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Concerns for Internet services after broadban -

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Concerns for Internet services after broadband plan ditched

Reporter: Ben Knight

KERRY O'BRIEN: You could call it the showdown at the IT corral. After months of haggling with the
Australian Competition and Consumer Commission, Telstra has declared it will ditch plans for a $4
billion high speed Internet network if it has to make concessions to its competitors that it thinks
will damage it commercially. The implied threat is that Australians will be left with one of the
slowest broadband Internet services in the world - a claim denied by Communications Minister Helen
Coonan, and I'll be talking with her shortly. Telstra's latest snub to the Government is just
further evidence of the unprecedented hostility that now marks the relationship between the telco
and its major shareholder, since Texan phone company executive Sol Trujillo took command. This
report from Ben Knight.

ROB WELLINGTON, TANTAMOUNT PRODUCTIONS: Now, if we had decent broadband this would be
instantaneous. As it is, it looks like it's gonna take, well, about 30 seconds to load.

BEN KNIGHT: It's that sort of delay that, over the course of a day or a week, ends up costing
people like Rob Wellington a lot of money.

ROB WELLINGTON: I've got a programmer who's down in Caulfield. I've got an artist who's up in
Dalesford. I've got another graphic designer who's over in Hawthorn and they are all working with
files that are about... you know, they vary from just being, you know, 600K to 80MB. Now, 80MB -
you can't actually fit that in your email box - most email boxes, like, are a 2MB limit - so we've
gotta find roundabout ways to do things.

BEN KNIGHT: Rob Wellington runs an online production company, and under the current system, he has
to squeeze a lot of information through a very narrow pipe. Because what we call broadband here is,
by overseas standards, painfully slow. On these wires, you're lucky to get 1MB of data per second.
In Europe, the average is closer to 7MB or 8MB, and that opens up a whole new range of services.

PAUL BUDDE, TELECOMMUNICATIONS ANALYST: If you're ageing and you are frail, you can actually dial
up via your broadband. You get a nurse on the other side that you can actually look in her eyes,
she can look at you.

BEN KNIGHT: But that kind of speed is something that people like Rob Wellington can only dream of.

ROB WELLINGTON: It could be 20 times better, and 20 times better is a huge difference. So, it's a
difference between a little, crumby looking, poor sounding video image and full-screen DVD quality
with surround sound.

BEN KNIGHT: Everyone agrees the system needs a massive upgrade. Telstra was preparing to spend $4
billion doing just that: rolling out a system that would offer 24MB per second and kick off the
next generation of broadband Internet in Australia. But yesterday Telstra called the whole thing

PHIL BURGESS, TELSTRA PUBLIC POLICY MANAGER: We had different views of cost and when you have
different views of cost, you can't have agreement on prices, and because you can't price something,
you can't sell it.

BEN KNIGHT: Telstra wanted it competitors to pay a fee to use the network that would subsidise its
roll out to rural areas, but the ACCC wasn't having that.

GRAEME SAMUEL, ACCC CHAIRMAN: Telstra's network, Fibre to the Node network, was never part of the
plans they put to us to go out into rural and remote Australia.

BEN KNIGHT: Graeme Samuel said if it wanted to Telstra could have taken its case to the Competition

GRAEME SAMUEL: The fact they didn't choose to pursue that course of action suggests they have some
other course of action in mind, and I can only assume, without having any other knowledge, that
what that's about is attempting to put leverage on Government to intervene to take the ACCC out of
the process.

PAUL FLETCHER, OPTUS CORPORATE AFFAIRS DIRECTOR: Well, we believe there's been a lot of regulatory
game-playing from Telstra. They decided to see if they could get the Government to sweep away all
of the rules about telecommunications competition, trying to use the Telstra privatisation as a
bargaining chip, and also trying to use this broadband network as a bargaining chip.

IVOR RIES, E.L. & C. BAILLIEU STOCKBROKING LTD: The end game was to hold up wholesale prices, so
that Telstra didn't suffer competition from competitors who had cheaper costs.

BEN KNIGHT: Fibre to the Node was designed to dramatically improve broadband speed in Australia's
big cities. The theory goes like this: the old fashioned standard telephone lines that connect
every home and business in Australia are made from copper wire. They're actually very good at
carrying high speed broadband, but they can only do it over very short distances. So, the idea was
to roll out optic fibre cable, not to every home or business, but to the nodes that sit on the
street corners and use the copper wire from that point on, to avoid having to connect optic fibre
to every building. But not everyone supported the plan.

IVOR RIES: Many people would argue that it's already a redundant technology and, you know, advances
in DSL technology means that it's probably going to be a wasted investment anyway.

PAUL BUDDE: We don't, at this very moment in time, don't really need Fibre to the Node.

BEN KNIGHT: Analyst Paul Budde says the existing copper network is already capable of delivering
broadband 100 times faster than it currently does.

PAUL BUDDE: Telstra only has to flick the switch and we all would, or most of us, would have access
to this very high broadband speed over the existing copper cable network.

BEN KNIGHT: It's called ADSL2+.

PAUL FLETCHER: We are spending $150 million on bringing ADSL2+ to our customers, and it's that
competition which is going to drive Telstra and others in the industry to improve services, improve

BEN KNIGHT: So, why isn't Telstra offering this faster service to its customers?

PHIL BURGESS: Well, that depends on how we see the market conditions and the regulatory conditions.
So, we'll have an ADSL expansion when we have it.

IVOR RIES: Telstra's competitors have invested somewhere between $600 and $900 million in building
DSL equipment inside Telstra exchanges to provide high quality, fast Internet to consumers, and
basically, Telstra wants to cut that off and make all of that investment redundant.

BEN KNIGHT: But even ADSL2 isn't a long-term solution, as the copper network deteriorates and
demands on the system increase.

PAUL BUDDE: Everyone else in the world is facing the same problem. What you then do is on a demand
basis, you replace the copper cable network with fibre networks, and that can be done over the next
five to 10 years.

BEN KNIGHT: Telstra has its own plan.

PHIL BURGESS: We'll do it by wireless because that's unregulated, and if we get the green light,
we'll do it by a wire line, if we can get the regulatory settings right.

IVOR RIES: In the last five years, 2 million households and businesses have deserted Telstra.
Telstra has 8 million customers left and they don't want to follow down that path and lose another
2 million.

BEN KNIGHT: Telstra's competitor will be keeping up the pressure.

PAUL FLETCHER: We certainly support Australia moving to higher bandwidth. We see that happening
initially through ADSL2+, but we've also said that we are going to explore the possibility of
building our own Fibre to the Node network.

BEN KNIGHT: Meanwhile, Rob Wellington is still waiting.

ROB WELLINGTON: This is an area where we can compete internationally, or we could compete
internationally if our costs were the same. We are really good at producing content. It would be a
real shame if we missed out on this opportunity simply because we couldn't get our basic
infrastructure right.