[LINK] The Telstra Kerfuffle - PR and History

[Frank O'Connor]

After David Thodey's recent 'bomb shells' 
regarding the Telstra state of play, drop in 
fixed line clientele, and parlous revenues a 
number of commentators from the business realm 
have leapt into the fray lambasting everyone from 
the government, the NBN initiative, Telstra's 
phone and IP competitors, mobile service 
providers and even the humble customer as the 
ones who should be blamed for the Big T's 
predicament.
But hang on, how does that tally with history?

Let's see. In 1987 Telstra and it's new CEO, 
Frank Blount, were making the proud boast that 
optic fibre had been laid to 'within 700 feet' of 
nearly every Australian home. Now whilst this is 
an obvious (and highly inaccurate if you consider 
our country cousins) exaggeration, there was a 
heck of a lot of fibre in the ground in the 
cities.

At that time local area calls were relatively 
cheap, line and phone line rental was minimal 
(Telstra being happy with locking in customers 
with copper after the advent of Optus), STD and 
international calls cost an arm and a leg, mobile 
phones were new fangled tech and caused hernias 
when carrying them, and other wireless technology 
was merely a smile in its creators eyes.

In summary, in 1987 aside from the upstart Optus, 
it all looked pretty rosy for Telstra.

Over the next few years there were changes in 
Management Š Blount left, Ziggy arrived, Ziggy 
left, Sol arrived, Sol left, Thodey arrived. 
There may be a few names I've missed, but you get 
the drift.

So, what happened between 1987 and 2010?

# Pretty much nothing on the Fibre front. A few 
wealthy city based businesses got connected, 
mostly using Ethernet and other networking 
protocols to support their IT infrastructure, 
some core Telstra pipes were switched, but if Joe 
Public wanted faster more advanced networking 
services he was pointed in the direction of 
Telstra's obsolete ISDN network (which 
incidentally had been built using the wrong 
standards and protocols - but hey, who cares?) at 
a cost of about $12500 per annum for a 64k 
channel, or they used modems over copper, or 
wired it themselves. The fibre was basically left 
99% under utilised.

# The first of many 'rationalisations' was 
conducted Š which saw huge numbers of network and 
communications engineers, lines-people and 
techies thrown out on the streets or pushed into 
sub-contracting for the Big T. (As far as I can 
work out they have more than been replaced by 
managers, bean counters, complaints and support 
staff - to handle the irate public when network 
failures, billing failures and the like occurred 
- so the massive lay-off didn't hit the 
unemployment stats like it could have)

# Telstra got involved with FoxTel Š and laid 
thousands of miles of relatively obsolete cable 
in the cities connected by Ethernet protocols, 
that initially allowed a maximum of 10Mbs, but 
now allows up to 100 Mbs (both of which had to be 
heavily discounted because of bandwidth 
saturation, the Ethernet error correction 
protocols and the effect monitoring multiple 
nodes has on traffic flows Š but theoretically, 
if you were the only node on that subnet you 
could get maybe 85% of the maximum Š else, figure 
20% of max on a good day).

# BBS's continue to grow in both numbers and 
number of connected clients. FidoNet was the 
rage, UUCP was its equivalent for connecting the 
Internet NNTP services, but real time Internet 
wasn't really the go (Other than on a client 
basis for the BBS operators themselves - and then 
we're only talking UUCP, TelNet, Gopher and the 
like). Telstra used the increasingly popular 
BBS's to sell a heap of expensive 64k ISDN links 
(between BBS's and their upstream pipes)Š but 
other than that took no serious notice.

# Telstra invested heaps of its ill gotten gains 
overseas - almost uniformly in hugely expensive, 
embarrassing and spectacular mega failures (in 
Hong Kong, Singapore, South America Š you name 
it, they were there losing money hand over fist). 
Billions of dollars that could/should have been 
invested in updating and upgrading their own 
network was lost. Other than emergency 
maintenance, the existing (and by now seriously 
obsolete) Telstra network was allowed to 
languish. This was the first in a long line of 
spectacularly short sighted accounting decisions 
that was to be repeated time and again over the 
next 20 years.

