitive
return on shareholder investments.
This is because we can only achieve
the improvements in financial
performance and shareholder value if
we have a regulatory environment that
allows it.
So what does all this
mean in terms of financial
outcomes?
Revenues
By implementing this strategy, we
believe over a three year period,
revenues can grow between 2% and
2.5%. This assumes a reasonable
regulatory environment to operate
within.
Earnings
For the 2005/06 year EBIT is expected
to decline between 19 to 24% as a
result of the implementation of the
strategy which will require
accelerating depreciation relating to
assets that will be decommissioned.
This estimate would increase to
between 25 and 30% if Telstra raised
a provision for redundancy. While
earnings will be affected in the
short term, in the long term this
strategy will set the
foundations for growth, not otherwise
achievable if we were to continue
down the previous path.
Expenses
Expenses will be higher in the next
two years due to the acceleration and
growth in depreciation and
amortisation, as we invest
significantly in the one factory
model over the next few years. Then
we expect to reap the rewards and
expenses will begin to fall.
Capital Expenditure
The new strategy will require a total
CAPEX expenditure up to $25 to $26
billion over five years. Obviously,
we will only invest if it is economic
to do so and in the best interests of
you, our shareholders.
Cashflow
With the lower earnings growth and
increased CAPEX requirements, free
cashflow will be impacted over the
next three years when most of the
CAPEX is required. Free cashflow
begins to grow again from 2007/08.
FREE CASHFLOW
(Operating cashflow less
investing cashflow less interest
paid)
Labour force
It is anticipated that across the
three year period our full-time
equivalent positions (including
contractors) of 52,000 will reduce
between 6,000 to 8,000. Over five
years, we anticipate a reduction of
between 10,000 to 12,000.
What this means for
dividend payments
Ordinary dividend
Subject to the Boards twice yearly
declaration and review of the
business and regulatory
environment, it is our intention to
pay a dividend of 28 cents per
share per annum for each of the
next three years at which time the
policy will be reviewed.
Capital Management
Telstra will pay a 6 cent special
dividend with the interim dividend
in March 2006 to complete the $1.5
billion capital return for the
2005/06 year.
The Board has decided not to
proceed with the $1.5 billion
capital return in 2006/07. It is
considered more appropriate to
invest this money to implement the
new strategy which is about
delivering long-term shareholder
value.
Talk to us
If you have any questions or
comments about the strategic review
and how it affects your investment
in Telstra please email us at:
Investor.Relations@team.telstra.com.
The detailed presentation packs
and transcripts of the strategic
review announcements can be
downloaded from the Telstra
Investor Relations website at:
http://www.telstra.com.au/abouttelstra/ investor/asx_announcements.cfm
Our strategic review announcements are accompanied by an * asterisk. This asterisk indicates
that the announcements depend on regulatory outcomes that will permit us to undertake what has been
planned including regulations that will permit us to earn a competitive return on shareholder
investments. Many of the benefits we hope to deliver to our customers and shareholders can be
delayed or prevented by regulations. Telstra acknowledges that some regulation is necessary and
should remain. Regulations should not, however, impede competition, slow innovation or inhibit
investment.
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This brochure includes certain forward-looking statements that are subject to
various risks and uncertainties. Actual results, performance or achievements could be
significantly different from those expressed in, or implied by, these forward-looking
statements. Such forward-looking statements are not guarantees of future performance
and involve known and unknown risks, uncertainties and other factors, many of which are
beyond the control of Telstra, which may cause actual results to differ materially from
those expressed in the statements contained in this brochure. A number of factors that
are likely to affect the results of Telstra are described in Telstras Annual Report
and Form 20-F. All forward-looking figures in this brochure are unaudited and based on
AGAAP. Certain figures may be subject to rounding differences.
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1 December 2005
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Office of the Company Secretary |
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The Manager
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Level 41 |
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242 Exhibition Street |
Company Announcements Office
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MELBOURNE VIC 3000 |
Australian Stock Exchange
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AUSTRALIA |
4th Floor, 20 Bridge Street |
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SYDNEY NSW 2000
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Telephone 03 9634 6400 |
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Facsimile 03 9632 3215 |
ELECTRONIC LODGEMENT
Dear Sir or Madam
Telstra Regulatory Briefing
In accordance with the listing rules, I attach a copy of a media announcement Telstra
seeks investment certainty for IP network, and presentation to be made today, for release
to the market.
Yours sincerely
Douglas Gration
Company Secretary
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Telstra Corporation Limited |
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ACN 051 775 556 |
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ABN 33 051 775 556 |
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Media Release
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1 December 2005
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337 / 2005 |
Telstra seeks investment certainty for IP network
Telstra will begin building its new IP broadband network as soon as next year if its
shareholders investment is protected from regulations that would otherwise allow competitors to
piggyback on the multi- billion dollar project.
The new network will offer Telstras customers super-fast broadband at speeds of over 12 Mbps.
Telstra Group Managing Director, Public Policy and Communications, Phil Burgess said today; If
Telstras 1.6 million Australian shareholders are being asked to build the new network, then they
shouldnt be forced to hand it over to our competitors.
You cant ask Telstra shareholders to invest in a new broadband network, and then allow
competitors to pay none of the cost but still enjoy the same benefits, Burgess said.
At an investor briefing in Sydney, Mr Burgess said Telstra would be seeking legislative reforms
before proceeding with the network upgrade. He said existing laws designed to give companies
certainty before going ahead with major new investments were
inadequate because the processes were slow and cumbersome, with decisions subject to challenges
that would delay Telstras plans by at least two years.
The key immediate regulatory reforms Telstra believes are essential to promote competition,
investment and equal services to all Australians are:
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An average ULL price of $30 |
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Limiting operational separation requirements to existing wholesale core services and |
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Exempting new services from mandated 3rd party access. |
Telstra Chief Financial Officer, Mr John Stanhope, said Telstra was not seeking to escape
regulation altogether; Telecommunications should be regulated in the same way as other industries,
rather than singled out for additional regulation that discouraged new investment.
Regulation should be fair, consistent and equitable. Special telecommunications regulations
applying only to Telstra, introduced to give competitors a leg up and a head-start in the 1990s
should be restricted to the legacy technology they have used successfully to establish and grow
their Australian businesses, he said.
New arrangements are necessary so Telstra, or any company prepared to invest, can now go ahead
with the next generation of advanced telecommunications services that will provide major benefits
to all Australians.
Telstras national media inquiry line is 1300 769 780 and the Telstra Corporate Communications
Centre is located at: www.telstra.com.au/abouttelstra/media
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Telstra Corporation Limited |
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ABN 33 051 775 556 |
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Media Release
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If this does not happen, Australia risks seeing a devastating drain of capital overseas and away
from telecommunications. We also risk seeing a massive transfer in wealth from Telstras Australian
shareholders to the largely foreign shareholders of our major competitors.
Australians will not get the next-generation of technologies and services they need to ensure our
economic competitiveness in the global market.
Its now more than a decade since Australias telecommunications market was opened to
competition. Telstras competitors are now big and profitable in many cases backed by
multinational corporations many times bigger than Telstra, Mr Stanhope said.
Telstra Media Contact: Rod Bruem, Tel: (02) 9206 0092 / 0438 288010
Telstras national media inquiry line is 1300 769 780 and the Telstra Corporate Communications
Centre is located at: www.telstra.com.au/abouttelstra/media
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Telstra Corporation Limited |
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ABN 33 051 775 556 |
Regulating Next Generation Networks |
of contestable services like ADSL (and threatened it on other
services)
party access at regulated prices that dont allow a commercial return
Existing Declared Services
Domestic PSTN Originating access
Domestic PSTN Terminating access
Digital Data Access Service
Conditioned Local Loop Service
Integrated Service Digital Network Terminating Service
Integrated Service Digital Network Originating Service ?Local
Carriage Service ?Local PSTN Originating Service ?Local PSTN
Terminating Service ?Unconditioned Local Loop Service
Analogue Subscription Television Broadcast Carriage Service
Line Sharing Service ?Mobile Terminating Access Service ?GSM
Service Declaration Technology Neutral ?Domestic Transmission
Capacity Service |
9
parties will continue to have access to declared services |
This includes ULL, which can be used to build alternative broadband
networks |
potential investors in higher speed fixed access networks require
certainty that the regulator will not confiscate the returns on any investment
by mandated 3 rd party access |
Moratorium on declarations under Part XIC |
Reform of Part XIB such that only applies to declared
services Clear exclusion of new services from operational
separation |
substantial complexity to Telstra operating systems, increasing costs and reducing
flexibility of even greater imposts given lack of clarity around scope of regime and the pricing
elements |
Information mechanism Pricing equivalence security plan
regime |
Internal Operational separation Technology roadmap contracts
plan |
Director of Equivalence Audit Equivalence metrics mechanism |
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proposes ground-breaking investments that shift Australia into the
digital future |
fixed access network upgrade can only proceed with LL pricing at a fair price infrastructure
subject to general regulation, not industry-specific rules designed to guarantee access to the
legacy network separation is constrained to legacy services |
shareholders cant fund the fixed access network upgrade without these
things |
Mandatory Unbundling in the US: Lessons Learned the Hard Way |
Jeffrey A. Eisenach, Ph.D. Chairman,
CapAnalysis LLC |
11
Deregulation began with the Telecom Act of 1996 |
· Mandated ULL for telecom services |
· Narrowband and DSL were covered; cable modem services were exempt |
· Federal Communications Commission issued overall regulations
in August 1996 |
· State PUCs issued pricing rules in 1997-1998 |
· Ligitation continued through 2004 |
Implementation Was Aggressive |
Mandated resale covered loops, switches and transport
(creating the UNE-Platform) |
· Prices were initially set at 50% of operating costs then reduced
further by 25-50% between 1999 and 2003 |
· FCC Chairman Reed Hundt: FCC gave CLECs... |
...a fairer chance to compete than they might find in any explicit
provision of the law. |
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ULL Rates Were Set Below Cost |
100% ULL Rate as % of Operating Cost 90% ULL Rate as % of Revenue 80% 70% 66% 59% 60% 52%
54% 49% 50% 42% 42% 39% 40% 30% 20% 10% 0% BellSouth Qwest SBC Verizon |
...And then lowered further |
US$18.95 Basic Une-P $19 Loop Rate $18 US$17.48 $17 |
US$14.18 $14 US$13.43 $13 US$12.70 $12 Jan-02 July-02 Jan-03 |
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Entry by 300 CLECs, which raised ~US$450B in capital, largely in
high-yield debt |
· Business plans focused on cream skimming in business markets
and cities where rates were above cost |
· Most of the capital was invested in aggressive marketing, not
telecom infrastructure |
· Virtually all CLECs went bankrupt |
· The Exception: Cable exempt from regulation invested US$75
billion in an HFC broadband infrastructure |
CLEC Hi-Yield Debt Issuance |
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Increasing Reliance on ULL |
Dec Jun Dec Jun Dec Jun Dec Jun Dec 1999 2000 2000
2001 2001 2002 2002 2003 2003 |
2001: Investment Bubble Ends |
Real Investment in Communications |
$130,000 $120,000 $110,000 $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 |
$40,000
1996-I 1997-I 1998-I 1999-I 2000-I 2001-I 2002-I |
1996-II 1996-IV 1997-II 1997-IV 1998-II 1998-IV 1999-II
1999-IV 2000-II 2000-IV 2001-II 2001-IV 2002-II 2002-IV
1996-III 1997-III 1998-III 1999-III 2000-III 2001-III 2002-III |
Source: U.S. Department of Commerce Bureau of Economic Analysis |
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Equipment Stocks Collapsed |
Market Valuation of US Telecom Equipment
1600 Manufacturers 2000-2002 |
1400
1200
Billions 1000
800 $US 600 400 |
M arch 2000 December 2000 M arch 2001 February
2002 January 2003 optical 181 95 40 16 10 broadband 965
448 200 196 143 wireless 290 143 86 187 133 |
CLEC Bankruptcies by Month, 2000-2002 |
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Cable Dominated Broadband |
ADSL 20,000,000
Cable Modem |
15,000,000 10,000,000 5,000,000 0 |
00 03 04
1 999200020 200120012 002200220 2 003200420
De c Jun De c Ju n Dec Jun D ec Jun De c Jun De c |
Verdict: ULL Experiment Failed |
Virtually every CLEC went bankrupt, costing investors hundreds of
billions of dollars; equipment sold at 5-10 cents on the dollar |
· The biggest ULL players AT&T and MCI no longer exist as
independent companies |
· Major contributor to 2001 recession: The U.S. economy lost more
than 600,000 telecom jobs in 2001 and 2002 |
· The only lasting facilities-based investment occurred in the one
sector cable that was not regulated...and did not rely on ULL |
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ULL scaled back (e.g. no longer covers switching) and PUCs are raising
prices for remaining elements (i.e., loops) |
· Cable modem exemption from resale confirmed by FCC in 2002 |
· FTTC/FTTH exempted from resale in August 2003 |
· DSL exempted from resale in September 2005 |
All broadband facilities are now exempt from mandated resale
requirements |
PUCs Are Raising ULL Prices |
Jan 2002 July 2002 Jan 2003 July 2003 Jan 2004 Aug 2004 Feb 2005 Aug 2005 |
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FCC: ULL Reduces Investment |
The record shows that the additional costs of an access mandate diminish a carriers
incentive and ability to invest in and deploy broadband infrastructure investment. |
Federal Communications Commission |
FCC: Safe Harbour for DSL Will Encourage Risk-Taking |
Eliminating [mandated access to DSL] will make it more likely that wireline operators
will take more risks in investing in and deploying new technologies than they are willing to
take under the current regime. |
Federal Communications Commission |
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FCC: Mandated Sharing Impedes Innovation |
Requirements that would guarantee ISPs access to [wireline broadband transmission]
would impede the development and deployment of innovative wireline broadband Internet access
technologies and services. |
Federal Communications Commission |
FCC: Mandated Sharing Is Not Necessary for Competition |
Facilities-based wireline carriers have incentives to make, and indeed already make,
broadband transmission capacity available to ISPs, absent regulation. |
Federal Communications Commission |
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The threat of competition from other forms of broadband Internet access, whether
satellite, fixed or mobile wireless, or a yet-to-be-realized alternative, will further stimulate
deployment of broadband infrastructure....These emerging broadband platforms exert competitive
pressure even though they currently have relatively few subscribers. |
Federal Communications Commission |
The Bubble Funded by Investment Rises 40% With $120,000 US$462 Billion
In CLEC Hi-Yield Safe Harbour Debt $110,000 |
Real Investment in Communications Equipment
(US$ Millions) $60,000 |
1996-I 1997-I 1998-I 1999-I 2000-I 2001-I 2002-I 2003-I
2004-I 2005-I 1996-III 1997-III 1998-III 1999-III 2000-III
2001-III 2002-III 2003-III 2004-III 2005-III |
Source: U.S. Department of Commerce Bureau of Economic Analysis
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 |
Sept. 2005: FCC Exempts August 1996 2001: m ULL |
DSL fro FCC Issues ULL Regs 29 CLECs Declare June 2004: Court Bankruptcy 1997-2003 Overturns UNE-P |
February 1996 US Telecom Sector Loses |
Telecom Act Passed 318,000 Jobs November 2003:
Aggressively Implement ULL |
August 2003: FCC
Verizon Announces
exempts FTTP from ULL
FTTP Rollout |
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The Simple Economics of ULL and NGN Buildout |
1. ULL Reduces Cost/Homes Passed |
Projected ARPU/Home
Passed |
ARPU ULL
Extensive Buildout
Homes Passed
HP ULL HP C |
(Buildout with ULL) (Buildout without ULL) |
Tarek Robbiati
Deputy Chief Financial Officer |
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ULL Economics of European New Entrants |
Typical Shared ULL Economics in the UK |
Components Type Description and Typical Accounting Treatment ULL Annual Fee
per line Opex 27 per line, Expensed |
One-Off Connection Charge Capex 83 per line, Depreciated over 5 years.
Depends on churn |
Site Survey Capex 2788 per Site, Depreciated over 5 years.
Exchange Setup costs (6 sq m per Preparation Capex
1380 per Site, Depreciated over 5 years. |
????? systems, Capex For 200 Line Capacity: 6,649 Depreciated over 5 years
Exchange For 400 Line Capacity: 9,974 Depreciated over 5 years
Equipment Air.Con. Systems, etc. For 600 Line Capacity: 13,299 Depreciated
over 5 years DSLAMs, etc. Capex For 200 Line Capacity: 16,000 Depreciated over
5 years |
For 400 Line Capacity: 28,000 Depreciated
over 5 years |
For 600 Line Capacity: 36,000 Depreciated over 5 years Annual Power Costs
Opex For 200 Line Capacity: 2,628 Expensed Running Air. Con. Costs For 400 Line
Capacity: 2,897 Expensed Costs For 600 Line Capacity: 3,166 Expensed Annual
Backhaul, Virtual Paths, etc.. Opex For 200 Line Capacity: 4,500 Expensed Traffic costs
For 400 Line Capacity: 7,500 Expensed (**) For 600 Line Capacity: 11,000 Expensed |
(*) Values Regulated by
Ofcom as of June
1 st , 2005, (**)
Assumes 512Kbits/s per line @
20:1 contention Ratio Sources:
BT, OFCOM, Equipment
Manufacturers, Enders Analysis |
ULL Economics of European New Entrants |
UK New Entrant ULL Economics and Implications |
Annual Cost per line Cost Component for Shared ULL (£) 200
Line 400 Line 600 Line |
Capacity Capacity Capacity a. ULL Line Rental £27.0 £27.0 £27.0 b.
Amortisation of Connection Fee @20.0% churn £16.6 £16.6 £16.6 c.
Amortisation of Capex Installed by BT £13.5 £8.8 £7.3 d. Amortisation of
AltNet/ISPs Capex (DSLAMs, etc..) @80.0% Capacity £20.0 £17.5 £15.0 e.
Cost of Operating the Exchange @80.0% Capacity £16.4 £9.1 £6.6 f.
Backhaul @80.0% Capacity and @ Contention Ratio of 20/1 £28.1 £23.4
£22.9 |
Total DIRECT COSTS £121.7 £102.4 £95.4
.. Return on Capital (10%) £13.4 £10.5 £8.9 .. Impact of 25% Churn £4.2
£4.2 £4.2 |
Total COSTS £139.2 £117.1 £108.5 |
Cost Curve Advantage relative to 200 Line Capacity -15.9% -22.1% |
Cost Economics reflect the population density. They structurally
favour Urban centres relative to Rural centres: the bigger the exchange, the
lower the cost per line. |
LL line rentals with lower urban relative to rural line rental costs
exacerbates the issue and lowers the incentive for New Entrants to invest in
rural areas |
Note: Assumes 80%
Capacity Utilisation and Churn
at 20% Excludes all other
operating costs (eg Billing,
hosting, marketing) |
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EU Regulators Position on De-averaging |
?OFCOM (UK): There are consumer affordability and significant
practicality issues associated with de-averaging charges. Therefore, on balance,
Ofcom considers currently that charges for LLU services should continue to be
geographically averaged |
?ARCEP (France) « Several studies have shown that the average cost of a line
is a function of the density of the corresponding geographical area. The cost
tends to increase when the density decreases. Several observations conducted in
the early 2000s have shown that alternative operators tend to roll-out their
infrastructure in the most densely populated areas first, and highlighted the lack
of roll-out plans beyond those areas. Therefore, it appeared necessary for the
Authority to limit the calculation of the ULL costs to an average cost » |
Impact on NGN of EU Broadband Access Regulation |
The Ladder of Investment Model (*) Comments |
?Based on the policy making belief that allowing access costs
Cable Operators to different levels of existing |
FTTP Operators
access network |
Investment (inc. shared access) infrastructure will
ISPs on |
BSA, IP-IC eventually lead to entrants |
Resellers and
Service Providers investing in their own access network. |
?Developed in late 2003, and
Network elements in the value chain
Backhaul Subscriber applied retrospectively to
Services IP Backbone |
/ DSLAMs Line justify regulatory intervention |
Access Products introduced sequentially (starting ?The real issues
are the from the lower rungs of the ladder) |
relative price points for each |
Source: (*) Martin Cave and Ingo Vogelsang. November/December 2003. How
access pricing and entry interact. service, migration and Note: BSA
= Bit-Stream Access (A variant of Wholesale ADSL), IP-IC = IP Interconnect
(Wholesale ADSL with IP switching costs Interconnection) |
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Impact on NGN of EU Broadband Access Regulation |
The European Reality Lessons Learned |
?In Denmark: The introduction of ?Migration is NOT happening: Where
Bit-Stream Access combined with new entrants invest in assets following Cost-based
pricing of the local loop the Regulators commitment to a has lead to a standstill in the
take- strategy, the Regulators feel obliged to up of LLU: players are now moving protect
the investment made by the down the ladder new entrants |
?In France, most independent ISPs ?The ladder is a recipe for regulatory disappeared following
the arbitrage and undermines new introduction of cheap ULL investments: Overly interventionist ?In
Sweden, Germany and the concept which requires the Regulator Netherlands, large scale market to
actively intervene to structure the entry was possible without use of market and thereby determine
the bitstream products. business strategy of the various players . ?Now in Germany, ULL-based
operators are objecting to the ?As a consequence, New Entrants adopt introduction of wholesale line
a « wait and see » attitude towards rental new investments. |
Impact on NGN of EU Broadband Access Regulation |
EU Commission Intent EU Regulation Reality |
???Initiative to accelerate broadband Disconnect the Exception of a few
countries penetration across the EU (Sweden, Germany), competition is service-based
(resellers). |
on promoting platform-based Access Innovation in Fixed competition to secure
innovation and line has not occurred (No new standards sustainable competition
for fixed line Broadband) |
assets are becoming replicable thanks to technology innovation, and
therefore, promoting platform-based competition involves withdrawing (or not
imposing) mandatory access. |
example: Deutsche Telecom recently presented a plan to invest EUR3bn to
develop FTTP in Germany. RegTP, the German Regulator and the German Government are
arguing with the EU for the need to stimulate innovation by encouraging and
protecting investments in NGN platforms. |
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Measuring European Regulatory Efficiency in Developing Broadband
Markets |
Prices for Consumer and Businesses competition through platform competition |
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Broadband Penetration in Major Economies |
Source: OFCOM -The Communications Market 2005. August 2005 |
Broadband Penetration in Major Economies |
Source: RegTP. Data as of January 2005 |
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ADSL Prices in Major Economies |
Source: OFCOM -The Communications Market 2005. August 2005 |
Business Prices in Major Economies |
Prices for small business Fixed lines |
Source: OFCOM -The Communications Market 2005. August 2005 |
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Broadband Platform Competition |
Source: OFCOM -The Communications Market 2005. August 2005 |
?Ofcom: Local loop unbundling: setting the fully unbundled rental charge ceiling and
minor amendment to SMP conditions FA6 and FB6 Consultation document, 7 September 2005 ?ARCEP:
Notification à la Commission européenne du projet de décision définissant la méthode de
valorisation des actifs de la boucle locale cuivre ainsi que la méthode de comptabilisation des
coûts applicable au dégroupage total, November 2005 ?Commission Communication i2010 A European
Information Society for growth and employment, COM (2005) 229 final, p. 4 f. |
?Extended impact assessment to the i2010 Communication, SEC(2005) 717/2, p. 30 ?ERG [European
Regulators Group] remedies CP, ERG (03) 30rev1, p. 69, which talks of the ..generally held view
that to promote innovation, ?Growth and efficiency all the way through the value chain,
infrastructure based competition delivers more sustainable consumer benefits in the long run.;
OECD Working Party on Telecommunications and information services policies, The development of
broadband access in OECD Countries , October 2001, p. 4 ?Martin Cave and Ingo Vogelsang.
