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Inside Business -

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(generated from captions) Government winning the last

election, or scraping through

the last election. What we've

just been through, it's

actually only 10 months since

the last election, we can do

this again in two months time.

Peter Beattie this week

suggested Kevin Rudd should

disappear and perhaps even in a bielection. I think this is

madness. The reason Kevin Rudd

is out of control at the moment

is because the Labor Party

cannot afford a bielection.

Imagine if Kevin Rudd got up in

Caucus, put himself up as the

new leader and said either you

vote me as leader or I'll go in

a bielection. That's the power

he has. That's the program.

We'll leave you now with Tony

Abbott and barn bi-Joyce

joining in the major topic of

conversation this week,

certainly the major topic north

of the Murray, and it wasn't

Julia Gillard's first

anniversary. Thanks for

watching. Always good adding

something for you, Tony, I know

whatever I say, they'll never

report it. How do you feel

about the decision regarding

Jonathan Thurston? Yeah, no,

this is outrageous. It does

pose the question that these

buggers can't win fairly,

they'll win foul. What do you

think, Tony? Look, I think

Barnaby is going to get

reported, notwithstanding the

fact he's standing with me. Closed Captions by CSI This Program is Captioned Live G'day there and welcome to

the program. An unchash risk

tick truce broke out in

telecommunications landscape.

Telstra, Optus and NBN Co

agreed to terms on the National

Broadband Network. Will the

agreements level the playing

fields? We'll talk to chief's executive David Thodey about

what the deals mean and whether

they'll lead to a lasting

peace. The Greek Government

took a step back from the

brink. While it won a vote of

confidence in the Parliament,

the public anger over budgets

cuts is growing. We'll talk to

constituenty's chief economist

beaut about the risk of a

European debt crisis and

whether the United States can

get its budgetary house in

order. This Program is

Captioned Live The National Broadband

Network took a giant stride

forward this week when Telstra

and Optus sign signed deals to

migrate customers and

infrastructure to the NBN. In

a moment I'll be speaking to

Telstra's chief David Thodey

first James Penrith looks at

the nuts and bolts of the

agreements. Today, we're in a

position to announce another

big step forward with the

delivery of the National

Broadband Network. This is a

bad result for taxpayers who

aren't going to get value from

the NBN. Telstra's structural

separation is the Holy Grail of

microeconomic reform in the

telecommunications sector. Of

course it is the nail in the

coffin of competition in the telecommunications sector.

Whatever your take on this

week's announcement, one thing

is now clear, the mother of all

infrastructure monopolies may

be coming to a street near you.

It is a significant change

but it only unfolds over 10

years. Telstra of course will

be doing wholesale and still have a very strong position if

not commanding position in

wholesale. It just won't have

once this NBN rolls out the

control of the access

network. Analyst Ian Martin

believes the poor showing of

Telstra's shares may have to do

with revelations the telco is

$11 billion on as part of the

deal. What's more there are

still concerns over whether the

decision to establish an NBN Co

fibre to the home monopoly was

the right one. We should have

looked at a way to encourage

competition and roll-out in

regional areas without necessarily closing the

metropolitan areas. I think competitive networks in

that's a backward step. There

are still many hurdles to

clear, including a shareholder

vote and approval from the

ACCC. But if the deal does go ahead, Telstra will shutdown

its copper network. It will

then lease its underground

ducts and transfer customers to

the NBN. In return, Telstra

will receive periodic payments

as the NBN is rolled out worth

$11 billion in net present

value terms. I think Telstra

come out ahead overall with the

deal and then the issue for the

other smaller players is really

how do they migrate from paying

$16 for access to the copper

network to $24 for more or the

broadband network. That's not

clear whether they end up as

winners or not. I think in

10-year's time all of the

debate around this issue will

probably have evaporated and

we'll start to talk how did we

ever live without the high-speed environment and

digital economy we have in a

decade's time. On husband will

shutdown its cable network and

see half a million customers

move to the NBN. In return,

Australia's second largest

internet provider would receive

$800 million. You'll also get

companies able to compete for

the first time on a level

playing field. When you get

that sort of level of competition, that's when you get real benefits to

customers. In theory, the NBN

was supposed to fix competition

in Australia's broadband market

by creating one wholesale

network on which retailers

could all compete on equal

terms. The paradox remains the

government has shutdown one

monopoly only to replace it with another while

sure the environment remains

competitive as Telstra's copper

network is gradually replaced

over the next 10 years. And

with Telstra indicating it will

do everything it can to attract

customers over the transition

period, the ACCC's concerns

over Telstra's continuing role

as both a wholesaler and a

retailer may yet bring the deal

undone. Telstra says it is $11

billion deal with NBN co-is an

important milestone. The same

cautious wording it use aid

year ago when the porj hetsdz

of agreement were signed.