# In the early 1990's the real time Internet 
happened. Other than as an opportunity to sell 
more hideously expensive ISDN lines to amateur 
ISP's, Telstra initially ignored it Š and 
Australia got its connections through AARNet 
pipeline. But surprise, surprise Š it got 
popular. The whole thing was kicked off by the 
ludicrously easy to use Mosaic browser of course 
Š but Telstra didn't recognise what this meant. 
No harm done though Š neither did any of the 
other big-metal communications companies. (They 
also didn't realise the ramifications of packet 
vs hard switching, but that's another story.)

# Somehow one of the bean counters at  Telstra 
(and/or Optus) suddenly realised that the market 
for real time TCP/IP services was expanding 
big-time, and that there was money to be made. He 
went to his boss and said there was moolah to be 
had. His boss went to his boss, who went to his 
boss, who went to his boss etc. etc.  Š (there 
are a lot of levels involved in the Telstra 
accounting hierarchy Š but you get the idea Š 
their products suck, their billing sucks - and 
you'd think with a plethora of accountants that 
wouldn't happen - their service sucks Š but they 
have a lot of accountants to oversee the 
debacle.) At any rate, 'THE NET' suddenly became 
an item on Telstra's revenue accruing radar.

# By 1992 the situation was that the Internet was 
starting to boom (growth rates of 100-200% per 
quarter in subscribers were common amongst the 
largely amateur ISP's and BBS operators), modem 
speeds were reaching 9600bps (if you had no 
objection to selling your soul to purchase one), 
the Web was starting to make people realise a few 
possibilities and had reached close to 30,000 
sites, STD and international calls still cost an 
arm and a leg, money was rolling in from fixed 
line services and mobiles were only a small 
percentage of the market, the network was still 
relatively cheap to maintain and no funds had 
been earmarked for upgrading or improving same, 
and Telstra's profit margins were in a Golden 
period. This high point marked for Telstra what 
they consider the end of the Happy Times.

# Now being a big-metal hard switched 
communications provider from way back, Telstra 
didn't have much idea about the technicalities of 
the packet switched Internet. So, using some of 
the mountain of moolah that they had extracted 
from their customers on other means of super high 
profit margin legalised theft Š ummm, sorry, I 
mean 'service provision' .. they bought in the 
expertise from elsewhere (CSIRO, AARNet, etc. 
etc.), and the hardware from the cheapest vendor, 
and set about creating an Internet Service 
Provider.

# Early versions of Big Pond worked fine, 
although were short on the services that other 
ISP's provided, and people flocked to join. The 
big kicker with the early Big Pond was that you 
didn't pay for the phone call to Big Pond Š just 
for the service. (Given that Telstra controlled 
the phone lines in Australia this gave it a huge 
advantage over other ISP's Š as for fanatics in 
those days the cost of the calls mounted up.) At 
about 1994 a lot of the amateur ISP's either 
started to get out of the market, or rationalised 
their operations and offered further value to 
their services to compete. Some (at iiNet, 
Ozemail, Connect and the like) were in the throes 
of changing into seriously commercial providers Š 
who would eventually, very very successfully, 
compete with Telstra as the years went by - much 
to Telstra's beancounters and managers 
disgruntlement.

# Most of the non-Bigpond ISP's offered much 
faster dial up connection speeds than Telstra did 
Š which overcame many of the disadvantages of not 
being a big-metal telecom who controls the 
network - but Telstra has never learned its 
lesson over this, and has continued to provide 
lower end bandwidth, data allocation and services 
(at a higher price premium) to its clientele 
compared to other offerings. Then again, maybe 
that's just a mark of their contempt for their 
customers. I'm surprised BigPond survives Š but 
you can never underestimate lying, cheating, 
cunning, sneaky and immoral spin-doctors Š Ummm, 
sorry I meant to say 'a dedicated public 
relations team' - which is why Telstra pays them 
so much. Makes much more sense than employing 
productive  and useful engineers, linesmen and IT 
technicians.