November/December 2003. How access pricing and entry interact. Telecommunications Policy, Volume
27(10-11), pp. 717-727. |
?ERG [European Regulators Group] Broadband market competition report, 25 May 2005, ERG (05)
23, in the following broadband report ?ETNO Reassessing the ladder of investment, November
2005 |
29
John Stanhope
Chief Financial Officer
Financial Impacts of Regulation
New services & Investment & |
While Telstra seeks to invest, innovate and customer experiences
innovation improve ....
... the ACCC decisions stifle investment & |
innovation, and focus on re-distributing telco
industry value. market |
Key regulatory issues & impacts outlined Australian Quality
here include: competitiveness improvements |
? Current and pending regulatory decisions have material, negative
impacts on Telstras value. Multiple, inconsistent Non-compensatory |
? The ACCC ULL pricing decisions are
the latest in regulations a series of
non-compensatory pricing decisions. |
? Operational separation has potential to further erode Telstra value.
Settings that |
Pervasive & high cost
? Overall, despite many years of regulation, the stifle investment & |
intervention, even in innovation |
long list of ACCC pricing inconsistencies denies
competitive markets investors any certainty
over pricing and returns. |
30
Facts and Myths
Myths Facts |
Optus claims that Telstra has previously $68m was an estimated 05/06 impact as quantified the
impact of ULL at $68m as opposed to any estimate of future impact, opposed to $800m p.a. which has
been consistently stated to be approx $800m in 2009/10 based on a $13 (ACCC) versus $30 (Telstra)
Band 2 access price. The 05/06 figure is small as ULL is only now approaching a mass market roll
out. |
ACCC claim that the main point of difference Telstra believes the cost of
providing ULL is between ACCC and Telstra s ULL pricing is in some $491m more
than the ACCCs upper relation to a relatively small amount of IT and limit
calculation. systems costs ($20-$25m). |
Telstras potential loss in revenue in Band 2 is The major impact on Band 2 revenues is the
significantly overstated as Telstra will not lose flow through of lower retail access prices all
Band 2 customers across all Band 2 customers. So it is not so much lost customers but price
reductions to match competition which leaves less cash investment for future innovation. |
Facts and Myths
Myths Facts |
Telstra can increase Retail prices to Under current market conditions Telstra cannot increase all
its fully recover costs in Band 4 (rural retail prices to fully recover costs ($144) when
competitors are areas) paying effectively capped costs of $45 (avge) reselling off Telstras
network through wholesale Basic Access, OTA, LCS & Broadband. |
In calculating metro/rural access Based on the ACCCs costing, Telstra incurs costs in
Band 4 of $144 subsidy within Band 4 there is a per SIO. However, wholesale customers
can use this copper fundamental mismatch between access network by paying Telstra
approx $45/SIO average (this is Telstras costs of $144 per month in for resale
services). Based on the copper network costs alone, the providing ULL and $45 per
month subsidy to wholesalers for these services is therefore $99 per SIO. Retail
customer revenue. |
While it is true that Telstra has Retail services in
Band 4, resale access pricing effectively prevents
Telstra from fully recovering its costs from retail
customers. As noted above, Telstra cannot increase
its retail prices to fully recover costs when
competitors are allowed to offer services and pay
costs of only $45. Band 4 customers are subsidised by
Band 1, 2 & 3 customers.
# $45 This is a blended wholesale rate that
includes telephony and a percentage of DSL. |
31
Regulatory Pricing Estimate Of 05/06 Wholesale and Retail
Revenue Impact |
Telstra estimate of revenue impact of regulatory decisions that have already
been made, or are pending |
-$100 -$73 -$68 -$97 -$89
-$150 |
PSTN Local Local Retail Mobile Pricing OTA Call Call Price Terminating of ULL priced
Resale Override Controls, Access below below priced impact of rate decline average
efficient below OTA/LCS new CPI price flow costs ie cost efficient arbitrage 2.5%
through $22 cost Band2 |
Key assumptions are stated in supporting material |
Band 2 Revenue Loss & Band 4 Cross Subsidy |
Band 2 Revenue Loss Band 4 Cross Subsidy |
There are approximately 7.5m There are approximately 715k services within Band 2
services within Band 4 If ULL access prices fall from $22 The ACCC has estimated the cost to $13
in Band 2 competitors are of providing ULL to these likely to flow this through to customers is
$144 per month. |
Retail prices in an attempt to win Wholesale competitors can resell
share. Telstras PSTN & Broadband access |
Telstra will be forced to reduce for around $45 per month Retail prices accordingly to
(average). maintain its market position. ?This equates to an effective Band Therefore Telstras
stands to lose 4 cross subsidy of $99 per month $9 per month revenue across or over $800m (715k x
$99 x 12 both its Wholesale and Retail months = $800m+). base. |
This equates to
approximately $800m ($9 per
month x 12 months x 7.5M =
$800m+) |
32
ULL Pricing Creates a Ripple Effect Across Markets |
Broadband Wholesale revenue drops share
impacted |
New arbitrage Mobile rates ULL pricing competitors; take revenue fall decision: below
with minimal investment economic cost Higher overall Rate-arbitrage competition churn drives
down retail prices: PSTN/BB prices decline Higher operational cost |
Economic Impacts of Regulation: ULL Example |
The table below quantifies the 1 st and 2 nd order impacts of ULL |
ULL Average Price Assumptions FY 07/08 FY 09/10 $30 $13 Delta $30 $13 Delta 10yr DCF $m
$m $m $m $m $m |
Decline in Wholesale PSTN/BB Resale Revenue -707 -707 -1,068 -1,068 - |
Increase from ULL Revenue Stream 405 190 -215 604 292 -312 $6.1b Reduction in
Retail Pricing PSTN & Broadband -505 -864 -359 -698 -1,167 -469 |
Total 1st Order Impact -807 -1,381 -574 -1,162 -1,943 -781
2nd Order
Reduction in Mobile pricing - -171 -171 - -240 -240 $1.7b |
Competitor build within Band 2 only and ULL penetration rate @ 20% over 10 years |
50% of the lower competitor access price are assumed to flow through to retail pricing and is
assumed to impact over a 5yr period Mobile ARPU reduces to retain fixed/mobile price parity
(assumed @ approx 2.0 times) DCF calculations are post tax and based on terminal growth rate of
1.5%. |
ULL penetration the same at both $30 and $13 given size of margin opportunity
(conservative assumption) |
33
Impact of ULL Price Levels of $30, $22 and $13 |
The financial impact of Lower ULL prices is significant. |
The incremental first order impact alone on revenue for the company compared to the average
price of $30 is in the order of: Band 2 07/08 09/10 For $22 ULL -$250m -$350m For $13 ULL -
-$570m -$780m This impact would be spread across wholesale and retail products. In terms of impact
to key Telstra metrics this would mean : 09/10 09/10 09/10 ULL Price @$30 @$22 @$13 Revenue CAGR
over 5 years 2.5% 2.2% 1.9% EBITDA Margin 50.9% 50.2% 49.4% NPAT CAGR over 5 years 3.2% 2.0% 0.6%
Gearing % 44.0% 47.1% 50.6% ROI % 29.0% 27.8% 26.4% |
Competitor Margin Opportunity |
Source: Optus Consumer and Multimedia Investor Briefing 5th April 2005 |
34
Free Rider Windfall For Telstras Competitors By Cherry
Picking The Traditional Telecom Cross Subsidy |
Effect on Telstra Economics |
?De-Averaging assumes Telstra can recoup some of its losses in
metropolitan areas by increasing network access charges in regional / rural
areas |
?But this would require substantial increases in network wholesale
prices, with flow-on implications for rural/regional retail prices |
?Or a substantial value loss to Telstra if rural/regional retail
prices not allowed to rise substantially to compensate |
?Or a third alternative which is a new large Government subsidy to the
telecoms industry Optus & ACCC suggestion (i.e. $800m p.a. cash) |
Network price economics:
ACCC Assumption Reality |
Band 4 ULL Price: $144 / month Band 4 access rate set at
wholesale rates (cost of copper only) ?? PSTN only:
approx. $40/month |
?? PSTN / DSL: approx. $70/month |
So economic impact on Telstra based on ACCC estimate of ULL costs if rural/regional retail
prices not allowed to rise: 715K customers x ($144 $45(1))/month = in excess of $800m p.a.
unrecoverable revenue. |
(1) Blended average PSTN and PSTN / DSL customers assuming average 20% DSL penetration |
High Speed Data Access Declaration Ripple Effect |
Mobile data rates fall New competitors
Customer enter acquisition and Telstra no longer retention costs differentiated increase |
High speed data Price based services are forced to competition be made
available Operational cost |
Data ARPU declines increases |
Retail PSTN
revenue declines
faster |
35
The History of ACCC Pricing Decisions |
After 8 years of price regulation in the
telecommunications industry the record of the ACCC shows: |
An economic disregard A record of varying A history of changing for how its decisions A
long series of pricing approaches by course when a pricing align with government internally
inconsistent industry, thereby method doesnt deliver policy (ie wholesale pricing decisions
increasing uncertainty & the right results pricing out of kilter with compliance costs retail
policy) |
ACCC Telecommunications Pricing Decisions Reflect Years of
Inconsistency |
pricing methodologies in use within
telecommunications; methodologies being used for
substitutable services; |
creates rate arbitrage opportunities for firms using Telstras network to compete
pricing decisions that are inconsistent with the governments retail pricing requirements
as expressed in Price Controls and licence conditions. |
After 8 years of price regulating the telecommunications industry, the ACCC is
further than ever from providing the industry with reasonable surety as to the
pricing methodologies it will employ. |
Is the retail equivalent Averaged or de- Substitutable Pricing
Methodology service subject to Price averaged pricing? Services Control? |
Local Call Resale Retail Minus Averaged PSTN OTA Yes PSTN OTA, SSS, LCS, ULL TSLRIC
De-averaged Yes BA Resale Retail Benchmarking, MTA Averaged Nil No TSLRIC
PSTN OTA TSLRIC De-averaged PSTN OTA, SSS, LCS Yes Basic Access Resale Retail Prices Averaged
ULL Yes Not declared, but PART |
Wholesale DSL Averaged SSS, ULL No XIB impact |
36
Telstras Investment Commitment |
ongoing investment Telstra v SingTel Optus dwarfs that of
SingTel Optus. |
investment the investment that SingTel 4.0 Optus does make: b)
significant proportion is |
fixed line investment is: |
low cost areas
(ie metro and CBD); |
0.0
2001 2002 2003 2004 2005 high population density |
Telstra domestic core capex for fiscal year ending June. investment supports its Optus capex
for fiscal year ending March. Source SingTel cherry-picking strategies, but does Quarterly
Management Discussion and Analysis. little to benefit many consumers or the industry. |
Optus Preference for Resale Over Direct Connect SIOs |
Optus continues to add resale customers, while Since December 2003, SingTel
scaling down its HFC direct connects Optus has increased its resale |
customer base by 86,000, while reducing its HFC direct connect 700 customers by 19,000. |
This pattern of behaviour 600 suggests either: 550 free-riding (in
that it is 500 cheaper to buy access from Telstra than to operate its |
450 own network); and/or,
400
03 04 04 04 04 05 05 operator than SingTel Optus,
r 04 g 04 r 05 g 05 |
Dec Feb A p Jun Au Oct Dec Feb A p Jun Au
and resale terms and conditions enable SingTel HFC LCR Optus to share
Telstras economies of scope & scale. |
Source: SingTel Quarterly Management Discussion and Analysis. |
37
Access to Next Generation Networks
The claim ... ... and the reasons it is opportunistic and wrong |
copper When Telstra was part-privatised in 1997, the ownership of the network is a
legacy copper network (& other assets) was legally transferred to the of its monopoly company, and
shareholders bought shares on this basis. Short of history. nationalisation, non-shareholders have
no right, nor legitimate claim, to the ownership of or proceeds from the network copper network
generates Telstra supplies access to its copper network in accordance with large cash-flows,
regulatory requirements, including specified terms and which enable conditions. |
The competitive carriers seeking access to Telstras NGN did not Next Generation operate in
Australia pre 1997, and therefore did not contribute to Network the building of the copper network.
Now, again without access contributing (this time to the NGN), they opportunistically seek should
therefore the right to benefit from Telstras investment. be assured on Telstras competitors
consist of large multi-national telcos, Telstras NGN. many of which could fund their own Next
Generation Network. |
Instead, they invest elsewhere (eg.s SingTel has
systematically invested in Asian mobile businesses
while limiting its Australian fixed network
investment to high density, metropolitan and CBD
areas ie cherry-picking). |
38
Basis of Regulatory Financial Impact Estimates |
Impact Regulatory Impost What is being measured $m Price Controls |
05/06 impact of CPI-2.5% versus roll-over of existing |
Retail Price Controls regime (6 month impact) 89 Difference between ACCC rate and Cost Based
Pricing of PSTN OTA TSRLIC 307 Pricing of Local Call Resale Difference between Retail Minus v
Cost based (LCS) TSRLIC 213 |
Pricing of Mobile Terminating Reduction in MTA rates with flow through to F2M
Access (MTA) and Mobile rates 73 Ability of carriers to selectively use
PSTN OTA |
Local Call Override (Local Call Override) or LCS for local calls 97 Difference between
Undertaking (band 2) price of Pricing of ULL $22 v price of $30 (based on average cost ); 68
Estimated 05/06 Impact 847 |
The ACCC Pricing Methods Change Over Time, Even For The Same
Services |
The ACCC regularly changes its position on pricing, as the examples
below show.
ULL pricing |
Date Estimated ACCCs preferred ACCC estimate Implied ULL Implied costs
of % cost demand by Band 2 ULL of network costs specific costs supplying ULL
reduction |
2005 price/month from Mar 2002 Mar-02 400,000 $35.00 $12.00 $23.00 $110,400,000 Dec-03
140,000 $22.00 $12.00 $10.00 $16,800,000 84 Jun-05 43,811 $13.00 $12.00 $1.00 $525,732 99 |
To counter any risk of over- or under-recovery of ULL costs, Telstra suggested a
reconciliation fund and process. The ACCC rejected this, thereby exposing Telstra to
under-recovery of its costs of supply. Notably, access seekers face no such risk. While the
ACCC recognises an access deficit on PSTN services, it does not for ULL pricing, even though
ULL is also a PSTN based service. |
From the date ULL was declared, the Commission has calculated ULL prices
on the basis that Telstras competitors using ULL should bear these costs, as
they are responsible for the costs being incurred. However, in its Draft
Decision in August |
2005, the Commission completely departed from this approach and opted for an
approach whereby the majority of these costs are allocated to Telstra,
reducing the level of costs included in the ULL price substantially. |
GSM terminating rates, based on retail benchmarking were established in the ACCCs
July 2001 pricing principles paper. In June 2004, on the basis of prices not declining as much
as anticipated under the pricing method, the ACCC moved to TSLRIC as its preferred pricing
methodology. |
39
Phil Burgess
Group Managing Director Public Policy &
Communications |
40
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2 December 2005
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Office of the Company Secretary |
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Level 41 |
The Manager
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242 Exhibition Street |
Company Announcements Office
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MELBOURNE VIC 3000 |
Australian Stock Exchange
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AUSTRALIA |
4th Floor, 20 Bridge Street |
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SYDNEY NSW 2000
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Telephone 03 9634 6400 |
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Facsimile 03 9632 3215 |
ELECTRONIC LODGEMENT
Dear Sir or Madam
Telstra Regulatory Briefing Transcript
In accordance with the listing rules, I attach a copy of the transcript from yesterdays
Regulatory Briefing, for release to the market.
Yours sincerely
Douglas Gration
Company Secretary
Telstra Corporation Limited
ACN 051 775 556
ABN 33 051 775 556
Telstra Corporation Limited
Regulatory Briefing
1 December 2005
Transcript
PHIL BURGESS: I want to welcome everybody to the Regulatory Workshop, which is the final
event of the Investors Day, which began on 15 November. I want
to make sure is everybody
here who is supposed to be is there anybody who is not here? No. This is a very important
day for us because regulation is the wildcard in Australias telecom future. Its also the
wildcard that will shape the future of Telstra. We are holding this session primarily to
explain the red asterisk in the presentations by Sol and his team on Investors Day. The
red asterisk, youll recall, said: Subject to reasonable regulatory outcomes. We are
also holding this session to help the investor community and the media to understand the
background of issues involved for Telstra and the communications industry.
Unfortunately, too many believe that regulation is somehow a political plaything and
unrelated to business. Hardly a week goes by that we dont read in the paper that Telstra
should get on with the business, or manage the company and, leave regulation to the
government. Regulations determine how we can run our business, regulations are an integral
part of our business. Or we read that Telstra complains a lot but the government doesnt
know what they want in the way of regulatory reform. Well, weve had, literally, hundreds
of meetings over the past several months on those very issues. So today we will try, once
again, to state the problem, to outline the solutions and to do our best to take one more
step to help everyone understand a complex issue.
Today is an information session, nothing more and nothing less. We have three purposes
today. First, we want to show, as clearly as we can, the scope of regulations in the
telecommunications industry, many of which apply only to Telstra, and how regulations have
reduced investment in Australias telecom industry already, and threaten to do so in the
future, and to show the negative impact of regulation on Telstras business and how
over-regulation and redundant regulatory interference destroys shareholder value.
Second, we want to provide a clear map for a responsible regulatory regime in Australia.
We want to show how positioning Australia for increased growth, productivity and
competitiveness in the 21st century requires reasonable reform, and that creating a
pro-consumer, pro-investment, pro-innovation, pro-jobs business environment for Australia
requires attention to changing regulations.
Our third purpose is to clearly outline the regulatory reforms that Telstra needs to
execute all the elements of its plan for the future, as detailed by Sol at the Investors
Day on 15 November 2005, two weeks ago.
Once again, this session is about business, our ability to serve customers and to create
wealth for shareholders, more than 1.6 million Australians, many of whom have a stake in
Telstra shares to help fund their retirement. We want Telstra to prosper. They need
Telstra to prosper, and it is one of our duties to help them meet their needs.
How do we do that? As Sol pointed out repeatedly during the Investors Day, there are only
two ways to improve the financial performance of a company. These are to increase revenues
or decrease costs. Revenue growth and cost take-outs are shaped by many factors, but three
of the most important are the management of resources, including people,
technology, information systems and the like, the quality of the workforce and the business
environment. In Telstras case the Board hired new management, which started on 1 July and
presented a plan for a new Telstra on 15 November. The Telstra workforce is strong and with
good talent at every level. But owing to the burden of market distorting over-regulation,
the business environment for Telstra is not as you would expect it to be or want it to be if
you were an investor.
Today Telstra, and the telecommunications industry as a whole, are being damaged by
regulations that can only be described as onerous, outdated and intrusive. In the case of
Telstra, the expansion of regulatory authority that has been proposed but is still being
considered, is among the most intrusive in the OECD countries. It is as if the public
policy is being used to privatize the ownership, yet remain in control of the assets and
seek to make Telstras shareholders subsidize the competitors of Telstra. Rationally you
would expect that you cant have it both ways. Telstra is either a publicly-owned entity
or not.
Lets examine over-regulation and the problems it creates. First, over-regulation reduces
investment. Competitors prefer reselling Telstra to building their own advanced
infrastructure its cheaper, given they dont have to invest in their own infrastructure.
Its one reason why Australia is in the bottom quartile of the OECD countries on
infrastructure development.
Over-regulation reduces consumer choices. It stalls responses to changing customer needs.
It slows, or stops, price reductions and bundling. It undermines competition. In short, it
denies consumers more choices, lower prices and a more customised combination of services.
Over-regulation stifles innovation. It discourages investment where successes cant be
harvested. It discourages facilities-based competition. It discourages differentiation.
Finally, over-regulation creates competitive imbalances. It imposes financial burdens on
some, but not on others. It imposes restrictions and requirements on some, but not on
others. It results in asymmetric regulations that violate the principle of competitive
neutrality.
So getting on with our program today, let me just introduce my colleagues. Kate McKenzie is
Deputy Group Managing Director of Public Policy and Communications and our lead negotiator
on regulatory reform. CFO, John Stanhope, and Deputy CFO, Tarek Robbiati, will show how
regulations, including key proposals that are still awaiting a decision by regulatory or
governmental authorities affect our business and our industry, and how they also, if not
changed, will increase costs, decrease revenues, destroy shareholder value and require
Telstra shareholders to subsidize our competitors, many of which are large, global,
multinational companies.
