by Matt O’Sullivan
The Federal Government and private sector will invest up to $43 billion over eight years in a super-fast national broadband network, in the ”single biggest infrastructure decision in Australia’s history”.
In a bombshell decision this morning, the Prime Minister, Kevin Rudd, announced that none of five bidders for the national network – including Optus and Melbourne group Acacia – were up to scratch.
Under the new plans, the funding for the network offering speeds of up to 100 megabits per second will be provided by a national broadband network corporation in which the Government will be the majority shareholder. The network will be operated separately from retail telcos such as Telstra and Optus.
Shares in Telstra were up 4%, or 13 cents, to $3.34. The stock closed at $3.21 yesterday.
Mr Rudd said the broadband proposal would provide 37,000 jobs at the peak of construction, providing a major boost to the economy in the midst of a global recession.
The fibre-to-the-premise network will run to 90% of homes and businesses. The Government will make an initial investment of $4.7 billion in the company but intends to sell its interest within five years after the network is fully operational. The network will be funded from Aussie Infrastructure Bonds while private sector investment in the new company will be capped at 49%.
The remaining homes and businesses will be reached via wireless and satellite technologies offering speeds of 12 megabits per second.
The proposal goes much further than the Government had previously planned as fibre-optic cables will now run all the way from telephone exchanges to homes and businesses. It had previously planned to lay cables only from exchanges to cabinets at the end of street corners.
In a major blow to Telstra, Mr Rudd said it was time ”to bite the bullet” after years of neglect of the telecommunications sector.
”Years of failed policy have left Australia as a broadband backwater,” he said.
He described it as the ”single biggest infrastructure decision in Australia’s history”.
A report to the Government from an expert panel found none of the national bids ”offered value for money for Australian taxpayers”.
Telstra was dumped from the tender in early December after failing to meet a basic requirement, leaving Melbourne group Acacia, the SingTel-owned Optus, the Canadian telco Axia NetMedia, the Tasmanian Government and TransAct vying for the funding. The latter two made regional bids.
Telstra shares have fallen 22% since it was excluded from the tender.
”The investment by the Government creates an alternative to Telstra’s fixed-line network over time, effectively re-nationalising part of the fixed-line industry in Australia,” JPMorgan’s telecommunications analyst, Laurent Horrut, said today.
Mr Horrut said the new network would make Telstra’s copper-wire network obsolete within a five to 10-year period. ”In addition, the Government is reviewing all key regulatory conditions in the sector and that will create significant uncertainty for the company,” he said.
The Government plans to start construction in Tasmania around the middle of the year.
Facing the loss of its near-monopoly on fixed-line telecommunications, Telstra is expected to fight in the courts any attempt by the Government to force it to relinquish its grip.
Some have suggested the project could be delayed by five to 10 years by Telstra using legal action to prevent the access required to its copper-wire network to complete the project.
However, the Government today made clear it would change legislation to prevent Telstra from jeopardising the success of a national network.
Since it was dumped from the tender in early December, Telstra has been promoting its ”Plan B”, which includes plans to spend about $300 million increase speeds on its Melbourne cable network.
The alternative strategy entails shifting fixed-line customers onto its cable network and third-generation NextG mobile network.