# So, by 1995, what had changed for Joe Public 
since 1987? Well the Internet was accessible via 
a number of commercial ISP's, close to 2 million 
sites were on the Web, STD calls were cheaper, 
international calls still cost an arm and a leg, 
mobile phones were a heck of a lot smaller and 
more convenient, wireless network services were 
in their advent (eg. 1 Mbs BlueTooth, 801.1b was 
in testing) but not yet released in cards or 
devices, PC's and other home computers were 
becoming pervasive, and for everyone - except 
Telstra - the need for future high bandwidth 
mediums seemed bleedin' obvious. The network Joe 
was working on was starting to fray around the 
edges as the demands on it increased, and the 
Pacific and East Asian pipes were becoming really 
clogged with traffic Š but his primary access to 
said network was still Telstra's copper.

# For the next 5 years the major developments 
(viz-a-viz Telstra) were more failed business 
ventures funded from profits, some spectacular 
Dot-Com crashes that they lost money on, the 
acquisition of more businesses overseas that went 
under with spectacular thuds, and little or no 
investment in upgrading the network. On the 
internet front, they invested in more 
trans-Pacific and trans East-Asia pipelines, but 
so did their ISP competitors. They tried on new 
billing charges for customers, upped the copper 
line rental to about $10 pcm, offered a variety 
of new paid services nobody wanted or that were 
offered for free by overseas telecom companies, 
and in search of further revenue allied 
themselves with the likes of phone marketing, 
phone sales, and phone sex companies. Their focus 
increasingly slipped from the client/customer on 
their phone network to the 'service provider' 
from whom they could extract a sizeable cut. 
Mobile services ballooned, and they charged top 
dollar amongst an increasing number of 
competitors Š but they made heaps anyway. More 
managers were employed, more engineers and 
techies released, and completing the shareholder 
statements was a joy. Telstra's share price 
topped $8.

# Within months of same everybody was looking at 
Telstra though more jaundiced eyes. The share 
price dropped of its own volition (didn't take a 
market crash or whatever - the Dot-Com crash 
happened a few months later) by 40% to hover 
around $5. The 'management team' was under real 
pressure, and came out with a number of 
spectacular plans at shareholders meetings, that 
all collapsed into vaporous nothings as the 
months went by. Dividends were still OK, but 
behind the scenes some serious deficiencies were 
beginning to be revealed - in the network, in the 
product line-up, in wholesale, retail and 
internet operations. The Board started hunting 
around for a new 'management team'.

# I think it was 2003 when the new team arrived. 
Anyway their first act was to alienate the 
government (which still owned more than 50% of 
Telstra) and they continued to do this during the 
whole of their tenure. Their only technical 
achievement from what I can see is the 
introduction of 3G/4G services. Otherwise they 
revamped Telstra's revenue base with various 
charges and tariff's (charging $30 pcm as line 
lease for the copper, adding incidental charges 
for paying bills by credit card, accessing data 
services on said 3G/4G hardware - hey, why else 
would you buy it? - and generally penny anteing 
their way into our hearts.) Telstra customer 
support and problem resolution sunk to a new 
abysmal low in performance, the base network 
started getting very unreliable (the only reason 
it survived intact until then was that it was 
over-engineered in the first place), and cracks 
started appearing in almost all Telstra products. 
I don't blame the 2003 management team for the 
network failures Š they inherited a problem from 
previous management Š but they didn't do anything 
about it.