The presentations of Kate and John are supplemented by a summary of lessons learned in the
US about investment patterns, bankruptcies, the declining health of the telecoms industry
and other economic and business pathology as the US travelled down the path of mandatory
unbundled local loops. This summary is by Dr Jeff Eisenach, who is Chairman of the
US-based CapAnalysis, and a highly-regarded telecoms expert.
2
Like Eisenach, Deputy CFO, Tarek Robbiati, has broad experience as a telecom
executive in nearly a dozen countries. Tarek will summarise the lessons learned from the
European experience.
At the conclusion of these presentations, we will take questions, first from the
analysts, and then from the media. Kate.
KATE MCKENZIE: Well, thank you very much, Phil, for that introduction.
As Phil mentioned, like most businesses, there are two main levers that we can pull to
maintain prosperity, either increase revenues or reduce costs. Regulation, at the moment,
is hampering our ability to do either. The myriad of current red-tape-type regulations are
increasing our costs and the telecommunications-specific access and competition regimes
are reducing our revenues.
To add this, a number of these regulations are applied only to Telstra, such as the
operational separation regime and the local presence plan requirements. We are currently
consulting on our local presence plan, but we are the only Telco required to produce such a
plan. In practice, we believe it will achieve very little, except more words on paper. Our
commitment to rural and regional Australia is clear, but the plans will not help that. I
think these days, even Telstras greatest detractors appear to accept that we are
over-regulated and that that is becoming an increasing problem in a telecommunications
environment where the industry is evolving.
As most of you would have heard from our CEO, Sol Trujillo, Telstra has identified three
major areas for investment coming out of the strategic review. Firstly, upgrading the core
network. Second, upgrading the fixed access network, and third, rolling out a single,
national 3G wireless network. Sol also made it clear that these plans are contingent on the
regulatory settings. The fixed access network investment is the one most impacted by
regulatory outcomes, although regulatory issues are still not unimportant for the other
investment proposals.
Today we want to run through the main regulatory issues and explain the kind of outcomes
that we believe are necessary before the company will be in a position where it feels that
it can risk shareholder funds on the fixed access network upgrade. The key regulatory
decisions involved are the terms and conditions attached to the provision of ULL, whether or
not our investment in Next Generation Networks is declared, and, therefore, required to be
resold to competitors on regulated terms and conditions, as opposed to commercial terms and
conditions, and thirdly, operational separation, and in particular whether that regime will
be restricted to the core services provided over the copper network, or whether it is
extended to new services. Also important is the extent to which it might prevent us from
providing the kinds of integrated services that Sol and the senior management team described
at the Strategy Day.
Unsurprisingly, poor regulatory decisions which do not allow the company to earn an
adequate return on investment and reduce our flexibility, oblige the management and the
Board to consider the wisdom of such investments. As Jeff and Tarek will outline, similar
issues are being faced in other jurisdictions. Were not alone in this regard. Governments
and regulators around the world are struggling to get the balance right between intervening
to encourage competition, and letting the market determine the best ways of investing for
the future. In the US, and it appears now also in Germany, the balance is
tipping in favour of letting
3
the market decide, with some encouraging results.
So what is Unconditioned Local Loop, or ULL? This slide shows what is involved in
provisioning a ULL service. Essentially, it involves the competitor piggy-backing on the
Telstra network by installing a piece of equipment known as a DSLAM in a Telstra exchange,
attaching Telstras copper pairs to a competitors tie cable and linking the copper pair to
a competitors network, so that they can provide both voice and data services to their
customers. You will have noticed some of the equipment laid out at the back of the room.
This is some of the gear thats involved in providing such a service. We also have with us
here today one of our network engineering experts, Mr Dennis Mullane, who is seated here in
the front row. For those interested, at the end of the session hell be available to answer
any questions you might have about the network aspects of ULL. I would encourage you all to
go up to the back of the room and have a look at the practical reality of whats involved
here. I think sometimes we get so carried away with the theoretical arguments around all of
this, we forget that there is a practical reality involved in the provision of these
services. Of course, in practice, whats involved is a lot more complex than what Ive just
described. From making space available in the exchange, to ensuring that power, back-up
power, air-conditioning is provided, to ensuring that the right loops are attached to the
right wires, ensuring that customer service to all the customers is not interfered with
throughout, involves a lot of planning, a lot of effort, energy and cost.
So moving on then: Since 1998, when the ACCC first investigated the provision of local loop
unbundling, there has been contention regarding the right way to price the service. Telstra
has lodged undertakings at increasingly lower prices in an effort to gain some commercial
certainty. Each time those undertakings have been rejected by the ACCC and each time, in
responding to those undertakings, the ACCC has suggested lower and lower prices for the
provision of this service. Most recently, in August this year, the ACCC suggested prices in
band 2 more than 40 per cent lower than those they had endorsed less than a year earlier. In
effect, the regulator keeps revising the prices downwards.
You will note that as far back as 2003 Telstra lodged an averaged undertaking for ULL. That
moves us over to the second contentious issue: Besides the price of ULL, the structure of
ULL prices is also something that has been argued long and hard about. That comes down to
whether the price should be averaged or de-averaged. Now, no-one is arguing with the
proposition that the cost of providing the service in rural and remote areas is greater than
it is in metropolitan areas. The problem is, the same is true for the provision of the
services ULL is used to provide at retail. Policy, however, requires that those retail
prices are averaged across the country. Telstra accepts that in a country like Australia, as
in many other parts of the world, requiring averaged retail prices is a perfectly reasonable
policy for the government to impose. Telstra has been, for many years, and continues to be,
committed to providing services to the whole of Australia. However, as the OECD makes clear, you cant have it both ways. If you want to average at
retail, you must do the same at wholesale, to make things work. Telstra believes that its
costs of providing ULL, on an averaged basis, are around $30.
I think a number of questions have been raised about the fact that our current undertaking
thats before the ACCC actually includes de-averaged prices. I just want to make clear
here, today, that that was lodged in response to the ACCCs clear advice that they would
not accept an averaged undertaking, and thats really why were seeking policy
intervention from the government. We think thats the only way to resolve this issue about
averaging versus de-averaging.
4
The consequences of a different policy are not hard to trace. Prices in rural and
regional Australia will need to rise at retail if we go for a de-averaged ULL price.
Competitors will only build in band 2, which covers mainly the metropolitan areas. This will
impact negatively on both wholesale and retail revenues in the populous parts of the
country, further reducing our capacity to fund the ubiquitous network. It will also result
in reduced incentives to invest. John Stanhope will further elaborate on this in his
presentation.
The second key regulatory issue affecting Telstras network investment plans is the extent
to which Next Generation Networks will be captured by the legacy PSTN regulations. The
problem for telecommunications is that the telecommunications-specific access regime imposes
much greater risk of poor outcomes than does the general access regime that applies to most
other industries. In electricity and gas the test for whether access should be granted is
essentially a natural monopoly test. In telecommunications access is determined where it
would promote competition. In practice this delivers quite different results.
Also, another distinction that exists in the access regime relates to the distinction
between infrastructure and services. In telecommunications its the services that are
provided over the infrastructure, rather than the infrastructure itself that gets
declared. This can lead to some quite uncertain results for companies who are investing.
Telstra considers that in future, significant investment in new networks should be exempt
from declaration under the Telco-specific regime. There are many ways that this could be
achieved, but the principle is clear: Legacy regulation for legacy network, new
arrangements for new networks.
As you can see from this slide, there is already an extensive list of declared services,
which has grown over time as the nature of the telecommunications industry and the services
that it provides have evolved. These are services that everyone has access to today, and
they will continue to have access to these services. We are not arguing at all for any
change to this list of declared services. What we are arguing for is a different set of
arrangements for the future.
So, again, Telstra accepts that the current set of declared services are likely to remain
regulated. But we do not accept that legacy regulation should apply to new infrastructure
and the services provided over that infrastructure in a world where any and all of our
competitors are free to build their own competing networks. Moreover, the international
evidence is increasingly clear: If you prevent regulators from giving cheap access to new
networks, you get much more investment in new networks, both by the incumbent and by
competitors. In our view its much better to let the market sort these things out, rather
than regulators. What is required is reform of the telecommunications-specific regime, so
that it applies only to legacy services. New investments should be regulated by the same
provisions that regulate every other industry in Australia. That means no new services
declared under Part XIC, the access provisions, Part XIB, the competition notice regime,
being limited to the existing declared services, and new services not included in the
operational separation regime. If its good enough for gas and electric, it ought to be good
enough for Telco.
I should also note some comments from the ACCC and others in the recent days, that we
should use the existing legislative framework to seek exemption for these new investments.
The problem is that history shows that if we do that, well still be here, arguing, in two,
three, four, maybe even five years time. That is simply not an arrangement that can work
in an environment where the company is in a position where it wants to make decisions now
about whether or not to invest in
5
these networks. Its not satisfactory that we need to go through a process that takes
years and years and years. I guess as the Foxtel experience taught us, you cannot actually
invest while youre going through those exemption applications because the court will
determine that youve already made your decision to invest and therefore you cant get the
exemption. So, unfortunately, we get caught in a catch-22 situation.
Moving now on to operational separation, the third key regulatory issue affecting Telstras
network investment plans. We have always felt that operational separation is a solution
looking for a problem. We accept that, despite that view, the Parliament has passed
legislation imposing it. Our focus, now, is in trying to ensure that its executed in a way
that does not reduce our flexibility or add too substantial a cost burden to the business.
One of the ways that that can be achieved is by limiting the services that are subject to
the regime on both price and the non-price side. In Telco speak, this means the list of
designated services should be confined to the core services provided over the copper
network, namely local call resale, originating and terminating access, unbundled local
loop, spectrum sharing and wholesale layer 2 ADSL, up to and including 1.5Mbps. We think
those are the services that there can be legitimate arguments in relation to equivalents
and transparency, and we dont think the regime should be extended any further than that.
In conclusion, Telstra proposes groundbreaking investments that will shift Australia into
the digital future. We believe that its important for the future productivity of the
country. The fixed access network upgrade can only proceed if we have averaged ULL pricing
at a fair price, new infrastructure subject to general regulation, not industry-specific
rules designed to guarantee access to the legacy network, operational separation regime that
is constrained to legacy services. If these conditions are not met, Telstra shareholders
cant fund the fixed access network upgrade. Thank you.
PHIL BURGESS: Thanks, Kate.
Let me just amplify one point, and that is to invite everyone to come to the back at the
breaks, or at the end, to talk to Dennis about any of the displays we have back there.
Because a lot of times we talk about these issues and never see what a DSLAM is or never see
the room that its housed in, that that room involves space and power and air-conditioning
and all the other maintenance requirements. There are large costs involved in those and it
kind of helps, I think, just to look and see what were really talking about.
The other thing, I wanted to just say a word about the slides. We had to make some hard
choices this week about whether to maximise the information or try to win a prize for visual
aesthetics. We went to the point of trying to maximise the information for your take-aways.
So some of those, I know, are going to be hard to read for people in the back, but thats
why weve provided handouts.
Our next speaker will be Jeff Eisenach, who is in the US. Jeff, take it away.
JEFF EISENACH: Phil, thank you very much. Its a pleasure to be with all of you. I wish I
could be there in person.
But Ive been asked, today, to talk about the impact of unbundled or unconditioned local
loop mandates in the United States. We were among the first to embark upon that set of
policies, weve been the first to experience, or among the first to
6
experience, its failures and its costs. Those costs have been large and substantial.
Maybe most important, in terms of the take-aways from my presentation, I want everyone to
understand, most importantly, the fact that the Federal Communications Commission and State
Public Utility Commissions in the United States have now very substantially changed course
and the results of that change in course, going in the opposite direction, have been very
positive.
If we can go to the first slide in terms of the background very quickly. We were among the
first to embark upon what we called ULL or, Unbundled Network Element Policies in 1996, with
passage of the 1996 Telecommunications Act. We mandated ULL for telecom services. We did not
mandate it for cable modem services and we left the question of fibre optic services, Next
Generation Networks, unanswered in 1996.
The Federal Communications Commission issued overall regulations in August 1996 and state
PUCs, who are responsible for implementing the details of the rules, which is to say
putting in place the specific prices for ULL, began issuing those rules in 1997 and 1998.
Its been an evolving process and an important part of that process has been literally
years of litigation, going to the Supreme Court on several occasions. That litigation only
has just now come to an end in 1994(sic).
If we go to the next slide. Its important for everyone to understand that we did not go
into our ULL experiment in any way half-heartedly. We were fully committed to the notion of
making the ULL business model succeed. We mandated not only that the local loop would be
available for resale, but also that switches and transport would be open for resale. We
bundled those three elements together in what we referred to as the Unbundled Network
Element Platform or UNEP. That was an extremely attractive proposition for what we referred
to as Competitive Local Exchanged Carriers, CLECs, the new entrants. They were able to buy
all of those elements together and enter the marketplace with a very minimal investment in
facilities.
Prices were set also very aggressively, initially at 50 per cent of operating costs, and
then were reduced further, over the course of the ensuing five years, to levels that were
at 30, 40 per cent of operating costs, and even less than that as a percentage of revenues
for the
incumbent carriers. Lest there be any doubt, our chairman of the Federal Communications
Commission at the time the Act was implemented, Reid Hunt, wrote later, in his book, that
he sought to give the competitive local exchange carriers: A fairer chance to compete than
they might find in any explicit provision of the law. That might explain why we had so
much litigation in the ensuing seven years.
If we now move to the next slide we see ULL rates as they were initially set out by the
State Public Utility Commissions as a percentage of operating costs and as a percentage of
revenue. We see that, for example, SPC was recovering 39 per cent of the revenue that it
lost when a ULL loop was sold. It was recovering about 39 per cent of that revenue that it
would have received had it retained the retail customer, and only about 49 per cent of the
operating costs of those loops. These were numbers that were put out by a number of
investment banking houses. All of them came in, in the same arena, so these are independent
figures.
7
Then, moving to the next slide and this is just a snapshot of 2002 and 2003 we
see that those rates were lowered further as the process ensued, and, frankly, as the
CLECs were unsuccessful in making money at the initial rates. So they kept trying to get
the rates to a level at which the business model would work. They were never successful in
doing that.
Moving to the next slide and looking at the results of our experiment with this: We had
entry by, probably, 100 major CLECs, a total of 300, some of those more active than others.
The significant ones raised about $450 billion in high yield debt, and thats not counting
equity capital and other forms of capital that were raised. Their business plans and this
is an essential element, I think, of the ULL business model largely focused on cream
skimming. You go to markets where costs are low and prices are high and try to play the
difference off between the two, and that involved, in the United States, business markets
and central business district cities.
Most of the capital that was raised by the CLECs was invested in aggressive marketing
campaigns and other kinds of overhead costs. The best estimates are that only about $50 billion of the money raised by the CLECs was
actually invested in telecommunications facilities of any kind. Virtually all of those
companies ultimately went bankrupt. The one important exception to this entire story is that
our cable sector, which was never in any significant way threatened with open access or
unbundling requirements. It was deregulated from the outset, in 1996. Our cable sector has
been a remarkable success story, investing, from a standing start, with an analogue
infrastructure in 1997/1998. They invested $75 billion converting that into a digital
broadband infrastructure and have been extremely successful. This was, of course, the one
sector that wasnt regulated and did not rely on unbundled local loops.
If we go to the next chart we see a map of CLEC high yield debt issuance over the course of
the five-year period, 1996 to 2000, and how it peaked in 1998, with $143 billion in
capital, a total, again, of over $450 billion.
If we go to the next chart. This one I want to stop and pause on for just a second because
its very important to understand that the central public policy objective, the central
thesis
behind a ULL approach in telecom policy is whats commonly referred to as the Stepping
Stone Thesis. The thesis is that if you allow people to enter the market with less than the
need to build out a complete telecommunications network, but instead to go part way, as it
were, to a put DLSAM in a central office, that this will serve as a stepping stone for them
to later engage in full-scale, full-fledged infrastructure investment, based on a competing
network. In our case, and, as far as I know, everywhere in the world, that Stepping Stone
Model has not been borne out by experience. To the contrary. What we see in this chart is
that over the course of the four years, December 1999 through 2003, the proportion of lines
operated by CLECs which were their own lines, lines in which they were using their own
facilities, declined dramatically, while the proportion of lines which involved the use of
ULL increased dramatically. One would have expected the opposite to occur if the stepping
stone theory was in fact working. The evidence here is that it didnt work, and my
understanding is that if you look at Optus and some of the competitors in Australia, you
have the same phenomenon of companies actually moving customers off of their own networks,
as they were doing here in the United States, and moving them on to a resale regime because
the profits from reselling the incumbents infrastructure exceeded the profits from building
out their own or even operating one.
8
Moving to the next slide, we see a chart that probably lots of people have seen one
version of or another in the past. This is US Department of Commerce data on investment in
telecommunications equipment. What we see is that investment increased during the middle and
the late part of the 1990s, and in 2000, of course, hit a wall and fell off dramatically by
over 40 per cent. Well see the consequences of that. Lets go now to the next slide.
Many people will also remember the unpleasant days of 2000, when in the United States our
NASDAQ stock market collapsed. What we were seeing there was the collapse of firms like
Lucent and Nortel and Cisco and telecommunications equipment manufacturers who lost a $1
trillion in market capitalisation over the course of 2000. Incidentally, that event was
provoked by the announcement by Lucent that it had actually been financing itself to
competitive local exchange carriers to pay for their DSLAMs, essentially saying, We will
give you a DSLAM on credit and you can pay for it over time. What happened was, by the
middle of 2000 many of the CLECs were not making payments on its loans. When Lucent
announced that in a report in the late summer of 2000, that was the event which provoked the
meltdown, as it were, in telecom market valuation.
Moving to the next slide, we see just the path of destruction, as it were, in this 20-month
period that I picked out here. We see 38 CLECs going bankrupt, and, as I mentioned,
virtually all of the CLECs went bankrupt in the United States over time.
Moving to the next slide, we see, as I said, the other side of the story, which is that the
one unregulated sector, not subjected to ULL requirements, not subjected to the other open
access requirements and not relying on ULL requirements, was our cable sector, which very
aggressively built out. As a result, we have the anomaly of the sector, which is a broadband
sector which is actually dominated by the cable providers, and where DSL ADSL services are
far in the rear in terms of market penetration.
Moving to the next slide: Whats the verdict? I dont think you can have any other verdict
on this experiment, except that it was a failed experiment in the United States. Virtually
every one of our CLECs went bankrupt, investors lost hundreds of billions of dollars.
Equipment sold at 5 to 10 cents on the dollar, so as these things went into bankruptcy, the
equipment that they had purchased for $10,000 was selling for $500 or selling for $1,000.
The biggest ULL players, two great institutions, AT&T in particular, one of the great
commercial institutions of all time, no longer existing today as independent companies, the
MCI story, World Com story, being well-known to everyone. Undoubtedly, this experience was a
major contributor to the 2001 recession in the United States. The US economy and its
worth stopping to hear the number and to let it sink in for a second the US economy lost
600,000 telecommunications jobs in 2001 and 2002. So we did pay a very heavy price. Again,
its important to understand that the one sector we did not regulate is the one sector which
was successful, that being the cable sector.
So lets move on to the next slide and make the next set of points, which I think are so
crucial, particularly, I hope, for the regulatory agencies in Australia to understand. That
is that in the United States we have now adopted a new approach and its a very different
approach and, as Ill talk about at the end, its been a very success approach.
9
We began the process of scaling back unconditioned local loop mandates and, in
particular, we no longer have the uniplatform I mentioned earlier, weve taken switching
out of that. Transport is also largely no longer required to be unbundled and resold. With
respect to the last mile loop, which I think everyone agrees, continues to be, in some
cases, an essential facility and at cost, at an appropriate level should be resold. What
were seeing is our State Public Utility Commissions are now beginning the process of
raising ULL prices for the local loops back to a level that more closely reflects the
actual cost of providing those services.
The next set of bullets goes to the fact that we have now, in the course of three years,
deregulated the broadband infrastructure, which is to say exempted the broadband
infrastructure in the United States from unbundled local loop requirements, beginning with,
first of all, capable in 2002. I mentioned at the outset, its never been seriously
threatened by open access requirements, but in 2002 the Federal Communications Commission
formalised the fact that it would be exempt from ULL requirements going forward. Then, and
this was, I think, the crucial decision in August 2002, the FTC exempted fibre to the kerb
and fibre to the home investments from unbundling requirements on a going forward basis,
creating a safe harbour for fibre investments. Then in 2005, just a couple of months ago,
they took the next step and exempted DSL from unbundling requirements. As I say, the upshot
of all of that is the safe harbour for all investments in new broadband facilities is now
firmly in place in the United States and not likely to be reversed. Its not a conditional
safe harbour, it is a safe harbour which is a formal finding in the Federal Communications
Commission, and it is not a time limited safe harbour, it is the expectation going forward
and investments are being made in the United States on the basis of that expectation, that
those facilities are not and will not be subject to ULL requirements in the future.
Moving to the next slide very quickly, we see the reversal in the trend of ULL prices over
the course of the last year and a half. This is a trend I think people expect to see
continuing as there are ongoing rule making proceedings, rate setting proceedings in a
number of states. We have begun the process of getting the price for that last mile local
loop back to a
level that more clearly reflects costs.
Now if we go to the next slide in this next series of slides. What I want to do is make the
point as clearly as I can, not in my words, but in the words of the Federal Communications
Commission about its conclusions at the result of what has now been a 10-year experiment, a
nine-year experiment with ULL and the costs of ULL mandates and the benefits of going in
other directions. First of all, the FCC has now found that ULL reduces investment and says,
in its September 2005 proceeding, that: The record shows that the additional costs of an
access mandate diminish a carriers incentive and ability to invest in and deploy broadband
infrastructure investment.
Moving to the next slide, the FCC has found that a safe harbour for DSL and fibre and
cable, but in this proceeding talking about DSL, will encourage risk taking: Eliminating
mandated access to the DSL, it says: ... will make it more likely that wire line
operators will take more risks in investing in and deploying new technologies than they are
willing to take under the current regime.
