There were some salacious NBN rumours flying around the industry yesterday.

One had it that the government favours the RFP bids from Optus and Axia, thus guaranteeing that Telstra would be knocked out of the process on a technicality. Conroy called Telstra’s bluff, so to speak. Events yesterday seemed to confirm that rumour—albeit contradicted by the extremely inconvenient fact that the Expert Panel made the decision unilaterally and sought legal opinions to see whether the Telstra bid could stay in the process. Add that Conroy seems genuinely annoyed that Telstra’s own inaction kept it outside the tent.

Then there was the rumour that Telstra stuffed up its bid because of a split between the board and management, who didn’t want to enter the process. This story goes that the board actually wrote its own bid at the last minute, and in its haste, left out the compulsory bit about SME sourcing. The apparent evidence of the split comes from the fact that it was Telstra chairman Don McGauchie, not CEO Sol Trujillo, who announced the decision to bid. Sol apparently even sulked off overseas, according to Alan Kohler, the purveyor of this rumour. Nice story, except McGauchie points out that the decision to bid was always going to be that of the board: “We took the view that it was sensible for me to be the one who acted as spokesman at that time. It was a board decision made that morning and I reported that decision to our shareholders.” Given McGauchie has generally sounded more hardball than Trujillo on regulatory and investment matters, it's difficult to imagine some great difference of approach here.

Then there was the other rumour that Kevin Rudd hates Telstra and wants to do them over. Perhaps he does. But I’m not really sure he would want to a) exhaust enormous amounts of political capital in doing so and b) risk not delivering a core election promise on the basis of a personal vendetta.

The simple fact of the matter is that while excluding Telstra might constitute good process, it doesn’t necessarily promote the government’s ultimate political goals. By simple virtue of its existing market position, it has greater readiness to build a NBN. As we saw with Opel last year, it is hard to create a brand new regional network operation from scratch.     

For whatever benefits might be extracted for competition, anointing a non-Telstra bidder creates a great degree of political risk and uncertainty that timetables will slip away. Add to the fact that awarding someone else the right to basically expropriate and upgrade Telstra’s network is likely to end up in the High Court, plus the inconvenient fact that the process of establishing a brand new regulatory regime for a non-Telstra build is likely to delay their finance negotiations.

That’s assuming they get the finance at all—certainly not a given in these difficult times for a project with so many non-commercial obligations that it might lack a path to profitability.

Nervous Labor MPs in regional towns down the east coast, Tasmania and inland Australia won’t care about some ideological agenda to gut Telstra—they will only care about the fact that they want to be cutting ribbons on nodes and playing around with videoconferencing in primary schools by the next election campaign. The alternative is free Opposition and Telstra kicks against Conroy into the foreseeable future.

There’s a tendency for some in the Telstra competitor chamber to assume that everyone else either shares their visceral dislike of Telstra or that they are plain ignorant dupes of monopoly. But the fact is that there is little evidence that Telstra is widely disliked—it maintains strong market shares in heavily contested verticals and clearly maintains leadership via branding as well as its marketing and sales systems. There are nearly 10,000 Telstra shareholders in each Federal Electorate as well as tens of thousands of families nationally who depend on Telstra employment, or ironically in the light of the Expert Panel’s decision, operate SMEs that depend on Telstra as a major customer.

These are significant constituencies. And they won’t necessarily blame Telstra for the imbroglio.A big “brand value” that plays into Telstra’s favourables is its perceived Australianness—ask any Optus telemarketer if they’ve come across that objection!

As much as us urbane, cosmopolitan CommsDay types might think otherwise, there are likely to be political implications to awarding such a large project to a foreign company, especially if Telstra decides to campaign on that theme.

In short, you can’t just “exclude” them.

Conroy can play a game of brinkmanship as well as the next man and his fighting words yesterday hinted almost at a declaration of war. But it’s important to look at what he didn’t say as much as what he did say.

CAREFUL WORDS: Sure he said it would be unfair to competitors to re-open bids. But he then was very careful not to pre-empt what might happen with the Expert Panel or state what the government might do after it makes its recommendations. In other words, he wants to keep maximum options on the table.

Telstra certainly seems to think it will be back in contention after the Expert Panel has its say. Indeed, the Panel itself might prove flexible in its thinking. As Conroy said, “I’m not going to be in a situation where I’m going to second guess the recommendations of the expert panel. They could come forward and say, look, here’s three alternate outcomes. Here’s one alternate outcome. So I’m just not going to second guess them, because that would be unfair.”

My point? The Expert Panel will take a critical look at the remaining proposals and it is not necessarily the case that any of them will find automatic favour with the government’s ultimate goals. For example, it was interesting that Conroy spent some time yesterday deriding wireless as an adequate solution for the NBN—as far as I’m aware it plays a key aspect in the remaining bids.

Yesterday was about brinkmanship, nothing more or less, and it was a tactical win for Conroy in an immediate sense given the boost provided to Telstra’s rivals. Telstra looked bad yesterday.

But the remaining bidders have big questions to answer—and contemplate. Optus’ bid, for example, promises better access terms than Telstra’s for a 50% higher build cost. Do the figures add up? And likewise SingTel’s board will face its moment of truth should the Optus bid actually be recommended to Conroy as seems more likely now.

After all what is better for Optus? Open access on a pay-as-you-go basis to someone else’s upgraded network subject to heavy anti-monopoly restrictions and pro-competition caveats, or the uncertain and problematic world of a $15 billion build that might be subject to legal resistance, political constraints and the risk of heavy-duty HFC & LTE competition or no custom from Telstra.

Forget the Expert Panel, SingTel would have to think hard and long about that choice. Nation building is for politicians, but ultimately the only two words that count for a private bidder are “fiduciary duty”. The NBN will not be a license to print money, especially if Telstra boycotts it or competes against it. Many questions remain to be answered. This process has just begun. 

Grahame Lynch