Australia edges closer to net upgrade

It's the most significant infrastructure project to be undertaken in Australia since the Snowy Mountains scheme and promises to catapult the nation into the information superhighway's fast lane.

But it also now appears likely Telstra, the only Australian publicly-listed company to have lodged a bid for the multi-billion national broadband network (NBN) project, will be left out of the loop.

Australia's biggest telco was dumped from the tender process after lodging a bid which failed to include a plan of how to involve small- to medium-sized enterprises in the project.

The ensuing fallout has seen billions of dollars wiped from Telstra's market value.

Communications Minister Stephen Conroy says Telstra did not play by the rules, and maintains the company is out of the running for the project, likely to cost at least $15 billion, of which the government will contribute $4.7 billion of taxpayers money.

It was a high-stakes game of brinkmanship - and it seems to have backfired.

Or has it?

Ivor Ries, director of research at EL&C Baillieu Stockbroking, says Telstra stands to net a windfall of at least $80 billion if another proponent is chosen.

The company that eventually wins the bid will likely need access to Telstra's network.

"Telstra's network is private property," Ries says.

"For the government to expropriate all or part of its network to build the NBN, Telstra will be entitled to compensation under the constitution, which enshrines the principle of no expropriation without compensation.

"Telstra's compensation claim would probably start at $80 billion and move upwards."

Telstra's departure from the tender process leaves Optus Networks Investments, a Canadian outfit called Axia, and a syndicate of Australian businessmen, Acacia, to battle it out.

The ACT's Transact and the Tasmanian government have both lodged regional bids.

The project has attracted some high rollers, with the jockeying for position ahead of the bid deadline heavy with bluff and counter-bluff.

Telstra, in the lead-up to the November 26 bid deadline, threatened to walk away from the tender process unless the government guaranteed its network and retail arms would not be separated.

Its rivals say the company that wins the rights to the project would have to separate retail and network arms to ensure more competition and better prices for consumers.

The guarantee was not forthcoming, but Telstra refused to back down, instead lodging an 11th hour bid with a number of conditions attached.

The Telstra bid was made with the provisos the company would not be forced to separate, and that it would roll the network out to just 90 per cent of the population rather than the 98 per cent as stated in the government's request for proposals.

Telstra also proposed to pay back the $4.7 billion in taxpayers money set aside by the government for the project.

"The arrangement we put up, a concessional loan where interest would be paid to the government, and where eventually capital would be repaid, we think that's a very clean and commercially sensible way to do it," Telstra public policy head David Quilty said in the week following the bid deadline.

"Some sort of equity arrangement just doesn't work for us. In effect, it would be an equity arrangement in a network that our shareholders have already bought."

Telstra's demands were also about protecting the headstart it already enjoys in terms of high-speed broadband infrastructure.

"Others might claim they can build it in certain time frames but we have all of the detailed plans in terms of how to actually do this, down to virtually every street in every suburb," Mr Quilty said.

But the fact that Telstra's bid was even initially accepted prompted a chorus of criticism, both from rival bidders and the federal opposition.

The Optus-led Terria consortium, which has morphed into Optus Networks Investments, said at the time it would have serious concerns if a 13-page proposal from Telstra was considered as conforming to the government's request for proposals.

The Optus proposal, on the other hand, outlines a technical, financial and legislative solution that meets all the objectives in the government's request for proposals, Optus director of government and corporate affairs Maha Krishnapillai said.

"We think this is a template of how to introduce broadband and take us to, if you like, the next step in this country in terms of broadband," he said.

"We have a once in a generation opportunity to change that and I think that's the really exciting thing about our discussions with government is that we think we can actually change the entire telecommunications landscape with this proposal."

With Senator Conroy sticking to his guns, maintaining Telstra will not be invited back into the tent, the complaints and arguments on both sides are moot.

"Telstra chose to exclude itself by not complying with the minimum required objectives," Senator Conroy said.

When announcing Telstra's expulsion, he said the only way the telco's small business plan could have been accepted was to extend a deadline that all other contenders had met.

"This would have been manifestly unfair to other NBN proponents who did meet the mandatory requirements of the RFP (request of proposals)," he said at the time.

"And, importantly, it presented an unacceptable level of risk, both legally and financially, for the commonwealth."

The opposition has been scathing of the entire broadband project process.

"I think the whole thing has been a debacle," opposition communications spokesman Nick Minchin says.

"We had the government making this glib promise last year without any detail, then we were promised that a tender would be picked by July and construction would start by the end of this year."

Senator Minchin says Labor should never have axed the $958 million Opel contract.

The Opel plan, a joint venture between Optus and rural services firm Elders, was cut amid concerns it would not have delivered adequate services to regional Australia.

"If the government had allowed that contract to be fulfilled we'd have a wireless broadband network operating across all of rural and regional Australia by July of 2009," Senator Minchin said.

The outcome of the national broadband network tender process is now in the hands of a government-appointed expert panel which has been given until early February to consider proposals.