Moving to the next slide. The FCC has now specifically found that mandated sharing impedes
innovation. Requirements that would guarantee ISPs access to wireline broadband
transmission would impede the development and deployment of innovative wireline broadband
internet access technologies and services.
10
On the next slide we see that the FCC has also concluded that mandated sharing is not
necessary for competition to take place. Thats an important finding. Facilities-based
wireline carriers have incentives to make, and indeed already make, broadband transmission
capacity available to ISPs absent regulation. Thats important for everyone to understand,
where ISPs, where content providers add value, telecommunications carriers have every
incentive to include them in the package of services that they offer and to share the
revenues that are generated by the value added by those firms. Thats the outcome thats
likely to take place in Australia, certainly it is the outcome that has taken place here in
the United States.
Finally, among these quotations from the FCC and this again is an important one from the
perspective of Australia because Australia does not have the footprint in its HFC plant that
the United States has. I think thats important because the regulatory regime has given
incentives not to invest in that plant. But having said that, that plant is not there today
and people sometimes say to me, But what about the cable plant in the United States? Isnt
that different? Doesnt that mean that we need to keep our ULL policies? Well the FCC has
found that its not just cable, the FCC has found that the threat of competition from other
forms of broadband internet access, whether satellite, fixed or mobile wireless, yet to be
realised alternatives, like broadband over power line, which is, today, being realised in
some places, will further stimulate deployment of broadband infrastructure. These emerging
broadband platforms exert competitive pressure, even though they currently have relatively
few subscribers. I would submit that that applies in Australia every bit as much as it
applies in the United States.
Looking at this next slide, where we see that investment has responded. Ive pulled together
a lot of information on one slide, here, but I would refer you up to the upper right-
hand corner of the slide, where the arrow shows that investment has risen 40 per cent since
the Federal Communications Commission put in place the safe harbour. If you go down and look
right below that, at the bottom of the slide we see that in August 2003 the FCC exempted
fibre to the premises and fibre to the kerb from ULL requirements.
Two months later, in November 2003, we saw Verizon, one of our large, incumbent carriers
announcing a $3 billion per year investment program in which it is extending fibre optic
capability to the premises, fibre optics to the home, FTTH, throughout its 50 million
premises service area. That investment is well under way and Im happy to say that at my
home, 25 miles outside of Washington DC in an ex-urban area, I, today, have fibre in my home
and 15Mbps of service. I download music off of Itunes in about seven seconds and download
movies in about seven minutes. Its a wonderful service, Im happy to have it.
Let me go to one last slide here. I want to try to talk through part of the debate that Ive
found that maybe I can help to inform. That goes to the question that I often hear people
saying, Well wont Telstra build out its NGN network anyway? Before we talk about the
slide, I would point out that Verizon didnt build out its next generation network, SPC,
Bell South and the other companies here who are also making similar kinds of investments,
didnt do that prior to the creation of the safe harbour. I think its very clear that they
would not have done that. So the first question is, would you do it anyway? Well, it didnt
happen in the United States. But at a different level, this chart kind of lays out what I
think the real economics of the situation are. At the end of the day Telstra is a business,
the people running that business are going to make decisions on the basis of profitability,
theyre going to build as far as they can go, to the point that the revenues from new
infrastructure that they build out exceed or equal the costs of the new infrastructure that
they
11
build out. So this chart illustrates that. What we see in the line running up the
centre, the diagonal line, is the cost per homes passed. Obviously the cost per homes
passed goes up as you pass more homes, and thats primarily a function of teledensity, and
the first law of any telecommunications infrastructure build out is that the cost goes up
as density goes down.
If we then go over to the left-hand axis, the vertical axis, and look at the ARPU average
revenue per unit. Lets think of the top line as the average revenue per unit, taking into
account penetration that a company like Telstra would get from building out its network in
an unregulated environment and an environment in which it could enjoy the full returns from
that network. If you then follow that line over to the cost per homes passed line, the
diagonal line, and then follow that line down, what you see is the number of homes that are
going to be passed in an unregulated environment, an environment where ULL does not apply.
Telstra would build, just as any other company would build, to the number of homes that it
can build to, where the cost is less than or equal to the revenues that it will get from
that investment.
If we go down to the lower line, looking over on the left-hand vertical axis again, that
is the average revenue per unit, again taking into account penetration, that would
result in a ULL environment.
ULL does two things: It decreases the revenue per home for a subscriber and it also
decreases the penetration rate that a company like Telstra is going to get from building out
that infrastructure per home passed. Its going to get a lower ARPU per home passed than it
would in an unregulated environment. Simply following that over to the diagonal line and
then back down to the horizontal access again, what we see is that the number of homes
passed is going to be less in a ULL environment than they would be in an environment where
ULL doesnt apply. To me thats simple economics. I think people can argue about how steep
are these lines, how big are these effects, those are all legitimate arguments. But the
simple economics of it suggest that the impact of ULL on a decision by a company like
Telstra to build infrastructure is that it will build significantly less infrastructure than
it would build in the absence of ULL. That ought to be of concern, I think, not just to
Telstra shareholders, but, most importantly, to the people in Australia who are not going to
get the next generation services in a ULL environment that they would get if ULL were
lifted.
I appreciate the opportunity to talk to you today. I look forward to participating in the
Q&A session as the session moves along. Thank you very much.
PHIL BURGESS: Thanks, Jeff.
The whole
purpose for having Jeff, and now Tarek, talk about the US and European experience is because our view is that we shouldnt have to relive history here in
order to learn from it. There are lots of parallels. As some people in this room point out,
there are some differences, but the parallels are compelling, in our view. Tarek, can you
give us the European experience?
TAREK ROBBIATI: Good afternoon. I am Tarek Robbiati, Deputy CFO of Telstra, and I have the
pleasure of being here today with you to present some lessons learned from European
Regulation. In this presentation we will first focus on a concrete example of a ULL new
entrant in the UK to illustrate the economics of ULL in Europe.
12
Ive built a little model for you and I couldnt resist the temptation, being a former
analyst myself, to illustrate what Im saying with some real numbers. Secondly, well
illustrate the model called the Ladder of Investment. That is the European name for what
Jeff was referring to before as the Stepping Stone Model. Well describe this model and
describe, through it, how regulators in Europe intervene to regulate broadband access, and
the impact of such regulatory intervention on the development of NGN.
But first, lets start with the economics of ULL. The network operating costs of a ULL
new entrant can be broken into the following five categories. Here on this chart you
have the economics for what is called in the UK shared ULL. You will relate to this in
Australia as line spectrum sharing.
The first cost element is the regulated costs of the line rental and the one-off connection
charge, which is paid to the incumbent. The second cost is related to preparing the
incumbents exchange to install ULL equipment. This includes site surveys, site preparation,
set up costs, etcetera. The third element is power and air-conditioning equipment required
to run ULL equipment in the exchange. The fourth element is the ULL equipment itself, those
famous DSLAMs that will receive and deliver traffic to and from
customers. Finally, the ULL running costs of the New Entrant will include power and
air-conditioning costs, as well as network traffic costs that the new entrant pays to the
incumbent to route its broadband traffic to the nearest point of interconnection. We have
assumed here the network traffic costs for a 512Kbits/s line for the end user.
From a financial perspective it is important to note that some of these costs are expenses,
and others are amortised over time. Equipment costs, in particular, vary with the number of
lines supported. That is easy to understand when you will see the equipment that Dennis
brought over here, you will see that you have a rack and you have a number of slots. The
bigger the rack, the more you can install cards in, and therefore you can share the cost of
the rack across the number of lines youre supporting.
But what does it mean? What does it mean concretely? Well, before we answer lets see that
also other parameters affect the cost of the line overall. Churn, for instance, affects
the one-off connection charge that a new entrant pays each and every time a new line is
re-connected. So churn assumption here is absolutely crucial. The capacity utilisation,
and therefore the demand for the service, also affects the effective duration of the
amortisation of network investments.
Lets turn concretely to what the operating costs are for our UK ULL new entrant look
like. What is the typical annual costs per line, per exchange? Lets take a look at the
next chart.
The first observation, if you do the math, is that the actual cost per line is the lowest
for the higher capacity switches and exchanges. This, please note, in spite of a
geographically-averaged price of the local loop line paid to the incumbent. That price is on
line A on that little model that you can see there. You can see that it is 27 pounds,
whether you have a 200-line capacity switch or a 600-line capacity switch. That price does
not vary.
However, when you take into account all the other costs and the amortisation of the
equipment, you can observe that the difference in actual cost per line can be substantial
between small and large exchanges. The model points to a difference of more than 20 per
cent between the small 200-line capacity DSLAM and
13
exchange, versus the bigger exchange. This is not surprising. Its pretty simple: All
incumbent networks around the world have larger exchanges in cities than in rural areas.
The size of the exchange reflects the population density. As a result, its not surprising
to see ULL cost economics reflecting the population density.
In other
words and this is the first conclusion here the economics of ULL, by design,
structurally favour urban centres relative to rural centres. The bigger the exchange, the
lower the cost per line. This holds true whether you are in the UK, in France, in Germany,
in the US, and its certainly true for Australia.
What happens if you de-average that line A on the model? Well, if you de-average the ULL
line rentals with lower cost for urban relative to rural, youre actually exacerbating that
overall costs difference between rural and urban lines, and you further lower the incentives
for new entrants to invest in rural areas.
Let me be very clear on this: What that means for Australia is that, again, ULL economics
structurally favour cities already. By having urban rates lower than rural rates, you simply
kiss goodbye to developing the infrastructure in the bush.
Lets take a look at what the European regulators have actually said on the matter. Ill
let you read the comments yourself, but it is interesting to note that most European
regulators have understood the issue and tend to set ULL prices on an averaged basis, to
promote the consistent infrastructure development and seamless levels of service on a
nationwide basis.
As you can clearly see on this slide, the most recent positions expressed by OFCOM, the UK
Regulator, and ARCEP, the French Regulator, clearly point to the necessity to average ULL
prices. What is interesting in their comments is that here, in our analysis, we only looked
at the costs side of the equation, but there are also demand factors and practical issues
and OFCOM, the regulator in the UK, picked that up and stated that consumer affordability
and significant practical issues in calculating the cost of ULL, and therefore, on balance,
they opted for an average cost for each line.
Well the French, what did they do? They did some more homework. They looked at studies,
models like the one I presented to you, and they came to the same conclusions. They also
said that it appeared necessary for the authority to limit the calculation of the ULL costs
to an average cost.
The real issue is, how do you set that cost for averaged ULL prices relative to other
substitute access offerings?
Lets not forget that this is one type of product which competes with other products, and
the price cannot be set in isolation, without looking at the overall context. Now to answer
this question, we need to take a look at the broader picture and then we go back to the
ladder of investment, the stepping stone model that Jeff was referring to.
Let me have a quick check here. There are some acronyms on the slide that talk about BSA,
Bit Stream Access and IP-Connect. If youre not familiar with what these terms are, its
basically, these are different competing access products which are offered to various ISPs.
The greater the capularity of the ISPs network, the deeper the ISP can get into the
incumbent network. That, you surely know. Bit Stream Access and IP-Connect are different
products that allow ISPs who dont
14
have a wide network present to actually receive traffic routed from the incumbent
network to the nearest point of interconnection.
According to this model, products should be introduced in logical order, starting with the
lower rungs of the ladder. National Regulatory Agencies should announce their strategy and a
timetable, to provide a stable planning horizon for all market players to make sound
business plans. The idea is that a consistent pricing regime for regulated products across
the entire value chain will automatically set the incentives for all market players to
invest and innovate.
Lets take the example of an ISP with limited investment in network infrastructure. The
ISP pays IP-Connect charges to the incumbent. If, by investing in network lines, the ISPs
operating margin improves and provides an adequate return on investment, then the ISP will
invest, in which case the ISP moves up the ladder. Thats very nice in theory, but
practice is another matter.
Let me say to you that the Ladder of Investment model was developed in late 2003 by the
academic community. It was applied retrospectively to justify regulatory intervention.
Competition in broadband access started in the 1990s. By the time the model was developed,
many players were already active across the entire value chain. This led to severe
consequences for industry players, as we will see later.
The objective was to achieve sustainable competition. That is, competition between
different platforms will not be achieved by imposing and maintaining cost-based regulation
on each layer of the value chain. Why? First, because the task of managing the evolution of
a competitive and dynamic industry, such as the telecommunications industry, merely by
setting exactly the right price on different access products across the value chain seems
almost impossible. Second, the Ladder of Investment model micromanages the highly dynamic
and investment-intensive broadband access market and forces the regulator to constantly
intervene, distorting competition behaviour.
Lets take a look at what happened in Europe and take some concrete examples from various
countries. In Denmark the introduction of Bit-Stream Access, combined with LRIC-based
pricing of the local loop, has led to a standstill in the take up of ULL.
Players are now moving down the ladder, not up, exactly the opposite effect that was
originally intended. In France most independent ISPs have disappeared, following the
introduction of cheap ULL. Thats not surprising. Even if you unbundle local loop, you
still have to invest in DSLAMs, and smaller ISPs, who dont have deep pockets simply
could not afford that.
In Sweden, Germany and the Netherlands, large scale market entry was possible without use
of Bit-Stream products. Now, in Germany, ULL-based operators are objecting to the
introduction of wholesale line rental.
Bottom line: Migration up the ladder is not happening.
Why? Partly because where new entrants invest in assets following the regulators commitment
to a certain regulatory strategy, the regulator feels obliged to protect the investment
made. More fundamentally, we are experiencing now, in Europe, such a level of regulatory
arbitrage that investment in new infrastructure is falling behind. This overly
interventionist concept requires the regulator to actively
15
intervene to structure the market, and thereby determine the business strategy of
various players. If you are one of those players, you adopt, certainly, a wait and see
attitude towards new investments. Youre waiting to see where the regulator is going to go
before you put your money in.
Where does that take us? The European Commission has set itself ambitious targets for
accelerating broadband roll-outs in Europe by the year 2010. Thats the famous 2010i
initiative. The European Commission also recognises that one key factor for better and
innovative electronic communications services is sustainable competition between alternative
platforms. As usual, there is a chasm between the intent of the European Commission and what
is actually delivered by the EU Regulators.
Constant regulatory intervention has perverted the structure of the industry and led
primarily to the development of service-based competition in most of Europe, while
platform-based competition has been limited. It is notable to see that investment levels in
European fixed networks are significantly lower than in the United States, particularly for
the provision of broadband. By contrast, mobile telephony has, however, diffused quickly in
Europe, compared with the United States, partly as a result of the successful 2-GSM standard
adopted, partly as a result of the charging systems employed and also because of, yes, less
regulatory intervention. There is plenty of evidence to suggest that service-based
competition boosts short-term penetration levels by attracting resellers with the prospects
of making a quick buck. Clearly, this type of competition does not foster the development of
the national infrastructure.
But this is not the only drawback of service-based competition. If you thought that
service-based competition benefits businesses and consumers in the form of lower prices in
the long run, think again. Please refer to the supporting material in the appendix for
further details. You will observe that broadband penetration in Germany is lower than in the
UK. Why? Well its simple: Because it takes longer to push penetration through
platform-based competition. However and thats an interesting point broadband access in
Germany is cheaper than in the UK, where duopoly competition has existed since the 1990s. By
the way, all the data that I have provided you here is OFCOM data, the UK regulator. This
tells you how good of a job they did for consumers and businesses over the past 15 years,
and you know what I mean when Im talking about Rip-off Britain.
It is time for change. A different view is emerging in the US, and most recently in Europe
too, suggesting that broadband assets are becoming replicable thanks to technology
innovation. As a result, industry stakeholders increasingly believe that promoting
platform-based competition involves withdrawing, or not imposing, mandatory access to the
replicable asset. Like in the mobile industry, this will allow the emergence of competing
platforms and standards, a better national infrastructure, benefitting both consumer and
businesses.
Unsurprisingly, the wind of change is brought by the country that has the best-developed
infrastructure in the Europe, if not the world. Let me point out to you some recent news:
Deutsche Telekom recently presented a plan to invest EUR3 billion to develop FTTC in
Germany. Deutsche Telekom, RegTP, the German regulator, and the German Government of
newly-elected Chancellor Merckel are aligned. They are together arguing with the EU for the
need to stimulate innovation by encouraging and protecting investments in NGN platforms to
prepare Germany for the next decades. Hang on. Did I say operators, regulators and
Government aligned in the pursuit of investment innovation? Pinch me, I must be dreaming.
16
But, no, this is reality. The question is, how did they get to that point? They simply
recognised that the stakes are high. Vorschprung durch Technik (Progress through
technology), as they say in Germany. I sincerely hope that Australia does not fall behind.
Thank you very much for listening.
PHIL BURGESS: Thank you, Tarek. John Stanhope, wrap up.
JOHN STANHOPE: Thank you, Phil, and good afternoon everybody.
I suppose
I should start Im not going to start with the red asterisk, but I should start
with a caution: You remember last time, on 15 November, when I spoke, the heavens broke
loose. So just be warned, it may happen again. Look, what were trying to do today is really
inform you more about why we keep talking about the regulatory environment and the possible
impacts on the company, but also the possible impacts on Australia. Thats a very important
issue. We really are, as I think Phil said right at the start, trying to bring to the
attention of all Australians, our shareholders, government, everybody, that lets learn from
the things that have happened in the US, lets learn from the things that are happening in
Europe and not make the same mistakes.
Let me also say, by way of introduction, that this is not about Telstra arguing for no
regulation, although I have to say that the worldwide trend is for less regulation as
competition increases, and weve made that point many times as well. Wireless is the example
of where there is no regulation, and, guess what, wireless in Australia is where competition
is vibrant, innovative and good for consumers. Hutchison recently made the comment that
everybody will migrate to the unregulated wireless world, and that may well be the case. So
I guess we might ask why we need to be increasing regulation. But let me set that aside and
let me dispel some of the myths and explain why what is happening to Telstra via regulation
is important. So lets narrow it into the Australian environment, and I know lots of people
in this room like to hear about some numbers.
A reaction
to our new strategy, which includes improving margins and we saw that on 15
November is that Telstra wants to return to a monopoly, or near monopoly. Well, let me
just say this is just not true. Fair competition makes the industry better and innovative,
which is good for customers and good for shareholders, not just our shareholders. Our margin
expansion that we put up on 15 November, and its been questioned, is possible through
innovative products and services that are largely software driven, that a Next Generation
Network and high speed data wireless networks can provide. They are value added services
that can be delivered at low incremental costs. This, combined with the cost reductions made
possible through the removal of network, system and product complexity also contributes to
improving margins. This is why weve been talking about the possibility of doing so. It is
about earnings from value added services, driven by the capability provided in the New
Generation Networks by both wireless and fixed. This is the new economic model that we
referenced on that Strategy Day. The bottom line is that we accept there is regulation, but
simply want fair regulation, and therefore a reasonable regulatory environment. Thats what
we mean by reasonable regulatory outcomes, as the famous red asterisk referenced. I want
to take the opportunity to explain the financials around the points we are making about
regulation and why we think we have unfair regulation in financial terms and why it puts
investment at risk. There has been much written about the regulatory issues by people in
this room, media, analysts and so on, and I want to put some
facts on the table. I must admit, we have added to the confusion, so I want to try and clear
some things up here.
17
The debate is very much about the incentive to invest, innovate and improve. Regulatory
pricing that is below cost stifles investment youve heard a lot about that, youve seen
it demonstrated by Jeff in the US situation, heard about it from Tarek as well. What it does
is just simply redistributes value. Two major decisions will have a material impact in this
regard: ULL pricing weve heard a lot about ULL today and what is decided to be the
designated services under operational separation, still not yet finalised, and, therefore,
whether Telstra has a safe harbour for new innovative network investments.
By safe harbour we mean that we dont have to give uneconomic access to new investments
in technology, like a Next Generation Network or fibre to the node in the five capital
cities, as we described on the 15th. So access, we really mean should be must be on
commercial terms.
There is a third element, which is how much the rules for operational separation slow our
speed to market. Obviously, in financial terms, that has an impact on the flow of your cash
flow and your revenues, and, of course, your earnings line. From a shareholder perspective,
also inconsistencies in regulatory decisions have denied shareholders any certainty, and,
quite frankly, today, right now, we still live in this world. We are after certainty. I
mean, weve got the prospect here of a large sale of shares, the remaining shares the
government holds, and we do require, going into that, certainty around regulation. But,
today, we still live very much in that uncertainty world. Ill give some not only
uncertainty, or uncertainty also comes from inconsistency, and Ill give some examples later
about inconsistency in regulatory decision making.
But let me turn to some myths and tell you some facts. As I say, we probably have
contributed to some confusion. This slide and the next slide show what has been said, Ill
try, here, to explain the facts about the issues. Ill take you through them.
Myth 1 here on this slide: Optus claims that Telstra has previously quantified the impact of
unbundled local loop as $68 million, as opposed to numbers that are out there of around $800
million per annum. The facts are that the $68 million was about 05/06. So conveniently, I
guess, the commentary is comparing 68 with 800. The 800 million is our estimate of the
impact in 09/10, based on a $13, versus $30, Band 2 ULL access price. So that, hopefully,
explains why sometimes 68 gets mentioned, thats 05/06, other times 800 gets mentioned.
Thats five years out.
Myth 2: The ACCC claim that the main points of difference between ACCC and Telstras ULL
pricing relates to systems costs, and its around 20 to 25 million. Let me be quite clear
here: Telstra can demonstrate, and has demonstrated in submissions to the ACCC, that the
gap we have in estimating the costs that underlie ULL provision is $490 million, more than
the ACCCs estimate. It ranges across network costs, ULL-specific costs, some debate around
the cost of capital and so on, but we have, on numerous occasions, demonstrated that
difference.
