TELSTRA OUT OF BROADBAND BIDDING

UNCLAS CANBERRA 001277

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECPS ECON AS
SUBJECT: TELSTRA OUT OF BROADBAND BIDDING


1. (SBU) Summary. The GOA confirmed December 15 that Telstra
has been excluded from the National Broadband Network bidding
process because its bid failed to conform to bid guidelines
on SMEs. Telstra's chairman criticized the decision over a
"trivial" point. Minister Conroy was caught in a difficult
position; other bidders would have brought legal action if
Telstra's non-compliant bid had been allowed to stand. Some
expect Telstra to lawyer-up, quickly. End summary.


2. (U) Communications Minister Stephen Conroy at the
Department of Broadband, Communications, and the Digital
Economy (DBCDE) confirmed December 15 that telecom giant and
former monopolist Telstra had been excluded from bidding on
the National Broadband Network (NBN). Conroy noted that an
expert panel (which included DBCDE lawyers, private lawyers,
and the Solicitor General) that is reviewing bids determined
that Telstra's short (12-page) submission was not compliant.
The Telstra bid failed to include a plan on how it would
involve small and medium enterprises in building the NBN,
which was a non-negotiable point in the bid tender announced
earlier this year.


3. (SBU) Telstra chair Donald MacGauchie attacked the
decision, calling the SME issue "trivial" and saying the
DBCDE decision was "legally questionable." He restated
Telstra's usual talking point that it was the only bidder
with the financial and technical capacity to build the NBN.
CEO Sol Trujillo was uncharacteristically a bit more
cautious, saying he still thought the GOA could choose
Telstra, and adding Telstra would do all it could to protect
its interests.


4. (SBU) Observers are confounded about Telstra's failure.
Telstra claimed it submitted an SME plan earlier in December
- but still well after the November 26 deadline. Telstra's
failure put Conroy in a tough spot; excluding Telstra from
the bidding process would be sure to generate a firestorm of
controversy and the threat of legal action by Telstra. But
to go against legal advice and allow Telstra's late SME plan
would have probably provoked legal challenges from the other
main bidders - the Terria consortium headed by Optus
(Singtel's local subsidiary),the Acacia consortium based in
Melbourne, and Canadian telco Axia.


5. (SBU) One industry insider pointed out that Telstra's
initial short bid was already incompliant for failing to
guarantee it would cover 98% of Australian premises; Telstra
itself has publicly said it planned to cover 80-90% of the
Australian population. The insider said Telstra's decision
to submit the SME plan late was a deliberate decision
designed to force DBCDE into a corner. DBCDE would either
have to make a mockery of the November 26 deadline to accept
Telstra's SME plan, or "tell Telstra, tough." Either way,
DBCDE would face legal challenges. The insider said that
even up to November 26, despite contentious relations between
Conroy and Telstra, there were people in Conroy's office who
wanted to give the NBN to Telstra as the easiest choice. But
Telstra's bare-bones, no-details-attached bid may have cost
it even that grudging support in Conroy,s office.


6. (SBU) Comment: The confused NBN landscape is now even
more scrambled. It is difficult to see how Conroy could
walk back from this clear statement that Telstra has been
excluded from the NBN bidding. Although true that to have
accepted the late bid would have provoked legal challenges,
we expect Telstra, never shy about challenging the government
Qwe expect Telstra, never shy about challenging the government
of the day, will "lawyer up" itself. That said, there are
ways Telstra could still play in the broadband game short of
entering its own bid. Canada's Axia, although a late entry,
could do with Telstra as an industry expert says it did in
the Singapore broadband case, and bring the incumbent on to
its team by offering generous terms for access to its
existing network. Telstra could also expand its existing
copper wire network as the basis to compete with the NBN
across the country, but both Optus and Acacia in their
proposals have said the GOA should prevent Telstra from
bidding a rival network. If this decision stands, and an NBN
without Telstra is built, it could be a watershed moment in
Australia's telecommunications history. End comment.

MCCALLUM