# In the interim, Telstra's competitors had 
increased, wireless services freed up many 
products from the Telstra network, mobiles and 
satellite phones made the option of dumping the 
Telstra fixed line more attractive (aided by 
Telstra's efforts in increasing line rental and 
other charges), a veritable horde of consumer 
devices come with wireless connectivity (MP3 
players, tablets, laptops, etc. etc.) ADSL 2 
competed with cable for bandwidth and 
availability, and naked ADSL removed Telstra from 
the equation altogether from the customer point 
of view (true he was billed an additional $15 pcm 
by the ISP for Telstra's charge Š but in practice 
the economies of naked ADSL seem to be way better 
than the alternative any way you look at it.) 
Telstra was becoming increasingly marginalised. 
They still cornered a huge portion of the market, 
but the signs were not good.

# Flash forward to 2010. After two years 
distinguished by monumental failures in their $1 
billion accounting package, the advent of fees 
for paying bills by cash or otherwise in person, 
a huge disparity between their pricing and their 
competitors, a huge disparity between their 
competitors data limit offerings and bandwidth 
offerings and their's, real and serious 
competition in mobile services, wireless data 
speeds and competing content providers, the 
collapse of little numbers like their music and 
movie services (when others, paradoxically have 
flourished), the collapse of Sensis - another 
Telstra business model looking for a solution 
(and the recent court deliberations regarding the 
copyright of Sensis and White and Yellow pages 
data), with a customer base no longer tied by 
loyalty, economics or technology to their ever so 
obsolete copper Telstra is in serious trouble. 
(And Telstra was the one that threw that all away 
- I mean if they'd wanted to keep the fixed line 
income stream going you'd reckon lower line 
rental, fewer charges, better billing and problem 
resolution and the like would have been the go. 
But no Š the bean counters wanted to squeeze 
every last drop from the customer and now they 
are reaping what they have sown.)

# Today their share price struggles to remain 
above $3, the huge cash pots of the 90's and 
early Noughties have disappeared, their network 
is chronically under-serviced and becoming a 
serious threat to revenue, initiatives that cost 
billions have come to nothing, their share of all 
comms markets is dropping, the PR machine can't 
take a trick, the NBN is hovering over the 
horizon and will make their network seem Stone 
Age by comparison, and others - far more 
imaginative and competent than Telstra, have 
appropriated the content provision and other cash 
cows that Telstra so wanted to monopolise

So, that's the Telstra story folks.

A company that was mismanaged into near oblivion. 
A company that could have easily and 
incrementally built the NBN over the last 25 
years (and ensured that all of us would have been 
connected to it simply because nobody else could 
offer that level of performance), but which 
elected to blow all its capital on failed 
overseas ventures, protecting the old at the 
expense of the new, and abrogating it's technical 
expertise and the development of its network Š 
for short term gain. And of course to pay it's 
execs and suits huge salaries for doing their 
Whelan the Wrecker job over 25 years.

Now it's all catching up with them. Over the next 
few years their largely obsolete network will 
service less and less of the Australian 
population, they'll drop below 50% within two or 
three years and slowly fade from then on Š as new 
tech - wireless, fibre and satellite Š built and 
maintained by new players who no longer need 
Telstra's huge and largely redundant phone 
network with its outdated exchanges and copper 
wiring and switches and relays - all that wasted 
useless real estate and machinery dedicated to a 
world 25 years gone. The only thing keeping them 
in the game at the moment is that everything is 
in transition Š but nothing I've seen from them 
over the last few years even indicates that they 
realise this.

Or maybe Thodey has woken up to the fact that the 
world, and his customers, are passing Telstra by. 
He realises that Telstra is disliked more than 
the banks, more than child molesters ... hey, 
mass murders probably have a better PR profile 
with the Australian public. Whatever Š I don't 
think Telstra has the money, the will, the nouse 
or the inclination to play catch-up with the 
smarter players who will be released by the NBN.

My point is that the commentators who point to a 
horde of other to blame for Telstra's current 
woes are wrong.

Telstra has been busily executing itself for the last 25 years.

If Thodey is going to the government to be 
included in the NBN, he should be doing it on 
bended knee - and with iron clad guarantees of no 
more corporate stupidity. Whether or not Telstra 
gets involved is not as critical as many of the 
commentators think.