There are plenty of hoops no

jump through including a

shareholder vote in October and

ACCC. Approval. If the inn

havers to reaction this week

was anything to go by that

might be a tough sell for the company. I spoke to

Telstra's-Chief Executive David

Thodey on Friday, the day after

the agreement was announced.

pretty unusual negotiation in David Thodey it is has been a

that you started with the

number of $11 billion last

over, a year ago, and spent 12

months working out how to get

there. Is that a fair comment?

No, I don't think it is, Alan.

Remember a year ago, a year and

a about four days, we announced

a financial heads of agreement

which was $11 billion

approximately NPV post tax.

Since then, there has been a

lot of negotiation and we're

still saying approximately $11

billion post tax NPV. No, it

wasn't a calculated outcome.

It has just been the way it

worked. You could see within

the construct of the deal the

infrastructure component and

the payment for the migration

of the customers has slightly

changed. No, it is not been

a... It is a fantastic

coincidence then, shall we say?

Oh, look, yeah, I think it is.

Yes, we've known what value we could accept, but I don't think

it is fair to say it is a


outcome. Obviously, the NVP or

net present value is not the

actual cash you'll receive. I asked a friend who under sthands spreadsheets to work

out from the information

provided what the cash that you

will receive over 10 and 30

years will be. He tells me it

is around about $750 million a

year for each of the

infrastructure and the decommissioning components or

around about $1.5 billion

billion a year in cash. Adding

up to $30 billion over the

time. Does that sound about

right to you? Well, it's...

The calculations different for

each component of the deal,

Alan. You've got the

infrastructure component which

we ramp-up in the first

three-and-a-half years. Then

there's that payment out over

the remainder of the term which

is 35 years. Then you also

have the payments as customers

migrate from the copper to the

fibre and that's over the

10-year period. Yes, what you

should do is you've got to take

the post tax number, take it to

a pre-tax number, gross it up

and spread it over a period.

It is a significant amount of

money. The question I guess is

how do you know that's a good

deal when you don't know how

much you're going to have to

pay the NBN to use the network?

We do know the base price

we'll be paying for a service

which is the $24 and yes, there

is a usage fee that NBN will

charge. Also there's a retail

cost on top of that wholesale

price. We've done our

modelling and we've looked at

what we think the demand will

be in the market and we can get

a pretty good approximation of

what we will be paying NBN

during that period. No, it is

a pretty good calculation. What

do you think it will be? What,

the... The amount you'll pay

NBN? Well, as I said, it

depends on the... You've got

the base component $24, then

you've got the number of cus

first migrating over the

10-year period. We've done

assumptions on what we think

the demand and usage component

of that will be. It ramps over

the period up to a higher

number. No, we've not

disclosed exactly what that

number is. What happens if

there's a change of government

in 2013? Like all these

things, policies come and go.

Governments come and go. What

we've tried to do is to make

sure we have enough contingency

in the event of any change of

policy or there may be a change

of strategy from NBN in terms

of technologies they roll-out.

We've been very specific.

We've said firstly, there's a

natural hedge because if

anything stops, we still retain

the customers on the copper

network. That's a natural

hedge. Secondly, we've put in

place this threshold. Once you

get to 20% of passing homes,

there is a half a billion

payment if anything should stop

and it ramps down over the

period to the end of the NBN

roll-out and then lastly, the

infrastructure contract is like

any commercial contract, 35

year contract in this instance,

where if they were to stop t

they have to payout the leases.

There's a lot of natural and contractual commitments in this arrangement. It is arrangement. It is a 35 year

lease, is it? 35 year lease,

yes. They've got to payout the

whole 35 years.

Absolutely. Right. The deal

also prevents you from promoting wireless as an

alternative to the NBN. But

there's nothing I could read in

there that prevented you from

or prescribed how you price the

wireless, so presumably you

could use the wireless to

undercut the NBN as long as you

were quiet about it. I want to

be very clear about this. The

only constraint we have is to

directly promote wireless

instead of the NBN fixed

broadband. That's very, very

specific. Our intent is to get

a customer to migrate and use

the NBN fixed broadband and to take wireless. The only

constraint - and it is a very,

very minor constraint - is to directly put a little pamphlet

in someone's house that says do

not buy NBN fixed broad are

band, bier wireless broadband

instead. We'll be promoting

our next G network which is

going to an LT spectrum, 80

megabits per second, and we'll

be promoting that product very,

very strongly. It is only a

very limited constraint of a

dreth substitution for NBN

fixed broadband. I don't think

it is issue at all. Will you

price it as an alternative to

the NBN. We'll continue to be

competitive as we go forward,

as we've always been, and we'll

be selling that product on the

value and the flexibility it

gives our customers. Back to

the cash that you'll be

receiving, whatever the actual

number is, it is quite a large number as we were saying. It

is going to make you the

richest in cash terms media

company in this country, I'd suggest, by quite a long way.

