Telstra steals NBN’s lunch

The first auction of 5G spectrum will be undertaken in March, with each bidder to be given the opportunity to buy up to one gigahertz of spectrum. Telstra head of networks Nikos Katinakis says that one of the telco’s first uses for the spectrum it intends to purchase will be for 5G fixed wireless products that will aim to compete with the NBN. He says Telstra will target these products at locations where “the NBN does not provide what the customer wants”, and that it will target neighbourhoods rather than individuals.

From The AFR:

Telstra says it will use every last inch of a massive mobile spectrum acquisition coming this autumn to gain an advantage in the 5G race, including through bypassing the national broadband network with fixed wireless home broadband.

The first auction of the ultra-fast 5G millimetre wave spectrum will take place in March, and the telco’s head of networks, Nikos Katinakis, said among its first uses will be for 5G fixed wireless products competing with the NBN…

It confirms what many in the industry had suspected: that Telstra would aggressively push 5G as an alternative to fixed line internet, a domain the telecoms giant once dominated but that has now been forcefully handed over to the national broadband network at huge cost to Telstra’s bottom line. Moving customers off the NBN and onto its own mobile network would fatten margins considerably.

Telstra is shaping up to be the big winner from the NBN debacle.

A decade ago, the Gillard Government agreed to pay Telstra $11 billion of instalments in exchange for Telstra’s fixed line customers shifting across to the NBN:

This decision by the Gillard Government was aimed, in part, at fixing the structural problems created when Coalition privatised Telstra in the late-1990s. This privatisation gave the telco control of both the wholesale and retail fixed line networks, thereby creating an integrated monopoly.

As Telstra has fattened its profits via billions of dollars of annual installments, it has also sought to undermined the NBN’s margins by lobbying for deep price cuts to wholesale charges, and now Telstra is seeking to steal market share from the NBN via its 5G broadband rollout.

Soon the circle will be complete. Once Telstra has successfully destroyed the NBN’s profitability and value, it will seek to purchase the NBN’s wholesale network at a cut-down price.

Once this occurs Telstra, will effectively have gone ‘back to the future’ by first offloaded its wholesale network for $11 billion and then purchasing it back from the NBN at a hefty discount.

You’ve got to hand it to Telstra. They are playing chess while the federal government is playing checkers with the NBN.

Unconventional Economist

Comments

  1. It all boils down to little Johnny who was greedy and did not separate the infrastructure (pipes and cables) from the retail. Infrastructure should have been kept in government hands – ideology over common sense always wins with the coalition.
    Truckload of very serious analysts were pushing for Infrastructure to be kept in Gov hands. This push is in AFR daily via numerous articles – when AFR still had plenty of serious writers and when Niko was paying for the privilege to read their staff.

    • All infrastructure should be in government hands. Tender out the construction to private enterprise but the ownership should always be government. Pity the horse has long bolted on that one.

      “You’ve got to hand it to Telstra. They are playing chess while the federal government is playing checkers with the NBN.”
      This is always the case. Private industry willing to pay more for the best and brightest, with government often contracting with the final purchaser for “advice” during the process.
      Even without that government is always far more eager to sell than private is to buy, and have a much shorter time horizon of interest. Anything beyond the next election is someone else’s problem, but corps can play a longer game.

      • Agree, things like roads & cables should be government run, I’d even go further and say they should provide full internet infrastructure eg servers & search algos, search infrastructure that can be rented by any company in Aus so that we have low barrier for innovation to compete with foreign companies like Google, Baidu etc which will also give our government some control. It’s as essential to the modern economy as roads, electricity & dams etc were to the old economy, our country needs government help to compete with these large multinationals & SOE’s else we’ll forever be dependant on them and lacking in skill areas

  2. Hernando de Soto

    Right now wired competitors to the NBN need to pay a $9 per month per subscriber tax for competing with the NBN.
    Expect this to be extended to 5G to protect the NBN.

    • They would have to apply that tax to phone users as well, or the telcos would simply rebrand their mobile broadband plans as mobile data plans. I can’t see it.

    • It’s too big a honey pot not to sell it, much like telstra’s copper network. Litlle johnny spent the proceeds of that on all sorts of electoral bribes. Sooner or later someone will sell it.

    • Yep, altho MB calls it a value trap. Dividend is 5% franked and earnings will grow with 5G and when Optus stops its unsustainable price war on mobile. Plus the corporate split sets it up nicely for future possibilities.

  3. They should sell NBN and buy Bitcoin!

    Who wants to own something that needs maintenance and can spoil but hardly returns any profit???

    Better yet, they should sell NBN and buy houses in major metro areas… that doubles in value every 7yrs and they can write off the stamp duty or land tax…. win-win

    5G… LOL, that novelty will wear off…

  4. I don’t think one company will be allowed to buy an NBN float.

    I think the entire industry would be up in arms, so the government would compromise, and limit single ownership to ~20%, float about 60-80% of it to the current industry players in chunks they could afford, and trickle the rest out to the public.

    Ie Telstra, Optus, and TPG would buy about 15-20% each, the other players would buy 20-30% combined, and the public would see a series of ‘floats’.