Myth 3: Telstras potential loss of revenue in Band 2 is significantly overrated, as
Telstra will not lose all Band 2 customers. Ive read that many times. It is correct that it is
unlikely that we will lose all Band 2 customers, but we will have to lower retail prices to
match competition, as the arbitrage opportunity is used to lower prices. In an example
later, I will show you the impact if we assume 50 per cent of the arbitrage opportunity is
passed back to customers.
18
Some argue all of it will. You can argue about that percentage, but Ive taken a
reasonably, I think, conservative approach and said 50 per cent of that price arbitrage
opportunity is passed back.
So it is about the combination of lost customers and lower prices which reduces Telstras
cash and ability to invest. It also leaves less cash in the whole industry for investment,
and Jeff and Tarek were talking before about total industry effects, not just individual
telcos. So it does leave less cash in the whole industry for
investment, and ultimately
and this is what we continue to argue customers will be worse off, less innovation will
occur, because there wont be the incentive to invest in innovation, nor the money, for that
matter.
Let me move on to myth 4: Telstra can increase retail prices to fully recover costs in Band
4, or rural areas. The fact about that is that Telstra cannot increase all its retail
prices to fully recover costs, and that cost is $144 per service per month, when
competitors are paying an, effectively, capped average cost of and this is a wholesale
cost, some people have mixed this up with a retail price, its
wholesale cost of $45 per
service per month, reselling off Telstras network through wholesale Basic Access,
Originating Terminating Access, Local Call Service, and broadband. By the way, the $144 per
service per month is an ACCC estimate. To be fair, they have put a lot of codicils around
that estimate and so on, but it is in a report from the ACCC.
Myth 5: In calculating the metro/rural access subsidy within Band 4, there is a mismatch
between the ULL cost estimate of $144 per service per month and the $45 per service per
month retail customer revenue. I alluded to this just before; the $45 is not retail customer
revenue, it is wholesale revenue that we receive today. So the cost of providing ULL in Band
4 is $144 per service per month, as I said before, the wholesale customers can use the
copper network, or access the copper network, by paying around $45/SIO per month on average.
Thats about $40 for PSTN and about $5 for broadband wholesale, based on an 18 per cent
penetration in rural areas. So based on the copper network costs alone, the subsidy to
wholesalers is therefore $99 per service per month. So the total Band 4 customer base is
subsidised by Bands 1, 2 and 3 customers. This is how retail pricing parity is maintained
today, because Bands 1, 2 and 3 are subsiding band 4. De-averaged wholesale prices, youve
heard us say many times, takes the ability away to apply that cross-subsidise.
There are a number of figures being used in the media and by us. Unfortunately, there is
too many 800 millions. Let me try and clear up some of this confusion. First, I used a
figure of $850 million in the 5 September earnings guidance announcement. This is simply a
figure and its up there on the slide again that really explained the impact of past
decisions on the 05/06 year. So let me be clear that the reference to this was not related
to the earnings guidance so much, but simply to show the impact of past regulatory
decisions on 05/06.
Im not going to go through those again, weve just provided that slide again for
clarity. I wanted to give some clarity around that 850 because that is one of the 800
numbers that often get referenced.
A further two different $800 million numbers have been presented and used in relation to
the future impacts of ULL specifically. Phil has mentioned $800 million in an interview
that I recall, and this was simply a Band 2 calculation that takes the difference between
$22, which the current determination, per SIO/month, and $13/SIO/month, which is $9.
Multiply $9 by 12 months, multiply it by 7.5 million
19
services and you get a touch over $800 million. So thats how that 800 million is
calculated. Of course that assumes the arbitrage opportunity gets totally passed through
in price and some lost customers sorry, it doesnt assume customers lost, its purely a
price (indistinct) assumption of the whole $9.
The $800 million that I have mentioned in my letter to the regulator in early November is
the Band 4 cross-subsidy remember I was talking about the 144 and the 45 before. Its the
difference between $144 per service per month for ULL and the wholesale rate that we
receive, $45 per service per month for resale. The difference is $99, multiplied by 12
months, multiplied by 715,000 services. Im sorry, Im taking you through simple arithmetic
here, but Im trying to get across the explanation of these 800 million numbers. So one
explains a possible revenue loss in Band 2, and the other, the degree of cross-subsidy there
is in regional and rural Australia.
Let me move on now, having explained some of the myths, and try to put those right. ULL
pricing causes a ripple effect across markets. There are first order impacts, which you
can see in the yellow circle there. They are, wholesale revenues drop, of course, retail
price reductions flow through, using the below costs arbitrage opportunity, PSTN price
declines, broadband price declines, new arbitrage competitors start to come into the
market. Then in the orange area on your slide, these are the second order impacts. We see
lower broadband share, for us, mobile price reductions across the board, more churn and
higher operational costs as we deal with all those volumes and the churn volumes.
Let me show you the economics of ULL. In the year 07/08 the first order difference so
thats the ones I went through in revenue between a $30 per service per month ULL and a
$13 and $13 is the draft determination per month ULL is estimated at 574 million. So
thats in the year 07/08, not cumulative, but in that year. In the year 09/10, again just in
that year, it is estimated to be $781 million. Now, let me be clear here, that the
assumption here is the arbitrage difference, only 50 per cent goes back to customers in
price. When you look at that over a 10-year period, that is a $6.1 billion shareholder
value, on a DCF basis, assuming and it does assume 20 per cent ULL line penetration by
year 10 in Band 2. 50 per cent of the lower access prices flows back to retail, as Ive
mentioned, and a terminal growth rate of 1.5 per cent.
The second order impacts are also shown. That is, a further again over 10 years NPV
impact of $1.7 billion. What are we talking about there, when, as the PSTN prices come down,
mobile prices will come down to keep that equilibrium. As you know, wireless has
grown, or people have become ambivalent to wireless prices versus PSTN prices. So wireless
players will keep those in equilibrium.
Let me go to the next slide. This slide, at the top, summarises, to some degree, the
previous slide, but it does add the variation if a Band 2 $22 per service per month is
applied. It also shows the impact on the various financial ratios. You can see that it shows
impacts in the 09/10 year, that is year 5, which, obviously, will be worse in Year 10. Since
the Strategy Day, of course, weve had a lot of questions about, well, you know, what have
you assumed in your plan and so on. So let me be quite clear: To achieve 2.5 per cent, and
you can see this on the slide, we would need an average ULL price of $30. So, importantly,
this slide shows our revenue CAGR reduces from 2.5 per cent to 1.9 per cent if Band 2 ULL is
set at $13, versus a $30 average. So 2.5 per cent, we believe, is only achievable if the
price is set at $30 average. This slide also shows our estimate of the impact on the ROI,
gearing and margins, etcetera, at the various price points for ULL.
20
Hopefully that helps you all understand the impacts on our plan. Im sure youll tell
me if it doesnt.
This is a slide presented by a major competitor. You can see that the margin arbitrage
opportunity is quite high, and it shows the significant margin capacity provided by below
cost provision of the ULL service by Telstra. It also shows there is sufficient capacity for
the competition to make good margins without raising prices if the $30 average cost of ULL
is charged. This slide here, of course, shows ULL at $22 per service per month, because at
the time it was shown, and still today, that is the rate. So at $13 per service per month,
as proposed by the ACCC, you can see there is huge margins being made. The point being here
that the argument that it will kill competition is not really true.
So let me move on a little bit here, about de-averaging assumes Telstra can recoup
losses in metropolitan areas by increasing network access charges in regional/rural
Australia. It would require substantial increases in network wholesale prices, which
would then flow through to retail prices, so as a pricing option, or substantial value
lost to Telstra, which Ive just explained to you how much that would be, or new, large
government subsidies, which have been suggested by the competitors and the regulator is
the answer to this issue. You can see from the information Ive given you before here,
that the subsidy calculation is around 800 million per annum. So thats a fairly large
government subsidy, Id suggest to you, and our USO experience is one where full tote odd
dont seem to come our way, so that is a high risk, if you like to, as an option, we
believe.
So let me now talk about the possible impacts of access being given to competitors to a new
fixed network investment, sorry Next Generation Network, so high speed data services, if you
like. Again, there are first order impacts and second order impacts. The first order impacts
include new competitors because the barriers of entry, obviously, are lower if you get below
cost or non-commercial term access to a Next Generation Network. Telstra wont be able to
differentiate services, and many of you have asked us the question, How can you get this
sort of revenue growth? Well, an NGN does allow you, without access by your competitors, to
differentiate services and perform better in the marketplace. The competition will only be
price based, not value based, and you heard Sol speak a lot, on the 15th, about its really about value-based competition, not price-based competition,
otherwise the whole industry, doesnt collapse, but it operates at a very low level. Data
ARPUs decline and BigPonds share would be, obviously, impacted.
The second order impacts, in the orange circle there, mobile data ARPUs would decline,
operational costs increase for negative returns and PSTN revenue would decline faster.
Given these impacts, which will make the investment uneconomic, Telstra wouldnt invest in
that sort of environment because and nor would our shareholders expect us to.
Slide 12. I just want to turn briefly to the history of regulatory pricing decisions that
create uncertainty. Again, we cant have this sort of uncertainty as we move into the sale
of shares. There has been a long series of inconsistent pricing decisions, a history of
changing course, a record of varying pricing approvals and, in recent times, no regard for
alignment with government social objectives, such as retail price parity.
21
The table on this slide shows examples and Im not going to go through each one of
these, youve got the slides, or access to the slides but there are multiple pricing
methodologies and inconsistencies. For example, just take a couple: Local Call Resale
pricing is retail minus and averaged. Unbundled local loop is TSLRIC and de-averaged, and so
on. So you can read them for yourself, Im not going to go through them. The point here is,
there is inconsistency and therefore uncertainty as to what the regulatory outcome might be.
It starts to get exciting here. As I said earlier, this is about investing in the future of
this company and the future of this country. I would like to comment on Telstras investment
commitment. This is about who will invest in telecommunications infrastructure and Telstras
future ability to do so. Telstras investment commitment dwarfs that of SingTel Optus, and
you can see from this slide. Any competitor fixed line investment is geographically limited
to high population density regions, and, to be fair, of course there is some inner capital
backbone. This is the level of our commitment, but we will not invest in the future where it
is not economic to do so.
This is also an interesting slide. This is what the regulatory environment has created for
us in Australia. This slide demonstrates that over the last two years the regulatory
environment has encouraged our strongest competition to ride on the back of Telstras
investment, rather than sell on to their own. You can see there, resale and you can see the
SIOs on their own HFC cable. I would suggest to you that our competitors have parents with
strong cash positions and strong balance sheets and could invest in infrastructure, as we
have, and we would get innovation and more investment in the country. It suggests a free
ride and that it is cheaper to buy access than to build and/or operate their own network
theyve already built. So thats the free rider happening of today.
Lastly, I would like to address the claim and Ive heard this a few times that Telstras
copper network is a legacy of its monopoly history, and therefore the cashflows enable
Telstra to fund a Next Generation Network, and therefore competitors should have access
assured, or as right, to access that Next Generation Network. This argument is both
opportunistic and wrong. When Telstra was part-privatised in 97, the ownership of the
copper network and other assets was legally transferred to the company, and shareholders
bought shares on this basis. Short of nationalisation, non-shareholders have no right, nor
legitimate claim, to the ownership of or proceeds from that network that was built, or
started to be built, 100 years ago. Telstra does supply access to its copper network in
accordance with regulatory requirements, including the specified terms and conditions. As I
said at the front, were not talking about no regulation, we are talking about what access
is available today remains. What were looking for is the safe harbour with a new network
and ,even then, were suggesting that access might be provided on commercial terms.
The competitive carriers seeking access to Telstras New Generation Network did not operate
in Australia pre-1997, or not at least in any degree, and they, therefore, did not
contribute to the building of the copper network. Now, again without contributing, this time
to the NGN, they opportunistically seek the right to benefit from Telstras investment. This
is why were so adamant about the capability of them being able to invest and not free ride,
as you can see is the case today.
Telstras competitors certainly consist of large multi-national telcos, many of which could
fund their own Next Generation Network. Instead, they invest elsewhere. SingTel has
systematically invested in Asian mobile businesses while limiting its
22
Australian fixed network investment to high density, metropolitan and CBD areas that
is, cherry-picking, and/or riding on the back of ours.
Again, I repeat, this is not about having no regulation, it is about fair competition. It is
about recognising that competition is robust and strong in Australia, and that to limit
Telstras ability to invest is not good for Telstra, Telstra shareholders, but, more
importantly, its not good for Australia, and youll see that demonstrated by the European
commentary and the US commentary.
So I hope thats helped you understand some of the logic behind what were talking about. I
hope it has helped you understand a little bit more about the numbers in our plan and whats
possible and whats not possible.
I might just clarify a little bit of the numbers and Ill maybe anticipate a question
here. You might recall that on the Strategy Day I talked about status quo versus full
integrated plan, and the difference between $30 ULL and $13 ULL cumulatively, over five
years, is nearly $3 billion. So you loose of your 12 million revenue status quo versus
fully integrated, now it comes down from 12 to 9. So you can easily work out how that gets
to 6 billion in PV, etcetera. Our penetration assumption, year 5, is 14 per cent ULL, so
youll understand that thats whats behind the numbers. Sorry, Im trying to anticipate a
question, Im sure theyll come.
So thanks for listening to that. As I say, I hope you understand our numbers. The whole
idea of this session was to elaborate on the red asterisk, I guess, and hopefully weve
done that today. Phil, back to you.
PHIL BURGESS: Thank you, John.
Before I open up to questions, let me just make a few closing remarks. I want to be clear,
first of all, that we have not and are not challenging public policy makers or regulators
just to improve things the edges for Telstra. These are core issues that go to the nerve
centre of our business. We are seeking changes in policies and regulations to protect our
shareholders as we invest and innovate to bring Next Generation Networks to Australia.
Clearly, we prefer to have a cooperative and close relationship with all governing
authorities, but in circumstances where regulatory policies can have the kind of devastating
effects we have outlined today, devastating effects on our shareholders, our company, our
industry, we must raise and seek appropriate redress.
Second, we will not relax our advocacy as long as intrusive regulations advance the
interests of global competitors at the expense of Telstra shareholders. I think people are
beginning to understand that our engagement is not a flash in the pan campaign. It is not
opportunistic, it is based on hard commercial reality. Telstra management, employees and
shareholders are in this for the long haul. We are not the only people talking about the
need for more regulatory commonsense in Australia.
We note that the Business Council for Australia, on the business side, and even on the
government initiatives, from the OECD and from the Australian governments new Task Force on
Reducing the Regulatory Burden on Business, there is widespread attention being given to the
proper regulation. Like others, we understand that we need to make the
regulatory debate real and accessible for all. We will continue to attempt to educate,
inform, participate and welcome the views of those who come from a different perspective.
These are important national
23
issues. We may not be right all the time, but we have an obligation to our
shareholders, our customers and employees to state, as clearly as we can, the
value-destroying impact of onerous, outdated regulatory interventions, and the
opportunities for jobs, hope and economic development to people, enterprises and
communities around the nation, no matter where they live.
Third, I think that people increasingly understand that we have a point. We have seen what
happened overseas and some of us have lived through it. Australia is fortunate, in one
respect, to be lagging behind the rest of the world, because we have the benefit of
international examples of once-great companies that no longer exist because of misdirected
regulatory policies. We have examples of bankruptcies of competitors who relied on ULL
instead of investing in their own networks, examples of lagging investment and stunted
innovation because of the very same policies which are today being pursued in Australia. As
I said earlier, we shouldnt have to relive history to learn from it.
Fourth, I hope it is clear that claims about Telstra preserving its monopoly dont hold
water. The monopoly days are long gone. Since 1997 the market has grown from two or three
carriers to more than 100 carriers and 1,000 carriage service providers, and more than 700
internet service providers. Telstra has competition in the cities. For example, Optus HFC
gives them access to 69 per cent of the customers in Sydney, 75 per cent of the customers in
Melbourne, 51 per cent of the customers in Brisbane. The bottom line: Telstra is a large,
integrated communications company. It has lots to offer its residential and business
customers, but it is no longer a monopoly and should not be treated as one.
With that, let me open this up to questions. Why dont we take just two minutes to let
people stand up and shake their arms and legs, and in the meantime well get everything set
up for the question period and then begin.
QUESTION: Its Andrew Hines from Morgan Stanley. Thanks, Phil. You stated that its no
longer a monopoly, but when you look at the margins and returns Telstra generates, and these
are monopoly margins and returns, they are the worlds best EBITDA margins. As John said in
his presentation on 15 November, current return on invested capital is 27 per cent. Thats
more than three times your cost to capital. You are looking for a reasonable regulatory
outcome, which is actually going to expand that return to 33 per cent.
Now, are you really expecting the government to give you some concessions that will allow
you to make incremental investment thats not only going to maintain already high margins
and returns, but actually expand them? If you look at this issue about ULL pricing, you
know, maybe the ACCC pricing is below cost, I dont know. We dont really know the answer to
what that cost is. But if ULL is below cost, what other products are you selling that are
way above cost that are allowing you to generate these exceptionally high margins? When you
look at things like safe harbour for new investment, I mean are we just going to repeat the
ridiculous situation back in the 1990s, where we had Telstra and Optus chasing each other up
the streets, running fibre? You know, surely thats not in the national interest, that we
get multiple investment of fibre networks in the country. Surely one piece of fibre
investment is all the country needs. When look at things like de-average and de-averaging
ULL pricing, surely the way the public policy in this country works is to subsidise rural
services through government subsidies. Thats the reason for having USO schemes,
(indistinct) schemes, the whole Connect Australia package that was introduced by the
government as part of the T3 legislation. Nowhere in
24
any of your numbers there have we seen recognition for any of those subsidy
schemes. I was wondering if you could respond to any of that?
PHIL BURGESS: Next Thursday well have another regulatory workshop on those questions.
John, do you want to lead off?
JOHN STANHOPE: Yes. Let me say Ill try and pick up, there was about 15 questions
there, but Ill try and pick up the margins question, Andrew.
Look, you have reached the conclusion that 50 per cent margins are monopoly margins and
shouldnt be made. You and I will fundamentally disagree on that point. I have been in the
business for 38 years and it, fundamentally, hasnt changed from building an access layer
and then adding value on top of it. The added value, if you do it right, comes at an
incremental cost. We want to repeat that yet again. So our next generation network, yes, it
costs you a fair bit of money to put it in, but then it enables you to bring services,
applications to the customer at an incremental cost. The customer will pay what value they
believe that service is worth. So I dont agree that theyre monopoly margins and those
levels of margins, we have no right to continue at those levels of margins, I dont just
fundamentally agree with that point. We ought to be trying to optimise margins as a
business. And how? Its how I just described it. Its wireless as well, and high speed and
wireless applications and content on wireless. I get asked the question, How can Sensis
nearly double their revenues? Well, the traffic from broadband across to Sensis, weve just
noticed in the last month, you know, and how we can monetise that traffic with transactions,
an EBay substitute, or EBay-like transaction activity and so on. So I dont agree that we
shouldnt be making those sort of margins and that theyre not possible to be made, and I
dont think it bears any relevance in the future to monopoly.
Replicated networks? Look, I think the worlds moved on from HFC versus copper and there are
ways I mean, when wireless speeds get up to possibly up to 14 meg speeds, there will be
alternative services and applications being able to provide without huge duplication of, or
no duplication of fixed network services. So I think the technologies have moved on. By the
way, we should make this point clear again: Were not denying access, either. We are saying
access at commercial terms. Fair return for the investor, us and our shareholders. So there
still remains a possibility for access, if it is at commercial rates.
QUESTION: Andrew Hines. What do you think a reasonable return is, John?
JOHN STANHOPE: Well, you know, youve got to at least get your cost to capital. What were
seeing today, Andrew, is that ULL is below cost. Were only arguing, in a ULL sense, for an
average of $30, which is cost. I mean, hey, that would be a great start. But, of course, we
would want at least cost to capital. Youve got to take into account some risk on your
investment. So, you know, Im not going to sit here and say what return I would
expect, but cost to capital plus.
QUESTION: Andrew Hines. 33 per cent?
JOHN STANHOPE: That sounds like monopoly margins. No, Im not going to sit here and say
what we think we should have.
QUESTION: Andrew Hines What about the subsidy issue? You know, a lot of government
subsidies of the rural costs?
JOHN STANHOPE: Sorry, what was that?
25
QUESTION: Andrew Hines. The issue in all your numbers that youve put up there, you
havent made any real acknowledgement of things like USO, high best schemes, Connect
Australia, all those programs.
JOHN STANHOPE: Yes. Look, we acknowledge that there is an USO, we do receive, from our
competitors on a market share .. Eligible revenue basis. But we have argued and we continue
to argue that its still below the cost. We all know, sitting in this room, that it was
arbitrarily set sometime back by the previous Minister, and it is below what it actually
costs us. Now, our concern, therefore, on the proposition thats being put forward by the
regulator and our competitors, is that government subsidy can fix up the inequity in rural
Australia. Our concern is that we havent, as you heard me say, got full tote odds before,
and thats the risk and danger in that for us.
PHIL BURGESS: Jeff, did you want to add something there?
JEFF EISENACH: Well, I would just come back to the fact that, as John said, were way past
the 1990s in terms of the technologies available to be rolled out. So point number one is,
the notion that we cant have competing infrastructures, and two of those infrastructures
requiring very little relative investment in facilities, those being wireless
infrastructures and broadband over power line infrastructures, which, as I said,
increasingly are looking after Ive been sceptical of
them and I think many people have
but I think the recent data, with dozens, if not hundreds, of pilot programs taking place
around the world here in the United States, down the road from me, we have a very large
program with 12,000 subscribers on a broadband over power line program in (indistinct)
Virginia that seems to be very successful. So I think the point here, as the FCC says, is
not that these alternative competitive infrastructures have to be rolled out to the same
number of subscribers or have the same amount of penetration, the point is that they place
competitive pressure on the market. Thats what were finding here in the US and I think
that is the 2005, going forward, market reality, pretty different to the market reality of
1995 or 1998.
PHIL BURGESS: Kate, did you want to add anything?
