Telstra Set To Hurt Federal Government

COMMENT: Telstra has created a giant headache for Prime Minister Kevin Rudd and Senator Stephen Conroy the Minister for Broadband and the Digital Economy by announcing that they will start delivering 100Mbs broadband to capital Cities by Xmas.

The leave behind present from Telstra CEO Sol Trujillo who is set to leave Telstra in June 2009 will create problems for both sceptical investors and the Federal Government who later this week is set to announce the winner of the contract to build a new multibillion dollar  National Broadband Network in Australia.

The problem for the Government is that Australia is fast moving to wireless with Companies like Sony, Samsung, Panasonic and Cisco set to launch new wireless products such as TV’s with built in wireless, wireless audio products as well as notebooks with built in wireless cards which by Xmas will be capable of 100Mbps after Telstra today announced that they will upgraded to 100Mbps their Melbourne network followed by networks in five other major Cities.

The problem for any investor in the proposed national broadband network is that Telstra already has a network and as the new comers are forced to spend billions on a new network Telstra is only spending million on the upgrading of an existing network.

They already have fibre optic in the ground in key inner city areas and for the last 3 years have been laying fibre optic into new “green field” developments on the outskirts of major cities like Melbourne and Sydney. This will allow them to deliver very fast broadband speeds.

They also have in place their Next G wireless network with most major vendors in the notebook market openly marketing the Telstra Next G capability as a built in feature. This month Telstra rolled out 21mbs wireless modems which competitors like Vodafone and Optus struggling to compete.

Another issue for competitors is that the Telstra brand is well known, they also have a massive installed base of customers to market to as well as a brand new billing system that allows them to deliver multiple services such as content delivery, Foxtel services, wireless network usage and data plans on one single bill.

Telstra who was excluded from the tender process to build the new national broadband network after they submitted a brief proposal rather than a full tender is in a “box seat” to “cherry pick” which markets they want to compete in say telecommunication analysts.

This is because the Federal Government is forcing the bidders for the new network to build out the new broadband network so that it reaches over 95% of all Australians.

This plays into Telstra’s hands because while they are “cherry picking the best markets and the best customers” their competitors are going to have to compete with a whole host of ISP’s who make up the bidding consortium as well as deliver a network to areas of Australia where they are never going to make a profit.

My bet is that Telstra are on a winner by being excluded from the Federal Government broadband contract. I also predict that they will not only be able to deliver the same speeds as their competitors but be in the market with fast broadband offering years ahead of their competitors.

And when their competitors are ready to market their “fast” broadband offering Telstra will throw tens of millions of dollars at marketing their services up against the new network.

They will deliver fast broadband gateway boxes for homes along with content from both Foxtel and major movie houses.
Telstra is already calling themselves a media Company because they have realised, that content is also going to play a key role when a consumer comes to making a decision as to which broadband service they invest in.

So while their competitors are fretting about a lack of return on their broadband investment Telstra will be selling broadband, data and content packages to consumers in key geographic locations without the investment baggage that the Federal Government is forcing on the national broadband network bidders.