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INFO RUEHBJ/AMEMBASSY BEIJING 9092
RUEHWL/AMEMBASSY WELLINGTON 5381
RUEHKO/AMEMBASSY TOKYO 3119
RUEHGP/AMEMBASSY SINGAPORE 1489
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RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 CANBERRA 000704 
 
SENSITIVE 
SIPDIS 
 
STATE PLEASE PASS USTR/MCHALE; STATE FOR EEB/CIP AND EAP/ANP 
 
E.O. 12958: N/A 
TAGS: ECPS ECON AS
SUBJECT: DELAYS IN AUSTRALIAN NATIONAL BROADBAND NETWORK 
 
REF: A. A) CANBERRA 401 
     ¶B. B) CANBERRA 375 
     ¶C. C) 2007 CANBERRA 449 
 
¶1. (SBU) Summary:  Progress on the National Broadband Network 
(NBN) has been slower than expected.  The original deadline 
(July 25) for bids will slip, primarily due to Telstra's 
delay in providing network information to the GOA for other 
bidders.  We expect an announcement that this information has 
been provided soon, with bids due perhaps in November and a 
GOA decision probable in February or March 2009. A Senate 
inquiry organized by the opposition will be critical of the 
Rudd Government's handling, but should not delay the tender 
process.  The request for submissions on regulatory issues 
surrounding NBN brought a spate of recommendations from 
competitors and most Australian state governments to 
structurally separate Telstra.  After a warm beginning, 
relations between Telstra and the Rudd Government have begun 
to deteriorate.  Telstra threatens "endless" legal action 
over any attempt to impose structural separation.  End 
summary. 
 
SLIPPING TIMELINES 
 
¶2.  (SBU) Progress has been slower than expected on one of 
the top campaign promises of 2007, the establishment of a 
National Broadband Network (NBN).  Originally, the Department 
of Broadband, Communications, and the Digital Economy (DBCDE) 
set a July 25 deadline for the submission of proposals from 
interested bidders.  However, after complaints from bidders 
that they would not be able to submit a bid without detailed 
technical network data from Telstra (ref A), that deadline 
has been set aside, and DBCDE has assured bidders that they 
will be given 12 weeks to review the network information from 
Telstra - which has yet to be released.  Brian Kelleher of 
DBCDE told econoff July 10 that"unofficially" he expected an 
announcement in the next two-to-three weeks that Telstra has 
provided the necessary network information to DBCDE, which 
would pass it on to the registered bidders.  That would start 
the clock, which would see bids due to DBCDE in approximately 
mid-November. 
 
¶3.  (SBU) A mid-November date for bids means the GOA will not 
meet DBCDE Minister Stephen Conroy's earlier pledge to break 
ground on the NBN in 2008.  Per Kelleher, it will take DBCDE 
at least eight weeks to assess the bids on their technical 
and commercial/cost merits, to determine how well they 
satisfy the GOA's objectives (including reaching 98% of 
premises) and another four-plus weeks for Conroy and the 
Cabinet to make a final decision (note: this may be 
optimistic since the combined Christmas-and-summer holidays 
frequently slow the pace of government in December and 
January).  That pushes the end of these deliberations to 
February or March, when the GOA is in the annual throes of 
preparing its budget for release in early May.  That deadline 
could focus the Rudd Government's attention on getting the 
NBN announced and funded quickly, or could possibly cause 
further delays because of the all-absorbing budget process. 
 
SENATE INQUIRY 
 
¶4.  (SBU) The Senate (controlled by the Coalition until July 
1 when the new Senate, based on the November 24 2007 election 
results, was seated) in late June announced a Senate Select 
Committee inquiry into the Rudd Government's broadband plans. 
 Claiming "a background of broken deadline promises, cost 
Q Claiming "a background of broken deadline promises, cost 
blow-outs, consumer anxiety and regulatory uncertainty," 
Liberal Party shadow minister Bruce Billson wants to "canvas 
competing interests and look at the facts to make sure the 
right public policy settings are taken."  Billson said they 
will also talk to the telcom industry, which he describes as 
"excessively gagged" by the GOA's tender process.  The 
Committee is due to report to the Senate in March 2009. 
(Comment:  that report will not be completed in time to 
influence the GOA's decision.  That underscores the fact that 
this is primarily a point-scoring tactic for the opposition 
to use in criticizing Conroy's handling of the NBN; this 
ongoing inquiry will be a minor complication for the GOA to 
handle.) 
 
GRUMBLING ABOUT TELSTRA AND CALLS FOR STRUCTURAL SEPARATION 
 
 
CANBERRA 00000704  002 OF 003 
 
 
¶5.  (SBU) As part of the NBN, DBCDE had called for 
submissions on regulatory aspects of the broadband plan.  By 
the late June deadline, at least 80 submissions had been 
received, from state governments, equipment providers, user 
associations, interested companies such as Google, Skype, and 
Intel, private individuals, and Telstra, Singapore-based 
Optus, Primus and other telcoms.  Many of the submissions 
focused on the merits of structural separation for Telstra, 
splitting Telstra's network business from its retail 
operations.  The state governments of New South Wales, 
Western Australia, South Australia, Queensland, and long-time 
Telstra critic Tasmania (all states but Victoria) all called 
to varying degrees for structural separation, as did Optus, 
Primus and the other telcom providers, and others such as 
Google and Skype.  Telstra characteristically issued a 
lengthy and vociferous series of submissions defending its 
structure and asserting that its vertically-integrated model 
has great benefits for the market. 
 
