Telstra insists on ‘upward of 18%’ return

Should Telstra build FTTN, they insist on a return of 18% as a minimum.

That’s a lot of money to be forcing from consumers struggling with mortgage rises, and other factors, more so in a market where the pressures are on the price being dropped, and value for money being increased.

What makes Telstra so sure it should get 18% or more on a network investment? Considering a FTTN network is more than a 30 year investment, they could easily survive and do well from an 8% return, so why 18% is beyond me.

The costs of the network only go up when someone smashes down a node, which would be ‘rare’, or if a fibre cable was cut through, also not a very common experience when you have metro and regional areas with in place cable locations.

Further, why on earth should they get 18%? We could argue all the way about why they shouldn’t get it, starting with the lack of competition during Telstra’s construction, through to now, where competition has a difficult time taking a dominant lead due to Telstra.

Why should they get it? Shareholders can easily find somewhere else to invest their money. CEOs can easily find a new company to be a dickhead at the helm of. And networks can be built by many other companies than Telstra.

So, what makes Telstra so special to ask for 18% return on any FTTN investment? It all just looks like they are the dominant provider, so they’ll say this and if no one takes it, tough luck, you get none at all.

An 18% return on $4 billion is equal to $720 million. That $720 million will be coming from around 7 million consumers pockets, which means they are seeking around $121 off each of the 7 million customers to pay for and build the network (ie. the cost of building and the cost of the return). This is compared to $45 off each of the 7 million customers on an 8% return, so you must ask, why does Telstra feel they are entitled to that extra $76? What does it get you? Nothing. What does it get Telstra? Phil, with a lot more weight added.

That is $76 per customer per year, so it is clear the prices will go upward to cope with this, as in the current environment, profit per customer for non Bigpond customers is near the $10 mark, I’m sure.

Which reflects again, what need is there for FTTN if prices will soar, and performance will be pretty much on par with current ADSL2+ deployments? Doesn’t seem necessary.

Phil even went as far as to claim it was ‘high risk’. FTTN isn’t high risk. You build the infrastructure, and it lasts for some significant time, that time period allows for Telstra to suck up profits each and every year, for 30 years or more.

And due to the nature of the environment, FTTN will be practically competitor free for some significant time due to the high investment costs and the lack of technical viability of node to node interconnection.

Seems like Phil has not much of an idea of what high risk is, FTTN would be very low risk, and given an overbuild protection agreement to ensure Telstra doesn’t try and force me out of business, and $4 billion in the bank, I’d not hesitate to build for an 8% yearly return. It makes sense, it’s MORE money for shareholders, without pickpocketing the consumers.

The high-risk component of FTTN is only with Telstra, no other competitor has the ability to overbuild nationally, another FTTN network, it is not financially viable, and it is not technically viable to overbuild, unless, you are Telstra, who will happily run at even a significant loss, just to maintain dominant marketshare and force competitors out of the market.

G9 still have my vote on this regard with just a 10 year overbuild protection arrangement makes it worthwhile. Telstra had at least 30 years. G9 getting 10 ? That’s a peice of cake.


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