VZCZCXRO5991
RR RUEHPT
DE RUEHBY #1277 3500706
ZNR UUUUU ZZH
R 150706Z DEC 08
FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC 0691
INFO RUEHWL/AMEMBASSY WELLINGTON 5559
RUEHGP/AMEMBASSY SINGAPORE 1626
RUEHOT/AMEMBASSY OTTAWA 2246
RUEHDN/AMCONSUL SYDNEY 4049
RUEHBN/AMCONSUL MELBOURNE 5840
RUEHPT/AMCONSUL PERTH 4110

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