GRUMBLING BY TELSTRA 
 
¶6.  (SBU) The Telstra-Conroy truce is over.  After the 
November election there was an era of good feelings between 
Telstra and Minister Stephen Conroy.  Conroy, in Telstra's 
eyes, had the fine quality of NOT being Helen Coonan, the 
Howard Government's last Minister for Communications, who had 
gone toe-to-toe with Telstra in some extraordinarily nasty 
public squabbles about phone and internet services that 
helped prompt Coonan to float publicly the idea of imposing 
structural separation on Telstra. 
 
¶7.  (SBU) Industry insider David Forman, head of the 
Competitive Carriers Coalition and the husband of Senator 
Kate Lundy (of the ruling Australian Labor Party) told 
econoff that Conroy during recent Senate estimates hearings 
declined to say anything about structural separation.  But 
Forman claimed that Conroy has been "stoking the fires" of 
structural separation in private, and Telstra has come to the 
realization that this idea is back in play.  A CitiGroup 
analyst in a note to clients wrote that Telstra's plan as 
currently outlined is unlikely to win the NBN bid, and JP 
Morgan recently issued a report laying out the benefits of 
structural separation and calling it a valid alternative for 
the GOA. 
 
¶8.  (SBU) In late June, Telstra chairman Donald McGauchie 
fired the first public shots at the Rudd Government. 
McGauchie promised "endless litigation" should the GOA ever 
try to impose structural separation on the former monopoly 
telcom.  He also said that Telstra would only bid to build 
the NBN if it could both own and operate it. McGauchie also 
criticized the GOA for only offering a A$4.7 billion 
contribution to the NBN, complaining that to achieve 
penetration to 98% of Australian residences would cost A$25 
billion.  This brought a quick public rejoinder from Conroy, 
who dismissed McGauchie's complaints and acidly noted that 
just the week before Telstra had estimated the NBN would cost 
A$15 billion.  In any case, DBCDE says the A$4.7 billion is a 
hard limit on what the Australian government will kick in. 
 
THE BIDDERS ARE IN 
 
¶9. (SBU) Several organizations have put up A$5 million bonds 
to be registered as bidders for the NBN, either on a national 
or state level.  They include Telstra, Optus, Terria (a 
Qor state level.  They include Telstra, Optus, Terria (a 
consortium of smaller telcoms), Macquarie Bank, the Tasmanian 
state government, TransACT (an ISP in the Australian Capital 
Territory), and Acacia.  Macquarie Bank later announced that 
it would join Telstra in the bidding, a move seen by one 
industry analyst as a ploy to get into the NBN game without 
having to commit any of its own resources by convincing 
Telstra to buy it out of an independent bid.  Telstra, Optus, 
and Terria are bidding on the national level; the other bids 
are all for within one state or territory.  Under the tender, 
it is possible for the GOA to award the national contract to 
one bidder but give state awards to other bidders, if they 
see the state-based bid(s) as competitive on costs and 
technically compatible with the national winner.  The 
TransACT, Tasmanian Government, and Acacia (Victoria) efforts 
are seen as compatible with the Terria national bid, and 
could possibly merge their proposals into one. 
 
 
CANBERRA 00000704  003 OF 003 
 
 
COMMENT 
 
¶10. (SBU)  DBCDE and Conroy's office have been keeping this 
entire process very much under wraps.  They have conducted a 
series of meetings with entities that have ponied up the A$5 
million bond to explain technical issues and answer 
questions, but have been very cautious to avoid any 
appearance of conflict of interest.  Even in talking to the 
Embassy, DBCDE and Conroy's office have been unwilling to 
confirm anything that hasn't been made public already. 
Despite the bickering with Conroy, Telstra is still clearly a 
strong candidate for the NBN contract, but is no longer seen 
as a lock to win.  Rumors that they will leave Australia very 
soon surround Telstra's controversial American CEO Sol 
Trujillo and his even more controversial American director 
for public affairs Phil Burgess.  Forman, whose professional 
distaste for Telstra has probably been strengthened by 
Telstra's recent blog attacks on his wife Senator Kate Lundy 
for her critical statements and questions (on behalf of 
Conroy, Forman said) about Telstra in the Senate, passed on 
reports that Trujillo's house in Colorado is being prepared 
for his early return, and suggests that Conroy and DBCDE will 
wait for new Telstra leadership before making any decision. 
In any case, Telstra's renewed public campaign against the 
GOA and against its regulator the Australian Competition and 
Consumer Commission, could harden attitudes within the Rudd 
Government against the dominant telcom. 
 
CLUNE