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DE RUEHBY #0357/01 0970834
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P 070834Z APR 09
FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC PRIORITY 1342
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEHKO/AMEMBASSY TOKYO 3492
RUEHBJ/AMEMBASSY BEIJING 9433
RUEHGP/AMEMBASSY SINGAPORE 1706
RUEHWL/AMEMBASSY WELLINGTON 5726
RUEHOT/AMEMBASSY OTTAWA 2316
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RUEHBN/AMCONSUL MELBOURNE 6238
RUEHPT/AMCONSUL PERTH 4501

UNCLAS SECTION 01 OF 02 CANBERRA 000357 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EEB/CIP, EAP/ANZ; STATE PLEASE PASS USTR - 
MCHALE, WEISEL 
 
E.O. 12958: N/A 
TAGS: ECPS ECON AS
SUBJECT: GOA ANNOUNCES IT WILL BUILD BROADBAND NETWORK 
ITSELF, AND PLANS REG REFORM 
 
REF: A: 08 CANBERRA 1302 B: CANBERRA 296 C: 08 
     CANBERRA 401 
 
¶1. (SBU) Summary:  Today PM Kevin Rudd in a surprise move 
announced that the GOA would set up a company to build the 
National Broadband Network, at a cost of up to A$43 billion 
(US$30 billion), rejecting all five commercial tenders.  The 
GOA will allow up to 49% private equity in the new company it 
will form to build and run the NBN, and plans to sell down 
its interest in the company within five years after the 
network is built and operational.  It will be funded by the 
Building Australia Fund and "Aussie Infrastructure Bonds." 
This will be Australia's biggest infrastructure project ever. 
 In addition, the GOA announced it was considering how to 
change the existing regulatory regime to improve competition 
and strengthen consumer safeguards, which an industry insider 
told Embassy would be the prelude to imposing structural 
separation on Telstra.  End summary. 
 
BROADBAND - WE,LL DO IT OURSELVES 
 
¶2. (U) Today Prime Minister Kevin Rudd himself announced the 
GOA would set up a new company to build and operate the 
National Broadband Network, at a projected cost of up to A$43 
billion (US$30 bn) over eight years.  This is a ninefold 
increase in GOA funding, set at A$4.7 billion in the initial 
tender (ref C).  In so doing, the GOA said that on the 
recommendation of a panel of experts, it had rejected all of 
the bids as failing to "offer value for money for Australian 
taxpayers".  The panel noted that the global financial crisis 
had a "significant impact" on the process - perhaps 
demonstrating doubt that the five bidders would not be able 
to raise the tens of billions of dollars needed to construct 
the NBN. 
 
¶3. (U) In the GOA release, they emphasized that they intended 
to divest itself of the new company (yet to be named); the 
GOA said it intends to sell its interest five years after the 
NBN is built and fully operational; construction could take 
eight years to complete.  The GOA plans to fund it via the 
Building Australia Fund (ref A), and by selling "Aussie 
Infrastructure Bonds".  It also anticipates significant 
private sector involvement, but the GOA will retain a 
majority stake.  The GOA emphasized the jobs angle.  This 
project will at its peak employ 37,000, per the GOA, and on 
average should provide 25,000 jobs. 
 
SPECS 
 
¶4. (U) The planned NBN will use optical fiber to the premises 
(FTTP), which will provide minimum speeds of 100 
megabits/second to those living in towns of 1000 or more; 
that will cover 90% of Australians.  Next generation wireless 
and satellite will deliver 12 megabits/second service to the 
remaining 10% in remote parts of Australia.  Fiber optic 
transmission links will connect Australia's capital cities 
and major regional and rural centers.  It will be a 
wholesale-only open access broadband network which will be 
built by a company "at arm's length from Government", and 
will be expected to roll out simultaneously across Australia. 
 
 
¶5. (SBU) By going with FTTP, NBN will completely bypass 
Telstra's existing copper wire network, and possibly render 
technologically obsolete Telstra's plans to upgrade its 
Qtechnologically obsolete Telstra's plans to upgrade its 
internet services over wireless and cable TV networks. 
 
AND REGULATORY REFORM, TOO 
 
¶6. (U) The second major announcement, released in conjunction 
with the NBN, said the GOA will seek public comment by June 3 
on ways to improve telecom regulation to make it work more 
effectively for the interests of consumers.  Minister for 
Broadband, Communications, and the Digital Economy Stephen 
Conroy said the GOA would consider a wide range of options 
for reform.  The "Regulatory Reform for 21st Century 
Broadband" paper included as possible options for reform: 
streamlining regulatory processes to allow the Australian 
 
CANBERRA 00000357  002 OF 002 
 
 
Competition and Consumer Commission (ACCC) greater pricing 
power for companies wanting access to Telstra's network; 
strengthening the ACCC's power to stop anti-competitive 
conduct by allowing it to impose binding rules of conduct; 
improving universal access arrangements for telephony. 
 
¶7. (U) The announcement said the GOA would consider 
"promoting greater competition across the industry, including 
through measures to better address Telstra's vertical and 
horizontal integration, such as functional separation." 
 
EARLY REACTIONS 
 
¶8. (SBU) Reactions from the telecom sector were largely 
positive.  SingTel subsidiary Optus, despite being passed 
over, welcomed the GOA's plan.  The Competitive Carriers 
Coalition called the GOA plan "visionary" and a "leapfrog" in 
technology.  Their executive director David Forman told 
embassy that the NBN plan and the call for regulatory reform 
were "cracker".  Opposition leader Malcolm Turnbull, however, 
said the NBN plan was not commercially viable, and said 
households would have to pay much more for broadband.  ACCC 
Chairman Graeme Samuel also deemed the NBN decision to be a 
"good move" that would take Australia "through the 21st 
century." 
 
¶9. (SBU) Comment:  The GOA decision to take on the job of 
building the NBN itself was a surprise, despite late rumors 
that this might happen.  It seems unlikely the Rudd 
Government would have gone through a year of effort and drama 
surrounding the tender process (ref B and previous) if it had 
intended all along to build the NBN itself - and on a very 
different technological and financial basis.  We believe the 
panel of experts was correct: the impact of the global 
financial crisis on the ability of bidders to raise billions 
in capital was likely substantial.  The announcement of a 
review of regulatory policy was less of a surprise; we had 
been hearing rumors of such a move in recent weeks.  Today's 
news was a mixed bag for dominant player Telstra.  Although 
its copper wire network will be bypassed, at least it does 
not face a private sector competitor as the owner-operator of 
a rival network, and there is nothing to prevent Telstra, 
already the top ISP in Australia, from playing in the new NBN 
game as an investor or as a retail provider.  But it must be 
deeply unhappy at the options for reform included in the 
GOA's  regulatory reform paper, in particular the possibility 
of functional separation, and its existing copper network - 
its biggest asset - faces being rendered technologically 
obsolete within a few years.  End comment. 
 
RICHE