What are you going to do with

the money? I think that you're

getting at a very good point,

Alan. We are going to enjoy

some very rich cash flows over

the next period and I think

this creates an incredible

opportunity for the company to

re-orient itself for the next

20 years. That's what we will

be doing. We've already been

very clear about our strategy,

about continuing to drive real

value from our core telecommunications services

here in Australia. You've seen

us invest $800 million or

announce we're going to invest

$800 million in the cloud

computer area. Also, area we

rolling out those new products in the small business area,

digital business, nearly $500

million over the next four

years. We'll be coming up with

new products for the home.

You've already seen the IPTV product, Foxtel will be

available on IPTV. We are

ramping up enormously a whole

new raft of products and

services we think will be of

enormous value. You could go on

an absolute acquisition rampage

if you wanted to. Never a

rampage, Alan, but we have

options and have real capital management options. We could

look at our dividend policy,

look at a buy-back program, or

he we can look at expanding our

business. For the first time

in this company's history, we

have real optionsability going

forward which we are very

excited about. Would you

consider selling the

infrastructure income stream?

It is a very interesting and

valuable asset for a

superannuation fund, 30 year or

35 year income streams like

that are very rare. They

probably pay quite a lot for

it. Yes, that's true. They

probably would, Alan. At the

moment we've not directly considered that. We will

always look at all options as

we go forward. I'd say you get

about $8 to 10 billion for it.

Do you think that's right. I

haven't done the number. If you

do sell you have to give the

money back to shareholders,

wouldn't you? We would always

and I think always have right

through our history always

considered our shareholders.

That's why we've had such a

strong dividend policy and I

think we've been very conscious

of our retail shareholder base

and about how important that

dividend is to them. We'll

always be mindful of our

shareholders. The agreement

provides that you have to use

the NBN exclusively for 20

years. In 20 years time you

won't be around, obviously, but

do you think that Telstra's

likely at that point to be

thinking about using some other

network, perhaps even going

back to the HFC network? You're absolutely right, Alan,

I don't plan to be around in 20

years time. One thing I can tell you technologies change

and that's the wonderful thing

about this industry. We've

seen for many, many decades.

There will be options going

forward. Yes, cub absolutely

assured that Telstra will be

looking at every option that we

can put to market that's going

to improve the way people live

and work and that's what we've

always done and we continue to

do that going forward. Thanks

very much for joining us, David

Thodey. Thank you, Alan. Now

with the latest business and

market news over to Jayne

Edwards. Thanks Alan. Wall

Street slumped on Friday amid a

renewed round of uncertainty

about European debt. Each of

major indices fell sharply

closing down by 1%. Greece

formally asked a summit of

European leaders for a second

bailout package, but its

crucial austerity measures are

facing a parliamentary vote

next week. It is most important

to see whether the Greek

Parliament is able to vote for

a new austerity measures to get

new money. If not, the doors

of the help will be opened wide. Adding to the jitters,

the share prices of several

Italian banks fell sharply,

forcing them to be temporarily

suspended from trade. It

overshadowed a rise in demand

for durable goods in the US.

The only positive economic sign

in a week in which Fed chief

Ben Bernanke gave a fairly lukewarm assessment of the

economy. Looking at world

share markets, the US and UK

were steady over the week.

Europe not surprisingly lost

2%. Japan had its best week in

a year jumping by 4%. Pour

local market limped to a flat

finish. For more on that

here's Marcus Padley. The

market managed to hit a eight

month low this week. We're

doing a lot of work around

4500. The RBA mins this week

seemed to have pushed back the

timetable for the next interest

rate rise. The Ben Bernanke

speak about the US economy

didn't do any favours to US

stocks one in particular CSL

who got an an FDA warping letter this week. The big

stories this week were the NBN

deal with Telstra and the

Fosters takeover. On Telstra

the stocks has been up 18%

ahead of this announcement

against a market down 10%. It

has done a lot of work. There's nothing really new in

the announcement to get

everyone excited. Brokers do

seem to think the deal allows

them to pay their dividend for

the next couple of years.