KATE MCKENZIE: Just to say, on the USO question, that the last figures that the ACA put
together, back in about 2000, estimated the cost of the USO at about 550 million. But the
determination for this year says the industry contribution is 171 million, of which about
70 million is paid for by the competitors. So thats about a $470 million gap. So you can
see why John is making the point that were really not getting the cost of providing the
USO.
PHIL BURGESS: Tarek, anything?
TAREK ROBBIATI: No, just on the point of the subsidies question, I mean this has been looked
at in Europe. Its not because youre subsiding a rural area that youre necessarily going
to have the demand for the service in that area. I refer you back to the comment from OFCOM
that says there are significant consumer affordability issues. Thats why, you know, you
have to look at it on an overall basis. The problem with the de-averaging is that youre
actually creating a two-tiered infrastructure. How would the subsidies be distributed? What
is the adequate level of subsidies? All these practical questions have no answer. So you
have to look at how do you get people to take on the service seamlessly across the country.
26
PHIL BURGESS: Next question.
QUESTION: Its Christian Guerra from Goldman Sachs JB Were. A question for you, John: Id
just like to talk to you about plan B, if you like, and that is, if we assume, say, a worst
case or suboptimal outcome on ULL and if you get limited, or if you dont get the safe
harbour, what happens then in terms of, you know, how does the strategy change, whats the
outlook for capital expenditure and further investment? You know, what happens to prices,
etcetera, etcetera? Because, you know, obviously, you know, you spend a lot of time with us
two weeks ago, talking about the future, but there is obviously a very big caveat there.
JOHN STANHOPE: Christian, Ill repeat, actually, Sol and my answer of the 15th. Ive shown
you quite clearly and explained quite clearly today what happens in terms of the ULL impact.
If we dont get a satisfactory safe harbour outcome, and it forces, possibly, us into an
uneconomic situation, as Sol said, we wont invest. But let me also add, quickly, what we
both said on the 15th, that we will do all of the other things. We will do the wireless one
network conversion of CDMA, move to HDSPA speeds. We will do the IT rationalisation, because
it all makes sense to take costs out of the business to get to the one factory approach that
Greg described. Will we be able to get as much value added from the software incremental
cost value added services that I described to Andrew if we havent got the NGN? No. But as I
said on the 15th, we will move back towards the status quo, but we wont get back to the
status quo plan that we showed you on the 15th because we will do wireless, we will pay the
costs out. Because that assumes a status quo, so you dont do
that. So somewhere between
you heard me say today comparing average growth rates is only going to be about 2 per cent
if ULL is 13 bucks versus 30. So, you know, somewhere a little bit below that if you dont
do an NGN. The other point we made on the 15th was, also, that you wouldnt spend capital up
front, so the cash flow would improve in the early years of the plan, but your cash flow at
the back end of the plan starts to get worse because youre not getting the revenue from the
NGN software driven value added services.
QUESTION: Christian Guerra. Would you mind just clarifying the capital expenditure side of
things? Because you talked about CAPEX of around 23 billion for the next five years before
the NGN, IT, etcetera etcetera, which is an extra two to three.
JOHN STANHOPE: Yes.
QUESTION: Christian Guerra .So how does that look? Thats a total of 25 to 26
JOHN STANHOPE: Well you would still spend your $23 billion. Youre doing the IT, you have
still got a legacy system out there that youre supporting. You would be augmenting
exchanges and so on. Now, you remember on the 15th we described that the net extra capital
is $3 billion, but the spend, and Im trying to remember now, $14, $15 billion, was the
number on the new initiatives, of which about $10 was NGN.
QUESTION: Christian Guerra . Thank you.
JOHN STANHOPE: Over the five years.
27
QUESTION: Justin Cameron from Credit Suisse First Boston. Just to follow on a little
bit from Christians comments: There is probably two other things that you havent really
addressed, particularly in relation to guidance, John. One of those is what happens on the
wholesale side of the business. Obviously if you get a ULL outcome thats $13, there is
going to be a change in the way, obviously, you conduct your wholesale business, and that
will change again, the rollover of the customer base. Secondly, and Im probably following
on from Christians comment, then obviously fibre to the node can make ULL, in effect,
redundant on the copper side as well in the medium term. That would change all of the
assumptions again that youve got sitting out there. I suppose Im just trying to look at
your financial forecast and say well its all based purely on a lot of work on the ULL. What
its not done is considered wholesale and also fibre.
JOHN STANHOPE: Well, first on the wholesale point, let me make it clear: The impact of
lower prices on ULL, we have factored into the wholesale revenues and wholesale growth
rates. So that is in that set of numbers that I have said was $6 billion over a 10-year
NPV impact. So the impact on retail and wholesale of Telstra, weve factored in. To your
point about NGN and whether people start building ULL and seek commercial grounds access
to NGN: No, we havent factored that in.
QUESTION: Justin Cameron. Just going back on wholesale. I mean, what Im trying to
understand is, as an example ULL comes in at $13 and you say, Well lets try to push
wholesale down to a number thats below sub 20, to obviously reduce the economics of
people going down the ULL route, providing a more
JOHN STANHOPE: You mean broadband wholesale?
QUESTION: Justin Cameron. Yes?
JOHN STANHOPE: Wholesale DSL?
QUESTION: Justin Cameron. Yes. I mean, this is obviously the biggest risk that comes
through out of all this?
JOHN STANHOPE: Sure.
QUESTION: Justin Cameron. So that changes the dynamics significantly as well. So therefore
the guidance that youre saying Im just trying to look at the numbers there can be
such a huge swing factor, youve even indicated it yourself.
JOHN STANHOPE: I understand your point. You know, we could take wholesale DSL
prices down to try and suggest people dont go down ULL and they continue to buy
QUESTION: Justin Cameron. Which is a huge
JOHN STANHOPE: wholesale DSL from us. Look, there are many scenarios that you can model.
I guess were trying to simplify simple effects. I mean, you can have third order effects. I
went through first order and second order effects. A third order effect could be much lower
wholesale DSL prices, but and, you know, thats not in the numbers weve presented today.
PHIL BURGESS: Anybody, either Tarek or next.
28
QUESTION: Mark McDonald from BBY. I notice that OFCOM and BT have just reached
agreement in respect of ULL prices in the UK, with an average price of
81.69 pounds per annum. At current exchange rates, in Australia dollars, thats 191.42
or $15.95 per month. I have a couple of questions about the reference
value of international experience. Firstly, in the Australian regime costs are calculated
on the basis of efficient costs rather than actual costs. Weve had a lot of argument today
predicated on actual costs, which are somewhat academic in the context of the actual
regulatory regime that prevails here. Given that in overseas jurisdictions you can end up
with ULL pricing at less than $16 a month Australian, and given that you are looking to
take significant costs out of your network, what relevance does historically derived actual
costs have to a forward-looking process where your actual costs will be much lower and the
efficient costs potentially lower again?
JOHN STANHOPE: Okay. Let me be very clear: Our average $30 estimate is TSLERIC, so it is
the so-called efficient cost methodology applied. Now to your point: As time goes by, will
that cost change? The answer is yes. But were look for todays TSLERIC or efficient cost
to be able to be charged. Were saying today and you
heard me explain the difference
they think were out 20 to 25, we think the difference is 490, and its still on a TSLERIC
basis, not actual cost basis. So still an efficient cost to calculation basis. But, youre
right, over time, as you get more and more efficient and, you know, you review with a
regulator those sorts of cost base, then theyll change. But thats what it is today on a
TSLERIC basis.
PHIL BURGESS: Tarek.
TAREK ROBBIATI: Yes, I think on your point about BT and UK ULL prices, the price that I have
in my model is for shared ULL and its an annual price. The point that you were making about
the 81 pounds per year is a its interesting to highlight how they came up with that
number. I dont know if you read the documentation about this, but back to your notion of
efficient costs. If you read the documentation from OFCOM about this, they clearly state
that they have taken on board the decision, proactive decision from BT, to lower costs down
to the level of 80 pounds. Then theyve done their calculations themselves and they
concluded that, more or less, BT was right and that the right level was 81 pounds. What is
also interesting in the calculation is that they have taken the view that BT should make
decent return on the 81 pounds for the cost of the line, and they do estimate that a decent
return, i.e. the cost of capital that could be charged for this return is about 10 per
cent. So they are taking into account the need for the incumbent to make a living out of it.
Thats a key, interesting point. Unlike when you say Im going to set arbitrarily the cost
here, well let me try and find out what sort of returns have been factored in by the
regulator. How do they account for the fact that the line has to be maintained and that you
would have to operate the copper plant to maintain a certain level of quality of service?
Have all these questions been answered? I dont know in the case of Australia, but I can
tell you that in the interaction that has been observed in the UK for the case of BT and
OFCOM, there has been a consultation process and its very interesting to see that they came
up with the same result. The 81 pounds were actually provided by BT proactively and they
were at 81 pounds in the first place.
JEFF EISENACH: A couple of thoughts. First of all, of course, in the United States we also
followed a TLERIC model, and Im sure everyone knows, a TLERIC model is built, essentially,
by, first of all, having an engineering model in which computers design the optimally
efficient network using the shortest possible distances and the best possible technologies,
and then cost out the basis for what
29
it would cost to build that network today from a standing start from a complete
Greenfield. Of course, that methodology does not have anything to do with or bear any
relationship to that infrastructure thats already in the ground, which is to say its a
very hypothetical exercise. Wed all like to believe its a very scientific exercise, but if
youd just look at the experience in the United States, where we went into this process with
prices that were regulated by State Public Utility Commissions, initially when we put in
place TLERIC prices we lowered those prices 50 per cent. The prices that were in place
previously, arguably, were a form of TLERIC prices. Then, over the course of two more years,
we lowered those prices another 25 to 50 per cent, and nobody thinks prices were falling
that fast. So that gives you a sense of the inexactitude and inexactness that is inherent in
TLERIC estimates of forward-looking efficient costs. One way to think about whether the
resulting costs are too high or too low is the results that you get.
The results that weve got in the United States are the result that weve in a lot of cases
in Europe and certainly it appears that the results, even at todays rates in Australia
when new entrants choose to offload customers from networks, even networks that theyve
already built out, onto incumbent networks that they are reselling based on ULL pricing.
Thats a pretty strong indicator that the ULL prices are below the efficient cost. The
efficient cost should be one that, on the margin, incentivises new entrants to build out
new infrastructure. In practice that hasnt happened and that is an indication that those
prices are too low.
QUESTION: Afternoon. Tim Smeallie from Citigroup. Its probably fair to say that the ACCC is
working to its own agenda in regard to Telstras market share across all segments. If you
look at the numbers that have been outlined today, at a $13 ULL the number is still
indicating that youre getting a 49 per cent margin? I guess to look at how do you diffuse,
I guess effectively, on those numbers, youre supporting what Graham Samuels is saying.
You can still achieve 49 per cent EBITDA margin with a $13 ULL. The only way I can see you
can diffuse that argument from the ACCC would be to outline well how is that 49 being
derived on a segment basis by business. John, are you able to give us that split? Because I
would have thought the only way you could argue it with Graham is if youre saying your
fixed line margin is tanking. So where is the balance being recovered, is the
first question. Secondly, in terms of the core network upgrade, apart from getting some
headcount savings, where are any real benefits going to materialise in terms of the
functionality that you can deliver with that network if you dont do fibre to the node.
Because, effectively, youre stuck with a commoditised product suite, much the same as
everyone else, and youve got a downward price spiral across the entire industry.
JOHN STANHOPE: Okay. The answer to the first question, Tim, is, I have the margins across
each of the products group, but Im not going to reveal those today. Not just to say not
surprisingly, you know, the fixed PSTN margin has declined and we would expect, as I said
earlier, fairly high margins from value added services. So enough said about that.
Your other question about headcount: There is quite a bit of headcount opportunity from
platform rationalisation, both network and IT, even without an NGN. An NGN with 10 soft
switches, versus 5,500 switches, not many of those exchanges are manned, by the way, but
just the cost of augmentation and so on, youre right, if you dont move to 10 soft
switches. But you might still move to 10 and you probably would still move to 10 soft
switches in your IP core. Its about the access network that you probably want to invest in.
So you still save quite a bit of costs in turning your IP core into a Next Generation
Network. So I dont want you to think -
30
when we talk NGN and uneconomics and so on, we would still do all their core, as I
said, well do the wireless, well do the IT and so on, and so you do make a fair bit of
savings when you go from 5,500 hard switches to 10 soft switches. So I wouldnt conclude,
Tim, that if you dont do NGN you dont get significant cost savings still.
QUESTION: Tim Smeallie. Just coming back to the value added services, if you look at the I
guess the value add that you outlined at the previous briefing was effectively leveraging
your fixed line network anyway, and a lot of the services that you were looking to offer
JOHN STANHOPE: There was two elements. Sol and Bill talked about integrating services, you
know, one number and one click and so on. But Im also talking about new services from the
software intelligence in the Next Generation Network.
PHIL BURGESS: Tarek, do you want to add?
TAREK ROBBIATI: No, but since you I mean, just one side comment, since you like to do
(indistinct) as analysts, you like to do benchmarks, just look at the evolution of margins
at BT with the introductions of all the new services that they have. Look at the change in
the mix, in the revenue, and see the effect it has had on the margins.
QUESTION: Tim Smeallie. I guess Im thinking, from the ACCCs perspective theyre going to
look at your PSTN or fixed line network and look at what are the margins you can generate
from that business, even with a $13 ULL. So Im looking at, are you going to get a big
margin uplift from mobile? It would seem a massive challenge to do that. Are you going to
get a margin uplift from Sensis? And that would look like its a significant challenge also.
So you still come back to the value added services are going to be running on the fixed line
platform and thats what Graham Samuels is going to be focusing on in terms of the returns
for the business.
JOHN STANHOPE: But, you see, thats the very point. You know, we want to make this
investment and not provide access to it at a higher level, alright? Access to the access at
a reasonable commercial return is where were at, but we dont want to have to be to
provide the value added service function. They can do it themselves. They can invest in it
themselves. Because thats where the differentiation comes, right. You heard me say if, you
know, we cant do this sort of thing you are totally in the price competition, no value
differentiation in competition. So thats why were having this discussion and debate. But,
you know, to your point and a simple, a very simple example; wireless access has a margin,
right? Voice has a margin. SMS has a fabulous margin. Its a value add. Incremental cost.
Im talking about more of that, not SMS, but more of services like that.
QUESTION: Tim Smeallie. As long as theyre not included in the cap?
JOHN STANHOPE: Yes.
QUESTION: Tim Smeallie. Thanks.
QUESTION: Graham Woodbridge from Commsec. A question for Jeffrey. You talked a lot about
the US experience. Im just interested what the catalyst was for the change in the
attitude within the FCC to move away from very, sort of, heavy handed TLERIC-based
regulation to giving these safe harbours. Was it a change
31
in the commissioners? Was it, sort of, a policy-induced change? Was it a
policymakers intervening? Or was it just the evidence? Which was the major driver?
JEFF EISENACH: I mean, if you lived through what we lived through here in the United States,
youd have to say it was the evidence. First of all, the decisions that were talking about
have all been unanimous decisions, ultimately, by the Commission, not every vote has been
unanimous on every issue, but ultimately the decision to create these safe harbours, those
have been unanimous decisions, Republicans and Democrats across the board. At the end of the
day the Federal Communications Commission makes decisions on the basis of a large factual
record. Its an adversarial process where people on all sides come in and make their
arguments and the FCC makes its decisions. Gradually the arguments have gotten stronger that
the negative effects of ULL overwhelm the positive effects and that the Stepping Stone Model
that people were counting on in the late 90s to work, to be a bridge to a competitive
environment, turned out not to effective, just simply not to work in practice. Clearly,
another factor has been the development of next generation technologies. By that, WI-MAX, by
that broadband over power line. As I mentioned, the FCC places a great deal of importance on
those technologies in its findings. I guess one last factor is the were at an important
point in the history of the telecommunications sector and I think you can trace that a
little bit to the development of passive optical networking technology, PONDS fundamentally
changes the economics of fibre build, it simply wasnt economic up until the last three or
four years when PONDS technology became available and changed the economics. I think if you
look at the economics of a fibre build, the opportunity to build up that kind of
infrastructure, it becomes a pretty compelling prospect. You really have to look at the
costs of disincenting firms from doing that.
QUESTION: Graham Woodbridge. Just a quick follow up to that: It seems, Im not 100 per cent
sure, but the approach of Telstra is to try and get a policy induced result, rather than
convincing the regulator that theyve got it wrong and trying to change the attitude of the
regulator. Why wont the evidence stand up in front of the regulator today, here?
KATE MCKENZIE: I guess the short answer to that is sorry, you go first, Jeff.
JEFF EISENACH: I dont want to suggest that there was no policy involvement, I mean this was
a hotly debated issue in Congress. We had legislation introduced, in the late 1990s, there
was a very, you know, hot item in Congress for years. I dont want to suggest that there was
no policy pressure on the FCC to take another look. You know, I think when policymakers and
politicians look at the results of a policy like we had here in the United States, you can
bet that they were picking up the phone and calling the FCC and then legislation was
introduced and so forth. So I think its perfectly appropriate for policymakers, certainly
it was here in the United States, for them to look at whats happening in the marketplace.
That had an impact people who were appointed to the commission and it had an impact on the
overall environment in which the commission was making its decisions. KATE MCKENZIE: Yes, I
guess we also were trying to explain today that we think that the current legislative
framework wont deliver these results so it has to be policy intervention at the government
level, not something that we can persuade the regulator of. Thats true for ULL, thats true
for safe harbour.
QUESTION: Graham Woodbridge. Just one other quick question. I guess in convincing the
government or the regulator, or, ultimately, the courts, that legislation is I
think the major objective of XIC is to promote the long-term
32
interests of the end user. But you havent made too many comments about either how
averaging would do that or fibre to the node. How are you going to argue that, effectively,
in front of the regulator or the courts or the government?
KATE MCKENZIE: I guess what wed argue wed be basically saying that these new services
shouldnt be subject to Part XIB and Part XIC, they should be subject to the normal regime
that applies to other industries, part IIIA and section 46, where its a monopoly test. We
think thats the right test going forward.
QUESTION: Graham Woodbridge. So youre trying to get a change in the objective of
XIC? Is that the objective?
KATE MCKENZIE: Were basically saying XIC should be limited to legacy products and
shouldnt apply going forward. It was designed for an old world that we dont live in
anymore.
QUESTION: Yes, hi, its Phil Campbell from Citigroup. Just following on from that question,
could you just help us understand the regulatory timeline in terms of, you know, if you are
going to try and effect this policy change, how thats actually going to work in practice?
Because, obviously, next month we expect a ULL decision from the ACCC on a de-averaged
basis, unless you withdraw your undertaking. Can you just help us try and understand, over
the next 12 months, because obviously you want to have this done before T3, if it does
happen next year, exactly how or what data points we should look out for in terms of time
frame?
KATE MCKENZIE: Once again I think that thats another, sort of, hours worth of laying out,
sort of, the full intricacies of the timetable. But, youre right, were expecting a
decision on ULL so weve certainly had some very focussed discussions with government
about their preparedness to intervene. Were looking for a decision certainly before the end
of the year. On operational separation, similarly, those discussions have been underway for
a number of months now, and, as I understand the governments timetable, the outcome of that
should be know in the next few weeks. On the safe harbours, thats a little more problematic
because I think weve concluded that the only way that that can be made to work is if there
is some legislative change, and the next opportunity for that would be the first quarter of
next year.
PHIL BURGESS: Okay, thank you very much. Feel free to take your leave, if anybody wants to,
otherwise well turn to the media. Okay, since nobody wants to
QUESTION: Excuse me, Phil. Hi, Colin Kruger, Sydney Morning Herald. I was just wondering
what punters odds are you offering on you actually getting away with these regulatory
changes?
PHIL BURGESS: Kate?
KATE MCKENZIE: I dont know that I want to get into punters odds. I mean, I guess, as
Phil and John and others have said, were in this for the long haul, we think weve got
valid arguments. Well keep prosecuting them for as long as it takes.
QUESTION: Just on that, Phil, Jennifer Hewitt from the Financial Review: You said that you
were going to continue this case and prosecuting this case, but you seem to have been
remarkably unsuccessful in persuading the government of this.
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Do you think that you could have handled things differently and perhaps had more
success if you hadnt been what the government sees as so confrontational? (1), and (2):
Just following on that thing about the arrangements in Britain with what BT has agreed to,
arent you, effectively, saying to people that if you get your way, that, at least in the
short-term, costs for people certainly wont decrease and will probably go up?
PHIL BURGESS: Let me just take a shot at that. I think the first part of the question on,
you know, remarkably unsuccessful. When we came here, we were told that all the decisions
were made on all these issues. The problem is that Sols vision for the company is
different from what was going on before and the kinds of regulatory environment we needed
in order to prosecute the vision that was laid out two weeks ago is different.
We made a decision, about one week after wed been here, that it was really necessary to do
our best to try to convince people in key positions that the regulatory regime needed to
change, to allow us, and others in the industry, to do the kind of innovation and the kind
of facilities development that is needed for the future of the country. So, yes, we had
meetings, a range of meetings under the radar, not in public. When we got nowhere with
those, we then decided we needed to talk to our shareholders, we needed to talk to the
public. We view this as a long-term effort. It may not happen over a short-term period of
time, we understand that. Its not going to happen by a process thats not transparent. We
think that shareholders have a big stake and at the AGM meeting this year, that was
reinforced when several of our shareholders got up and said, Were starting to understand
whats going on here and please tell us how we can help. Please give us the tools and the
information and the kind of resources we need, so that we can help others to understand the
changes that need to be made. So as I look back on the past several months, I think there
is no question that many issues that were said to be closed in July are still open today. I
think thats a good thing. I think the fact that ULL is still open, the operational
separation is still open, there are a range of issues that are still open on the table,
where we have a chance to try to have a meeting of the minds. I think that the meeting of
the minds is going to happen sooner, by the broad exchange of information that includes
people in government, people in the regulatory system and people in the society at large,
than it is behind closed doors. So thats the reason why were doing the strategy that were
doing. If it doesnt happen this year, well just have a broader base of understanding of
what our issues are, and hopefully at some point well get the kind of regime we need. But I
think in the end that, you know, weve had some somebody said once that a civilisation is
a place where people argue and quarrel and debate, and that Barbarians club each other. And,
yes, we live in a civilisation thats called a democracy and weve had debates and arguments
and quarrels, and sometimes theyve been quarrels. But in the end, you know, I think we all
want the same thing. Churchill said we dont have permanent friends or permanent enemies, we
have permanent interests. I think the permanent interest that we all have is to make sure
that 1.6 million shareholders dont get stuffed and that the T3 is a success, and that were
able to build out the kind of telecommunications future for this country that will allow it
to compete in the 21st century. So thats what our agenda is. If it takes two years to do it
or three years to do it, well still pursue that agenda.