Quite a few buy recommendations

around. It is better to travel

than arrive. On the Fosters,

SAB Miller bid 4.90. They're

payable of paying more. Market

talking about paying 5.50 maybe

even six bucks if they end up

in a contested bid situation

which is perfectly possible.

On the earnings front we are

still in the confession season.

We awe profits warning from

Caltex and and a profits

downgrade from Qantas which

went up this week Descarado

despite the volcano. Take over

in Paladin, also in Woodside

yet again although last time it

was hyped up it was a complete

furphy. APA Group down on a

$300 million capitalise laze

raising. Murchison Metals getting environmental approval

for their rail and ports

project in WA saw one of their

big customers pull out. Threatening that project. We

wait to see what happens there.

Mincor was on up on the

announcement 10% buy-back.

That's down 85% from the top in

2007. Ausdrill had a good week

basks in the fairly good

reception to the Barminco IPO

which is coming up and looks to

be going okay. Winner of the

week this week is Fosters up

12% after possibly the most predictable takeover in

history. And loser of the week

is Arafura Resources, down 16%

on delays to the feasibility

study to one of their projects. Investors to cheered

the news this week the Greek

Government survived a

confidence vote giving it some

much needed breathing space a

chaps to implement its austerity measures. The mood

was shortlived. On Wednesday

the chairman of the Federal Reserve Ben Bernanke gave a

gloomy assessment of the US's

prospects and no hints that

it's current round of quantitative easing or money

printing would be extended past

the 30 June. Where to for the

global economy? For his take,

I spoke to city's global Chief

Economist, Willem Bouter. The

European Central Bank, among

others, has been painting a

very dire picture of what would

happen if Greece defaulted.

Would it be that bad? Well, default is never to be

recommended, but the kind of

end of the world scenarios

Lehman plus, that ECB has been

pedalling are, I think, either

uninformed or irresponsible or

both. A sovereign default, especially of a small nation,

sovereign debt, is well

understood. It is simple in

composition. We know who holds

it. This need not be a major

event. If certain private

investors, especially banks,

have even after a year or so

still got excessive

concentrated holdings of

defaulting sovereign debt, them

these institutions can get into

trouble, and they have to

handle that, but all in all,

the sovereign default of

Greece, if and when it comes,

can be handled in an orderly

way. There are many historical

examples of that. The ECB

should not make things worse

than they need to be by making

markets more concerned and

nervous. In fact, the ECB is

probably talking its own book,

isn't t it is one of the

biggest creditors to Greece, if

not the biggest. That is part

of the story. They are the largest out right holders

probably of Greek sovereign

debt, the largest single

institution holding Greek

sovereign detective, they have

indirect exposure to sovereign

and sovereign guaranteed debt

that's in the euro system.

Yes, they are talking a book.

Whether it is the main

motivating force I don't know.

I think it may partly be

ignorance. Sovereign defaults

haven't occurred in western

Europe since 1948 when then

West Germany was the last one

to default. In my mind, there

is no doubt that while it is a

serious event, they can be

handled if the right support is

there, including support,

active support from the ECB,

they can be handled without

creating serious fall-out for

the real economy, let alone a

financial crisis in the

Eurozone. That is really

complete and utter nonsense. Do

you think that some sort of

default or restructuring or

re-profiling, whatever you want

to call it, of Greece's debt and perhaps the other

peripheral countries in Europe

is inevitable? Yes, I think

that at least for Greece and

Ireland and Portugal quite

serious default restructuring

involving large losses for the

creditors who by the time it

actually happens are likely to

be mainly official creditors,

like the ECB and the various

European facilities created to

handle the crisis. This is

indeed going to happen. In the

short run, in fact, in the very

short run I hope, we will see

what we call soft profiling or

roll overs on a voluntary,

inniotation marks basis, some

of the maturing Greek debt that

will make the whole process

less damaging and more orderly.