TAREK ROBBIATI: One small comment, madam, to be clear on the BT price. The price that Ive
shown in the model is the one for shared ULL. The 81 pounds that the gentleman before was
referring to, is for full ULL. That includes the voice.
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When you said that prices in Britain might go up as a result of the 81 pounds level,
that may not necessarily be true because you have to compare
QUESTION: Jennifer Hewitt. No, I mean prices here.
TAREK ROBBIATI: Im sorry?
QUESTION: Jennifer Hewitt. Sorry, I was talking about prices here, actually. You know, if
youre talking about getting what you want, I mean the inevitable result be prices going up
here.
TAREK ROBBIATI: Alright. Alright.
JOHN STANHOPE: In response to that, Jennifer, I think I tried to show, on the
competitors slide, that there is a lot of room to move without consumers prices having
to go up. The reference to high margins before; the margins will still be high, even if
we get an at-cost ULL charge out rate. Because you can see from those margins that there
is plenty of room to move without consumers suffering from price rises.
QUESTION: Michael Sainsbury from the Australian. There has been a lot of talk about this
Next Generation Network, but I think youve indicated it only goes to 4 million Australian
homes, which is only about half the people. So Im just wondering what happens with
everybody else. Are we going to end up with a two-tier Telstra where some customers get some
stuff, the new stuff, and other customers are, kind of, stuck with the old stuff? The
next bit of the question is, Telstras talked about competitors being able to build wireless
networks and how good wireless is and that will be competition to fibre. I mean, if thats
the case, why doesnt Telstra just build a wireless network because its going to be a hell
of a lot cheaper than a fibre network? Just a question for John: Given the broad range of
earnings for this financial year, you sort of gave an indication of a couple of weeks ago,
can you tell us where were heading? Are we heading closer to 20 or closer to 33?
JOHN STANHOPE: Ill answer the last question. No change, Michael, to what I said only a
couple of weeks ago.
QUESTION: Michael Sainsbury. It was a pretty big range. Do you have a feel for it yet?
JOHN STANHOPE: It was a range from we started off with a 7 to 10 per cent on business
performing as usual. Then I said to the impacts of the new strategy, when you include
restructuring and redundancy provision, can be somewhere between, I think, 25 and 30 per
cent, I said. There is no change to that. I cant be any more specific. I tell you why I
cant be any more specific. Its because when you start to get into the detail of
identification of assets that need to be accelerated, and I did mention this on the day,
that you have to do that detailed work, we have to do the detailed work of what is in a
restructuring provision, how much do you allow for buying yourself out of accommodation
leases and so on. So it gets to that level of detail, Michael, and but as the year
progresses, we will disclose to the market as those numbers harden up. So thats the answer
about earnings guidance.
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KATE MCKENZIE: In relation to the other questions youve raised, Michael, I think we
are building a wireless network, and in some parts of the country thats probably the right
way to go. I guess were getting to the point in the Telco industry where we need to focus
on what services are coming off the end of these networks, rather than what particular kinds
of technologies were employing. Because I think what customers are really interested in is
what can they get, and you should really leave it to the market to figure out whats the
best, most economic kind of infrastructure to build to provide those services off. In some
cases that might be wireless rather than fibre, or some other kind of infrastructure build.
QUESTION: Tony Boyd, Financial Review. The Communications Minister, Helen Coonan, has made
it clear that she backs the ACCC there was a letter in our paper last week. Are you going
to rely on the Prime Minister or Barnaby Joyce to get what you want on the ULL? Secondly,
Ive got another question for John.
KATE MCKENZIE: Look, I mean, I think, you know, we have open dialogue with the
government, as you would expect. We talk to the Communications Minister, we talk to other
people in government, and will continue to do that.
QUESTION: Tony Boyd. But do you agree that shes made it clear she backs the ACCC
position?
KATE MCKENZIE: I think the Minister has made a number of comments and we still have a lot
of dialogue with her on these issues, you know. We hope well be able to persuade her to
change her mind on some things.
QUESTION: Tony Boyd. If the ULL goes against you, John, would you expect that MPV that you
put up, the 6 billion, to be reflected in, you know, in the share price?
JOHN STANHOPE: Well, yes, the 6 billion certainly has an impact on the value of the company.
Thats the impact on the value of the company over a 10-year period of $30 to 13. So
QUESTION: Tony Boyd. So is it fair to say thats about 50 cents a share, divided by 10?
JOHN STANHOPE: Look, Im not going to speculate on share price changes. People factor in
many things, Tony, as you know. But what I was trying to demonstrate today, over a
10-year period, the difference and what impact it can have on the enterprise value.
QUESTION: Mr Burgess, Peter Ryan from the ABCs PM program. Just a quick question on the
outlook for T3. At this point do you see it as a sure thing, a possibility or a likelihood?
And, as the policy debate continues, do you see a point where you might just say, All bets
are off, T3 is not happening?
PHIL BURGESS: John is chairing the T3 committee. John, do you want to
JOHN STANHOPE: Yes, its a good question. Its not our decision to make. I think the
government has already said that, you know, February, March of next year theyll decide
whether T3 will proceed. You have seen whats happened over the last week, that the
preparation continues by the appointment of joint global coordinators. We still have the
desire to participate in T3, its still board and
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managements desire to do that. But whether it happens and when it happens is
totally their decision, not our decision.
QUESTION: Peter Ryan. Just to follow up on that, how would you describe your current
relationships with the government, in particular the Minister for Communications, Helen
Coonan?
PHIL BURGESS: Good. How would you describe yours?
KATE MCKENZIE: I think we have good, robust discussions on these issues, as you would
expect.
PHIL BURGESS: Any other
QUESTION: Just one further question. Colin Kruger again. Im just wondering, if you get safe
harbour on the fibre investment, doesnt it mean that you can wipe out the ULL competition?
I believe one of the analysts was asking this, but it didnt really get answered.
KATE MCKENZIE: No, in fact ULL competitors can still provide the ULL services from the
exchange up to the node. You can take the fibre out to the node, but theyve got the
option of putting their own equipment out there. There is plenty of options and plenty of
opportunities and it doesnt wipe out their current service provision up to 1.5 kilometres
from the exchange at the same speeds that theyre offering now.
QUESTION: Colin Kruger. But surely you would be able to offer, like, you know, very
high speeds at very low prices?
KATE MCKENZIE: Were suggesting that if we take the risk and we put our capital into
building up that kind of infrastructure, they can do the same thing and offer the same
services themselves. But we shouldnt have to give them below cost access to our high speed
services that weve taken the risk and built ourselves.
PHIL BURGESS: Or they can buy those services at commercially viable levels. Okay.
QUESTION: Colin Kruger. Just one last question, which was: Youve talked about this a
little bit, but I just wanted to get some breakdown of that. Youve talked about the value
added services that will be obviously assisted by the Next Generation Network. Now, if you
do not build that, what are the types of value added services that you will not be able to
provide?
JOHN STANHOPE: Many of them are probably still on R&D drawing boards, but applications and
content over a high speed fixed network. Its the band width speed that enables the, sort
of, value added services to come along. What we will do, though, is well focus on
providing them over wireless, and well get very focused on wireless, not that we wont,
you know, be focused on it, dont get me wrong. But if were not building an NGN, then the
focus will be on doing wireless, getting high speed wireless access to provide the
applications and content by wireless. But youd like to be able to provide it over fixed
and wire line wireless and fixed.
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PHIL BURGESS: If I could just tag onto that. I think the other important thing to keep
in mind here is that a lot of these services, we dont know what they are today. I mean, one
of the big differences between among the networked industries is that telecommunication is
different from most of the other networks because the other networks only carry one thing. A
water pipeline carries water, a gas pipeline carries molecules, a railroad carries rail
cars. So the question about what new services are you going to carry through that network is
not really at issue, but in telecommunications it is an issue. I mean, if we had to declare
our services, as the regulations require us to do today that were going to have on our
network in 1985, we would have said ADSL. I mean, the point is that you have services youre
going to carry that you dont they havent even been invented yet. It would be like if
McDonalds goes into business and has to go to a regulator before it goes into business and
declare what its going to do on its ovens and says, Were going to cook 15 cent
hamburgers, which is what they cost originally, and they say, What else? they say,
French fries. Then they come along and say, 15 years later, We want to do a fish
sandwich. Well, fish sandwich, you know, you didnt that. So they have to do a mother,
may I to a regulator before you can do a fish sandwich. Then you do the fish sandwich and
you get permission to do it, and Hungry Jacks comes across the street and says, I want to
buy those fish sandwiches, by the way, at a discounted price, and, by the way, I get the
first batch. Im going to sell a lot of them and if you want more, youve got to build
another oven. By the way, you build the oven at your own expense. By the way, the cost of
the air-conditioning and the gas and the electricity and the lights, those dont go into the
price.
QUESTION: Colin Kruger. Im glad we got that sorted out.
PHIL BURGESS: Want to buy a fish sandwich?
QUESTION: Colin Kruger. The other thing is, you said you didnt want to see T3 shareholders
stuffed. Now, are you saying that if you hadnt had that level of public debate with the
government and the robust debate, that, in the end, T3 shareholders would have been paying a
much higher price than they should have done until all of this was out in the open?
PHIL BURGESS: I would say my reference to shareholders being stuffed are existing
shareholders, T1, and T2. I think we all have, everybody should have, all shareholders,
majority and minority shareholders, should have and are required to have a concern, a
fiduciary responsibility for the rights and privileges and interests of all shareholder. So
just to pretend that there is only one shareholder out there, the majority shareholder, and
their views are the only one that counts and the views of majority shareholders dont
count, isnt something that we affirm. Since weve been here, weve been very clear about
the rights of all shareholders.
JOHN STANHOPE: My point, Jennifer, of referencing T3 was that you would prefer to go out to
the marketplace with more certainty about how the company will operate, rather than 50, 60,
100 pages of all the risks that the company faces. So certainty, when youre entering a
sale of shares, is far better than a whole lot of unknowns. So that was point I was making.
So if we can get these, its far better for the prospective shareholders of T3.
QUESTION: Colin Kruger. Sorry, one last question: If you build the fibre to the node, what
happens to the existing copper that all of your competitors are currently using?
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KATE MCKENZIE: I think, you know, thats a kind of network engineering question thats
probably better addressed to Greg Winn at the technology day, but my understanding is that
that will depend on which part of the network youre talking about and what the
circumstances are.
QUESTION: Colin Kruger. But this could have devastating implications for a whole lot of
companies, couldnt it, the decision you make on that?
PHIL BURGESS: We still provide access. We have a legal requirement to do that. So we have to
figure out a way to do that. I mean, thats an obligation that we have. In the national
broadband plan we laid out one way of doing that, there are other ways of doing it. So its
an issue that were aware of, and, you know, were going to obey the law, no matter what. So
it will be handled. I mean its a moot issue in the sense that, you know, were required to
acquire access. Any other? Okay, thanks for coming, everybody.
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6 December 2005
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Dear Sir or Madam
Retirement of Doug Campbell, Group Managing Director, Telstra Country Wide
In accordance with the listing rules, I attach a copy an announcement to be made today by
the Chief Executive Officer, Sol Trujillo, for release to the market.
Yours sincerely
Douglas Gration
Company Secretary
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Telstra Corporation Limited |
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6 December 2005
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Retirement of Doug Campbell, Group Managing Director, Telstra Country Wide
Dear colleagues
I am writing to tell you that our colleague, Doug Campbell, has decided to retire later
this month from his position as Group Managing Director, Telstra CountryWide.
With over 48 years experience in the telecommunications industry, both in Australia and Canada,
Doug is one of our most experienced executives. During his time with Telstra, and its
predecessors Telecom Australia and the Overseas Telecommunications Corporation, Doug has served
in multiple senior positions. At different times he has been Group Managing Director for the
companys wholesale, international, carrier services, network and technology, and consumer and
commercial business units.
Doug is perhaps best known, however, for his leadership of Telstra CountryWide since 2000.
Doug not only built a commercially successful business serving our valued customers in rural
and regional Australia, but he also built durable and long-standing alliances with regional
communities and organisations across Australia.
In addition to his business unit responsibilities, Doug has been a valued member of the Telstra
leadership group for many years. Doug has shaped the business over many years, and continued
to play an influential role this year as part of our strategic review. His contribution to the
leadership group will be greatly missed.
Given his broad and deep knowledge of the business, I am very pleased to announce that Doug
has accepted my invitation to continue his long association with Telstra. Doug has agreed
to serve in the role of Executive Advisor to the CEO. This job will include, but not be
limited to, special responsibility for developing our business in rural Australia,
representing Telstras interests to rural constituencies, and assisting us as rural
customers upgrade their mobile phone services from CDMA to 3G. In addition, Doug has agreed
to serve on the TCW Advisory Board. I look forward to Dougs continuing contribution to
Telstra in his new capacity.
On behalf of Dougs many colleagues and friends throughout Australia, I sincerely thank him for
his contribution to Telstra and its predecessors, the telecommunications industry, and this
nation. We also thank Dougs family for supporting him during a demanding career.
Although Dougs departure from TCW will be a loss for the company, it does not signal any major
changes to the highly successful Telstra CountryWide model the company has adopted in 2000.
TCW will continue play a critical role in our ability provide services to regional, rural and
remote Australia.
In the coming weeks I will outline plans for the leadership of the business unit.
Regards Sol
Trujillo
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7 December 2005
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4th Floor, 20 Bridge Street |
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SYDNEY NSW 2000
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Telephone 03 9634 6400 |
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Facsimile 03 9632 3215 |
ELECTRONIC LODGEMENT
Dear Sir or Madam
nowwearetalking.com.au
Today we are launching a website called nowwearetalking.com.au designed to be a platform for
information and debate on important issues affecting telecommunications in Australia.
The website can be accessed via www.nowwearetalking.com.au
This website will be updated periodically.
Yours sincerely
Douglas Gration
Company Secretary
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9 December 2005
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Company Announcements Office
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SYDNEY NSW 2000
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242 Exhibition Street
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Telephone 03 9634 6400
Facsimile 03 9632 3215 |
ELECTRONIC LODGEMENT
Dear Sir or Madam
Hong Kong CSL and New World PCS to merge
In accordance with the listing rules, I attach a copy of a media announcement for release
to the market.
Yours sincerely
Douglas Gration
Company Secretary
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Telstra Corporation Limited |
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ACN 051 775 556 |
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Media Release
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9 December 2005 |
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Hong Kong CSL and New World PCS to merge
Telstra announced today that Hong Kong CSL Limited and New World PCS Limited will be
merged on a debt free basis, giving Telstra first mover advantage in the HK market and
significant cost savings.
The merged company will become HKs largest mobile business with 34 per cent market share,
creating scale benefits.
Telstra will own 76.4 per cent of the merged company and receive HK$244 million in cash
(approx. A$42m), whilst New World Mobile Holdings (NWMHL) will own 23.6 per cent.
Telstra can nominate four directors to the Board of the merged company (including the
Chairman) and New World, two directors.
CSLs
CEO, Hubert Ng, will be the CEO of the merged business to be called CSL New World
Mobility Limited.
All of CSLs and New Worlds brands will be retained as they target different market segments.
Telstra and NWMHL believe that they can achieve significant synergies and cost savings
through rationalisation of networks, IT systems and corporate support.
The merger is not expected to result in any gain or loss in relation to Telstras holding in CSL.
Consequently no change will be made to Telstras existing carrying value of CSL.
Telstras CEO, Mr Sol Trujillo, said, The merged business will have first mover advantage in
the long-awaited consolidation of the HK cellular market.
A merged CSL and New World is well placed to provide leading services in Hong Kongs
dynamic, competitive market.
The two customer bases are complementary CSL predominantly operates in the higher value
customers, while New World has achieved 17 per cent market share by targeting value-conscious
subscribers through a low cost business model, he said.
Telstra CFO, Mr John Stanhope, said, CSL is already Hong Kongs No.1 mobile operator in
terms of revenue per customer this merger will also make it No.1 in terms of revenue,
profitability and subscriber numbers market. This merger is expected to deliver over A$400m of
cost savings.
1 of 2
Telstras national media inquiry line is 1300 769 780 and the Telstra Media Centre is located at:
www.telstra.com.au/abouttelstra/media
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Telstra Corporation Limited |
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ABN 33 051 775 556 |
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Media Release
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The merger meets Telstras acquisition criteria. It is cash flow positive and EPS accretive from
year one; and its ROIC exceeds consensus WACC in year two, he said.
This merger is subject to the approval of the NWMHL shareholders and consent of the
Telecommunications Authority of Hong Kong with completion of the transaction targeted for 31
March 2006.
Media contact:
Graeme Salt
+61 2 9298 5256
Telstras national media inquiry line is 1300 769 780 and the Telstra Media Centre is located at:
www.telstra.com.au/abouttelstra/media
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ABN 33 051 775 556 |
9 December 2005
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AUSTRALIA |
4th Floor, 20 Bridge Street
SYDNEY NSW 2000 |
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Dear Sir or Madam
Hong Kong CSL and New World PCS merger analyst presentation
In accordance with the listing rules, I attach a copy of the presentation to be made today,
for release to the market.
Yours sincerely
Douglas Gration
Company Secretary
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Telstra Corporation Limited |
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ACN 051 775 556 |
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13 December 2005
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Office of the Company Secretary |
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Company Announcements Office
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Australian Stock Exchange
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SYDNEY NSW 2000
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Facsimile 03 9632 3215 |
ELECTRONIC LODGEMENT
Dear Sir or Madam
Appointment of Geoff Booth, Group Managing Director, Telstra Country Wide
In accordance with the listing rules, I attach a copy of an announcement for release to the
market.
Yours sincerely
Douglas Gration
Company Secretary
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Telstra Corporation Limited |
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ACN 051 775 556 |
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ABN 33 051 775 556 |
13 December 2005
Appointment of Geoff Booth, Group Managing Director, Telstra Country Wide
I am pleased to announce that Geoff Booth has been appointed Group Managing Director,
Telstra Country Wide.
Geoff has worked in the Australian telecommunications industry for 33 years. He joined
Telecom Australias marketing and sales management group in 1986, and later assumed senior
executive roles in the business and government function, directing large sales teams
handling the companys major mining and exploration customers.
Upon the creation of Telstra Country Wide in 2000, Geoff was the selected as western region
managing director based in Perth. In this role, Geoff was responsible for TCWs many
customers in Western Australia, South Australia and much of the Northern Territory. When
Geoff recently moved to Victoria, he was appointed acting southern region managing director,
based in Melbourne, managing TCWs customers in Tasmania and Victoria.
Geoff has been a member of Telstra Country Wides leadership team for five years. During this
period he has made an outstanding contribution to the business, not only delivering great
commercial results, but also developing extremely strong and durable links with rural, regional
and remote communities across five states and territories representing some three-quarters of
the nations landmass.
When I announced Doug Campbells departure, I said that Telstra remains committed to the
highly successful TCW model. I am pleased to affirm that Geoff shares this philosophy and will
work with me and the companys leadership team, as well as with Doug, to continue building our
business in the communities served by TCW. Like his predecessor, Geoff plans to spend much of
his time travelling around Australia meeting our people and customers. He will also spend time
in TCWs national headquarters in Albury. Geoff will report to me.
I look forward to Geoff continuing to deliver impressive results for Telstra and its
customers outside our major metropolitan centres.
Geoff, 51, married with three adult children.
Regards
Sol Trujillo
CEO
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Telstra Corporation Limited |
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14 December 2005
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Office of the Company Secretary |
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Australian Stock Exchange
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4th Floor, 20 Bridge Street
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SYDNEY NSW 2000
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Telephone 03 9634 6400 |
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Facsimile 03 9632 3215 |
ELECTRONIC LODGEMENT
Dear Sir or Madam
Speech by Senator Helen Coonan, Minister for Communications, Information Technology and
the Arts 2005 A Telecommunications Odyssey Address to Deutsche Bank
Attached for release to the market is a copy of a speech delivered today by Senator Helen
Coonan, Minister for Communications, Information Technology and the Arts.
Telstra requests that the trading halt over its shares now be lifted.
Yours sincerely
Douglas Gration
Company Secretary
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Telstra Corporation Limited |
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ACN 051 775 556 |
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ABN 33 051 775 556 |
Senator the Hon Helen Coonan
Minister for Communications,
Information Technology
and the Arts
2005
A Telecommunications Odyssey
Address to Deutsche Bank
Sydney
14 December 2005
Introduction
It is three months to the day since the Senate passed five pieces of legislation that
will change the face of telecommunications in Australia.
And as 2005 comes to a close I think all the telecommunications players would agree and
agreement is a rarity I can assure you that securing Parliaments authority to sell the
Governments remaining share in Telstra is overwhelmingly positive for the industry and
for the nation.
We are closer than ever to removing the Governments burdensome conflict of
interest in being both the rule-setter for the entire telecommunications industry
and the majority shareholder in the dominant telecommunications provider.
Of course, there were other important components of the Governments historic Connect
Australia package.
We have $3.1 billion to improve mobile phone coverage across Australia, continue to
connect Australians to broadband and rollout innovative health and education initiatives
to keep this country connected and to protect regional communications into the future.
The Government also strengthened and maintained key consumer safeguards including the
Customer Service Guarantee, the Universal Service Obligation, the Network Reliability
Framework and price controls.
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And we reviewed the competition and regulatory framework that applies to the
telecommunications sector to ensure it continues to be responsive and allow competition to
deliver real benefits for consumers.
The competitive framework has served all Australians well.
The economy is $12.4 billion larger than it would have been had the Government not
introduced competition and we have more than 100 telecommunications providers.
In the last year alone, 40 new carrier licences were issued, 26 of them with plans to
launch wireless services.
Competition encouraging new services
The Governments framework, while promoting competition has also been successful in
encouraging investment by industry.
Companies like iiNet, Primus and Internode have been investing in infrastructure that
offers consumers high speed ADSL services over the copper phone network.
Optus has announced that it will be investing more than $100 million in broadband
infrastructure and there is a lot of investment in alternative ways to deliver high
speed internet access.
Next generation satellite technology from IPStar has arrived on our shores, there are
promising commercial trials of broadband over powerlines and continued rollout of wireless
technologies including plans for regional wireless broadband from Austar.
And Telstra proposes to undertake major upgrades and investments in its wireless, core
and fixed access networks. These plans will create new high speed platforms which can
provide customers with highly integrated services rich in content and functionality.
Given its success, the Government will continue to encourage competition and efficient
investment in the industry; maintain important consumer safeguards such as the Universal
Service Obligation and continue to provide targeted funding in areas of demonstrable
market failure. The Government is not about over-regulating, or regulation for the sake of
it. And we are not about spending taxpayers money for things that the private sector
would otherwise do.
We are not about mandating technology that has the potential to be superseded in a
short timeframe.
We want to maximise the commercial opportunities for the telecommunications companies
that have committed to Australia. But, in doing so, we want to avoid inefficient
investment or unnecessary network duplication.
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Regulation in Australia
There is nothing anomalous about Australias regulatory regime.
It contains the same fundamental elements as other jurisdictions:
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Access regulation to deal with bottlenecks and to ensure efficient
investment; |
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Rules to deal with anti-competitive conduct; |
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Price controls; |
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Universal service obligations. |
In many respects our regime has a much lighter touch than other countries.
For instance:
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The regulator in Australia does not and cannot set wholesale
prices other than by approving prices proposed by a company in an
undertaking; |
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Our dominant telco, Telstra, retains a high degree of
horizontal and vertical integration with fixed line, mobiles,
directories and a pay-TV cable platform. |
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Unlike some jurisdictions, such as the UK, the entire industry makes a
contribution to Telstra towards the cost of providing the universal
service. |
Australias telecommunications regulatory regime, like other jurisdictions, also requires
the owner of bottleneck infrastructure to provide third party access at fair prices.
The ACCC must ensure a network owner is able to price at levels sufficient to recover
costs. In fact when setting access prices, the ACCC assumes new
networks are being built
rather than just recovering the cost of the depreciated assets.
The access regime applies to all network owners, not just Telstra. And, Optus,
Vodafone and Hutchison are all currently subject to regulation under the access
regime.
Access providers can obtain certainty from the ACCC through the existing mechanisms in
Part XIC of the Trade Practices Act 1974.
These provisions allow the ACCC to provide a
regulatory exemption if it
concludes that this exemption would be in the long term interests of
consumers the LTIE
test.
The provisions were specifically introduced to allow the ACCC to make decisions before
an investment is made; or before a service is regulated.
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The Government recognises that regulatory certainty is important for all investors,
including Telstra. For this reason the Government reviewed the current arrangements and
decided to strengthen them by making the changes that were part of the legislative
package passed by Parliament in September.
Central to these changes were the introduction of operational separation for Telstras
internal operations; the capacity for the regulator to determine its own procedural
rules and the explicit requirement for the regulator to take account of the costs and
risks when making access decisions about new investments.
With these changes the Government believes the framework is settled, and therefore we
believe that certainty, in terms of the rules, has been delivered.
We will review the regulatory arrangements again in 2009 and until then we expect all
companies to plan and operate within the rules that have been set
including Telstra.
If you follow these kinds of things you could be forgiven for believing that the
Government is on the cusp of introducing major regulatory changes. Nothing is further
from the truth.
Some are keen to give the impression that uncertainty abounds in the regulatory
sphere.
I would emphasise that there is a significant distinction between regulatory uncertainty
stemming from the Government reviewing the rules (which we have concluded) and any
uncertainty arising from the regulator doing its job in applying the rules.
I guess in an industry as fast-paced and dynamic as telecommunications, it is futile to
think that debates about regulation will ever abate.
There are many voices in the continuing regulatory debate. Some louder than others.
One thing I am sure of is that both Telstra and its competitors would like further
changes to the regulatory regime unfortunately these changes would be mutually
exclusive.
Telstra wants less regulation while the competitors want more. No surprises
there.
As with most dominant telecommunications providers around the world, and their
competitors, it always comes back to the legacy network and access arrangements.
Globally, fixed access networks, either cable or copper, continue to dominate the
telecommunications landscape.
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Alternative platforms though they have their place, cannot yet replicate the functionality
of fixed networks. Neither can they replicate the ubiquity of fixed networks.
Telstras planned investment to upgrade its fixed access networks, announced recently,
immediately poses technical challenges in terms of the point of interconnection; economic
challenges as companies try to determine the viability of existing investment plans; and
regulatory challenges as regulators grapple with whether or not to regulate and, if so,
how.
Telstra suggested recently that there is a caveat or two on its fibre to the node
investment including the need for a permanent regulatory holiday
regulatory retirement
if you will.
In publicly putting forward its case there are two frequently mentioned points:
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That the prospect of regulation means investors cannot be certain they will
get a reasonable return; and |
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That the current regulatory arrangements were designed for legacy networks
and should not apply to new investments. |
I understand that investors want to get a reasonable return on their investment, and
despite suggestions to the contrary, I am very aware that investors desire regulatory
certainty. I just believe that certainty is achievable within the current framework.
This is because the current framework allows a company to submit an undertaking or to seek
an exemption from the access regime, prior to making the investment. These provisions have
never been properly tested.
I recently made the comment that simply because a service is new, it does not mean that
it is automatically regulated. That is because there is no automatic presumption of
regulation in Australia. Regulation is only applied where required.
Telstra itself uses mobiles as a good example of how a market can flourish without
regulation. This is a good example there is little regulation of mobiles, but the
reason is not because they are exempted, but because there is competition.
Telstra also likes to compare itself to other networked industries such as water, gas, and
electricity. And there are similarities, hence it is no surprise that all of these
industries are subject to some form of competition regulation.
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But there are also features unique to telecommunications which warrant
telecommunications specific competition and access regulation, at least until
competition is more established, namely:
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The high rate of technological change; the requirement for interconnection of
all networks; and the complexity and multiplicity of services that are offered
over the infrastructure. |
For example a telecommunications cable can be used to deliver voice telephony,
internet access, pay TV (or free to air TV) services, video-on demand and a host of
things that we havent thought of yet.
Whereas a
gas pipe line delivers one thing yes, you guessed it, gas. And it only comes
in one flavour.
The Foxtel example
Another argument that has been put forward in calls for a regulatory carve out, is that
the only time the exemption provisions of the TPA have been used, resulted in the safe
harbour being overturned by the Australian Competition Tribunal.
This was in relation to the digitisation of the Foxtel Pay TV network. However the
reasons for the ACCCs decision being overturned are important to understand and
illustrate the fact that the provisions have never been properly tested.
In simple terms the ACT overturned the decision because it considered that the
exemption was unnecessary. Telstra had decided to invest irrespective of whether the
exemption was granted.
This case turns on its facts and cannot be considered to have general application
for the overall operation of the access regime.
Again, I note that a new service is not automatically subject to the access regime and
that the ACCC must conduct a public inquiry before it can declare a
service a
reasonably lengthy process by anyones measure.
The international experience
In attempts to argue for a carve out from competition for a fibre to the node investment,
comparisons have also been made between Australia and regulatory decisions in both Europe
and the US.
At the broad level, the issues in the UK, or in Germany, or in the US or Canada bear some
similarity to the debate in Australia. However I would
not be disposed to adopting a US approach without carefully evaluating the differences.
The major difference is the market structure. The debate in the US has been about the role
of regulation in facilitating a third access provider into a customers house.
The first access line is the traditional copper phone line.
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Cable TV networks provide a second access line into most US homes. This means that there
was immediate competition between network owners for the broadband customer.
The regulator in the US has concluded, based upon the state of competition between the
telecommunications and cable TV companies, that it will not regulate new fibre
networks.
The situation in Australia is very different:
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Our cable TV networks are not as ubiquitous as those of the US; |
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In Australia, the company that owns the copper telephone network also owns
the largest cable TV network; |
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Finally, and perhaps most critically, the takeup of pay TV is much lower in
Australia (23 per cent) compared to the US ( more than 80 per cent) which means
that much of the hard work of acquiring customers and connecting them to the
network had already occurred in the US before broadband became available. |
Europe is perhaps a more relevant point of comparison although no less different an
example. Rather than providing clear examples of far-sighted regulators agreeing to
regulatory holidays, the European experience simply demonstrates that there is an evolving
debate on this issue.
Germany and the UK provide two interesting and contrasting perspectives. In Germany the
Government committed to, and the regulator confirmed, that Deutsche Telekom should have an
access holiday for new investments.
However the detail on why this decision has been made are unclear. The likely answer is
that the regulator has determined that the market is mature enough to support access
holidays for the dominant telco.
The European Commission, on the other hand, has expressed concern about the granting of an
access holiday. Ultimately, as I said earlier, these decisions are best left to impartial
regulators operating within the rules set by Government.
And, an important difference between Australia and Germany, is the fact that in Germany
the regulator forced Deutsche Telekom to divest itself of its cable network.
In the UK, the regulator and BT are deeply engaged in the detail of a regulatory compact.
Rather than regulatory holidays, BT is looking at commitments not to offer new retail
products, until appropriate access to core bottlenecks can be provided to competitors.
One clear message from Europe is that the European Commission considers access to fixed
access networks is critical to the development of sustainable competition.
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Telstras investment?
So, I guess the obvious question is what happens if Telstra doesnt invest in new networks?
From my perspective, I think it is inevitable that Telstra will invest in new networks.
It has already said there are no caveats on its new high speed data mobile network.
Telstra is looking for growth opportunities and has identified integrated services,
content and applications as the likely source of this growth.
It is in a unique position in being able to leverage its existing network to introduce
the next generation of broadband which is essential to support the new growth
opportunities.
Will Telstra make these investments without talking to the regulator about future access
requirements? Probably not.
But can the regulator provide the comfort Telstra requires? The answer is yes, the existing
access regime includes scope either for decisions along the lines of those made by the US
regulator, or for undertakings from Telstra along the lines of those submitted by BT in the
UK.
Another lesson from BT is that a dominant telecommunications provider, the regulator and
the industry more broadly can benefit from operational separation of an incumbent telcos
internal operations.
Operational Separation
Despite impressions to the contrary, the Government has been working closely and
constructively with Telstra, its competitors and the ACCC on fleshing out the details of
the operational separation model that will apply to Telstra.
This will address concerns about Telstras level of vertical integration without the
costs and risks of structural separation and will ensure that Telstra, as the dominant
carrier, treats its wholesale customers on a fair basis.
As announced in August, operational separation will require Telstra to maintain
separate retail, wholesale and network business units.
There will be a pricing tool that establishes internal wholesale pricing arrangements
for Telstra to ensure its retail businesses receive no more favourable treatment than
its wholesale customers; and
Telstra will be required to publish internal contracts setting out non-price terms and
conditions. For example, the timeframes for supply of services, and grades of service
provided.
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Importantly compliance with operational separation will be enforceable by the ACCC and the
Minister.
The next stage of operational separation involves me making a number of statutory
instruments.
Therefore I am releasing today two draft determinations that set out:
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The list of designated
services that will be subject to the operational separation plan; and |
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Requirements that the
operational separation plan must address. |
Perhaps the two most critical elements of these determinations are those relating to the
role for the ACCC and the range of wholesale services covered.
On the first point, we intend that the ACCC have a broad role, consistent with the powers
it already has under the Trade Practices Act in relation to price and non-price terms and
conditions.
The ACCC is not being granted new powers. But the ACCC will be able to request information
from Telstra in order to monitor Telstras compliance with the operational separation
plan.
On the question of services covered, the draft determination reflects the list of services
in the Explanatory Memorandum of the legislation with one addition
namely backhaul. The
services listed are all declared, or regulated services, under the access regime with one
exception wholesale ADSL.
Wholesale ADSL has been one of the most contentious wholesale services in recent times,
and hence it is appropriate that it be subject to the additional transparency obligations
of operational separation.
On this point it is important to understand that operational separation will complement
rather than replace or override Part XIC and XIB of the Trade Practices Act. This might
disappoint some, but it is the only reasonable approach.
Operational separation is not a mechanism by which Telstra will be forced to offer
wholesale products that is handled through the tests and processes of the access regime.
The determination listing the services covered by operational separation does not have the
effect of requiring Telstra to offer new wholesale services. Further it is not appropriate
to include in the list wholesale services which Telstra is not yet offering.
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There will be a short consultation period on these instruments and, subject to the outcomes
of the consultation process, it would be my preference to finalise them before the end of
the year.
Following the finalisation of these determinations Telstra will have a 90 day period to
submit its operational separation plan to me for approval. The plan must detail how
Telstra will fulfil its obligations, and how it will be measured for compliance
purposes.
If the plan submitted meets the Governments objectives then I envisage operational
separation being in place in the first half of 2006.
Pricing equivalence
I have also established a working group comprising Telstra, the ACCC, and my Department
along with an expert consultant to work on a model to deliver pricing equivalence.
Pricing
equivalence is the most complex component of operational separation and may
take longer to resolve than non-price equivalence arrangements.
There are inevitably going to be varying opinions on pricing equivalence and I do not
underestimate the difficulty in resolving this issue. But I am confident that
operational separation will provide real benefits to Telstra as well as to its wholesale
customers.
As the ACCC itself has acknowledged, operational separation can give Telstra a
higher degree of assurance about how its behaviour will be assessed by the
regulator.
This in turn provides some certainty and clarity to Telstras wholesale customers.
Operational separation has not been designed to reduce Telstras capacity to compete.
Neither equivalence of treatment nor transparency should inhibit Telstras capacity to
legitimately compete in the market.
Operational Separation is also not a mechanism for proving anticompetitive
conduct.
Again, this is something that is addressed through the provisions and processes of
Part XIB and the judicial system.
But operational separation is an opportunity for Telstra to gain confidence about how its
behaviour will likely be treated under the Trade Practices Act.
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By allowing Telstra to develop its own operational separation plan, Telstra can ensure
that the arrangements are compatible with its business requirements. It is not putting the
fox in charge of the henhouse as some have claimed.
The detail and the internal arrangements are complex, and no-one outside Telstra should be
given the power to micro-manage Telstras internal company arrangements.
The ULL
It has been quite a year for telecommunications judging by the level of publicity
surrounding the regulatory debate.
By taking a forceful stance about the purported impacts of government regulation,
Telstra is doing what it can to build value on behalf of its shareholders. I respect
this objective.
However, the company risks overstating the impacts not only to its shareholders
but to the general public, and misrepresenting the governments intent when it
comes to regulation.
Whereas Telstras self-interest is understandable, the Government has a broader
obligation that requires it to strike the right balance and regulate in the interests of
consumers, industry and the broader economy.
This is particularly apparent in debate surrounding the price of access to Telstras
copper phone lines, known as the Unconditioned Local Loop (ULL) service.
In Australia the ULL was declared as a regulated service by the ACCC in 1999 for the
express purpose of encouraging competition by enabling Telstras competitors to connect
their own equipment to Telstras copper phone lines.
The debate is now about the price of access for Telstras competitors. Telstra has
submitted an undertaking to the ACCC proposing geographically de-averaged ULL prices
and has recently argued to the ACCC that it should accept the undertaking.
In essence the current debate about the ULL comes down to whether or not the Government
should intervene in regulatory access pricing decisions.
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The case for intervention hangs on the assumption that there is currently a large internal
cross-subsidy in Telstras retail pricing structure, and that de-averaged wholesale prices
will see this cross subsidy competed away.
Although no decision has been taken, from the public debate at least, it is difficult to
conclude that there is an immediate threat to Telstras capacity to profitably supply
services, even in regional Australia.
And the role of Government is clearly not to make decisions based on protecting
current levels of profitability.
While the detail is being debated and contested, a fundamental point is that
Government sets the rules but does not adjudicate the rules.
Determining efficient prices for any regulated service is complex and technical and in
the normal course is appropriately left to the regulator rather than the Government.
However, connected to the question of ULL access pricing, is the question of retail
pricing parity between the cities and the bush.
It has been argued that the approach to ULL pricing proposed, and generally supported by
industry, will force Telstra to increase its regional line rental prices.
While there are some tensions between the ULL and retail pricing parity, the decisions
that the ACCC might make will not automatically force Telstra to increase line rental
prices in rural Australia.
For example, fixed to mobile substitution where customers opt not to have a home phone
and only have a mobile is occurring more and more in Australia and leading to a
reduction in fixed lines. Any dramatic increase in line rentals would only speed up this
substitution.
Regardless, the Government has committed to pricing parity for phone services, including
line rental services, for Australians living in rural, regional and remote Australia. We
have also committed to equitable access to broadband services across the country.
We do this by targeted investment for broadband and by retail price controls for phone
services. Undoubtedly there are pressures on Telstras fixed line revenues, but this is
the case across the world for dominant telecommunications providers with legacy
networks.
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Telstras estimates, presented at its own regulatory briefing, suggest that the ULL
impact on Telstras fixed line profits does not immediately make their network
unprofitable.
According to Telstra, even if its assumptions about ULL take-up and price competition are
accepted, the full impact is not felt until 2009.
And none of Telstras assumptions factor in the Government subsidies that Telstra will
undoubtedly benefit from to deliver broadband into regional Australia nor the current
funding arrangements for the Universal Service Obligation.
And, then none of these assumptions factor in the prospect of future voice telephony
services being delivered as part of a broadband bundled package rather than as a stand
alone service. Finally, these assumptions are all premised on a continuation of the current
network architecture.
More significant than the price of ULL access is the fact that Telstras proposed
fibre to the node investment will fundamentally change the economics for ULL type
investment.
This debate might be redundant within the next three years.
What must be remembered is that the ACCC has not yet made its decisions about ULL pricing.
Even if the ACCC does make a pricing decision it does not change the costs that Telstra
currently faces. Despite suggestions to the contrary, the Government does listen to
arguments put forward by Telstra and its competitors, about the ULL and its impacts.
We have listened, the arguments have had time to mature and there has been an opportunity
for stakeholders, including Telstra, to have a say.
We will be making a decision shortly
on the threshold question of whether a case exists for the Government to intervene and, if
so, what should be done?
Conclusion
I knew
there was a reason I titled this speech 2005 a telecommunications odyssey for it
has been such an adventurous journey for this part of the portfolio over the last 12
months.
And while the journey has not been completed, I believe we are at a real turning point
for the industry.
We have a settled regulatory framework, the very real prospect of T3 for 2006, an historic
funding package of $1.1 billion for telecommunications services and a $2 billion perpetual
Communications Fund to ensure that Australians will continue to enjoy world class telecommunications services into the
future.
I thank you for the opportunity to address you today. Analysts are a key component of the
mosaic of opinion on telecommunications issues in this country and your close attention
to the debate is appreciated.
I hope you have found my remarks today a useful summary of the state of play. I wish you
all a happy festive season.
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15 December 2005
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Office of the Company Secretary |
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The Manager
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Level 41 |
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242 Exhibition Street |
Company Announcements Office
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MELBOURNE VIC 3000 |
Australian Stock Exchange
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AUSTRALIA |
4th
Floor, 20 Bridge Street SYDNEY NSW 2000
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Telephone 03 9634 6400 |
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Facsimile 03 9632 3215 |
ELECTRONIC LODGEMENT
Dear Sir or Madam
Appointment of Holly Kramer, Group Managing Director, Telstra Product Management
In accordance with the listing rules, I attach a copy of an announcement for release to the market.
Yours sincerely
Douglas Gration
Company Secretary
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Telstra Corporation Limited |
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ACN 051 775 556 |
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ABN 33 051 775 556 |
15 December 2005
Appointment of Holly Kramer, Group Managing Director, Telstra Product Management
I am pleased to announce that Holly Kramer has been appointed Group Managing Director,
Telstra Product Management, effective immediately.
Holly will report to Greg Winn, Telstras Chief Operations Officer, and she will also
participate as a member of my senior leadership team.
Hollys senior executive experience in marketing and product development positions in both
Australia and the United States will greatly assist her in leading this important work for
Telstra.
Most recently, Holly has held the role of Managing Director of Products Wireless & Mobility
where she was accountable for the development and lifecycle management of Telstras wireless
and mobility products and networks. This also included responsibility for establishing the
strategy for Telstras 3G investments and the content, applications and devices to leverage
the mobile network capabilities.
This followed her role as Chief of Marketing, Telstra Retail, which Holly held since joining
Telstra in 2000. In this role, she was accountable for the strategic direction and
implementation of marketing plans for the consumer and business markets. This included the
development of pricing, promotion and bundled solutions for fixed voice, mobile data and Pay TV
products.
Prior to joining Telstra, Holly was General Manager, Marketing & Communications for eCorp
Limited. This followed a successful eight-year career in various marketing and sales roles at
the Ford Motor Company in the United States before moving to Ford Australia in 1996 to take up
the role of General Manager, Marketing.
Holly, 41, is married with one child. She has a BA (Hons) from Yale University and an MBA Mktg
(Hons) from Georgetown University. She is Chair of the Australian Mobile Telecommunications
Association (AMTA) and sits on the Boards of Australian Caption Centre, mNet Corporation and
TelstraClear Limited.
Regards
Sol Trujillo
CEO
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Telstra Corporation Limited |
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ACN 051 775 556 |
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ABN 33 051 775 556 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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TELSTRA CORPORATION LIMITED |
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/s/Douglas Gration |
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Name:
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Douglas Gration |
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Title:
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Company Secretary |
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Date: 15 December 2005 |