Yes, there will be defaults, it

is likely to start with a slow

and easy roll over of existing

debt, gratuity extension, but

ultimately, I think, very large

write-downs in Greek and Irish

and Portuguese sovereign debt

are likely almost inevitable to

occur. You recently wrote the

United States fiscal Munsef

fundamentals are worse than

those of the peripheral

countries in Europe and you

summed up the situation as the

fact they've got social

democratic spending and Tea

Party taxing. Can you tell us

what's the future of the United

States in that context? I

think Winston Churchill said

that the US always does the

right thing after all of the

alternatives have been tried,

right? I am confident that the

US sovereign, even though it is

in dreadful fiscal condition,

will neither default on its

sovereign obligations, Norrie

sort to the inflation tax to

square the circle. They will

in due course choose fiscal

pain, spending cuts and tax

increases to resolve their

yawning budgetary gap. They

need at least 8% of GDP worth

of permanent tightening if you

were to start that today, that

would be $1.2 trillion worth of

fiscal tighten ing ina single

year. It is my guess that the

US will only turn to serious

fiscal tight tenning following

the election and unless a

single party is following the

Presidential election in

November 2012, unless a single

party is in control of both the

White House and both houses of

Congress, it will be market

discipline, threatened increase

in long-term rates, sharp

increase in sovereign rates

that will force the US Congress

to impose both higher taxes and

spending cuts. It may well be

that it will take a loss of the

USA AA status to bring about

the necessary concentration of

the minds. Australia is

suffering about a Dutch disease

which I'm sure you know about

because you're a Dutchman. Can

you tell us what's the answer

to that? Does it just mean we

have to eventually put our manufacturing industry to bed

and possibly to the morgue

eventually? Is there no way

out to it? Up to a point

that's inevitable. The only

way to avoid is to leave the

stuff in the ground and that

would really not be wise. The

degree, however, to which this

occurs and whether or not it is

simply overshooting, depends on

domestic policies, especially

fiscal policy. The way to

minimise the degree of the

Dutch condition and stop it

from turning into a Dutch

disease or even natural

resource curse is to use tight

fiscal policy and to save

privately or publicly a large

part of the windfall gains

rather than spending it

immediately. Where you spend

it, you know, spend it on

investments, private or public

that yield a returns over a

long period. Fiscal

tightening, high national

saving rates are the way to

minimise the severity of the

Dutch disease. Anything else,

including monetary policy, is

second order. Finally, what's your forecast for the Australian dollar and the

Australian economy over the

next couple of years? I expect

the currency, actually, to

strengthen further somewhat for

what it's worth. I'm not going

to give you a number, because I

expect the global growth will

continue quite robustly and as

a result, commodity prices will

remain strong and may even

strengthen further, going into

the second half of the year and

into 2012. That will put

upward pressure on the

Australian exchange rate. As

regards growth, of course you

had, you know, trouble with

Mother Nature there with one

half of the country drowning

and the other burning. Assume

we don't have comparable

disasters, I think that the

economy can grow at a rate of 3

or 4%, possibly provided the

labour supply is there to

accommodate the demand for

labour to be associated with

this kind of growth rate. Can

you of course take up part of

the necessary labour, find it

out out of reservoir of the

unemployed and the rest will

depend on the immigration

policy which is of course a matter of national discretion. Thank you for joining us Willem

Bouter. Pleasure. You've probably heard I've

jobless recovery. America's

got one now. But what about a full employment recession?

That's what Australia is

facing. Aggregate nationwide

unemployment is 4.2% and there

are growing labour shortages in

the resources states to the

point where companies trying to

build new iron ore, coal or gas projects are worried that they

won't be able to get the people

to do it. High wages are be

sucking Labor from the cities

to the new gold rush or rather,

the iron, coal and gas rush.

The average unemployment rate

is only likely to fall.

Meanwhile the cities are on the

brink of recession. Industries

such as retailing, tourism and

manufacturing are being

hammered by the high dollar and

week domestic demand caused by

high interest rates and petrol

prices and the big increase in

the savings rate as households

repair their balance sheets. The Prime Minister, Julia

Gillard, calls it our patchwork

economy which I suppose is

intended to give the impression

of a nice quilt with lots of

different colours. It is much

more sinister than that. Dutch

disease where the non-mining

parts of an economy suffer when

mining booms, is a nasty

affliction. Parts of Australia

are close to or already in

recession. The Reserve Bank

meanwhile is watching the

unemployment rate and wants to

put interest rates up. The Government's only plan is a

carbon tax which is designed to

put energy prices up. No

wonder it's not popular. On

that note, that's it for This Program is Captioned

Live. Hello again. Welcome to

'Offsiders'. He's been talked

about for years, but Bernard

Tomic's arrival on the world

stage has been sudden and

spectacular just the same.

Tomic is now into the fourth

round at wbd after knocking

over the fifth seed in straight

sets, the first 18-year-old to

go that far in 20 years. I

don't think any of us expected

that sort of match out of

Bernard. We thought he could

win, but that was almost a

demolition of the world number

5. This is probably the

greatest achievement of my

career so far. I'm really