TELSTRA is preparing a radical Plan B that will involve a price war on an upgraded cable broadband network for millions of subscribers, assuming it doesn't do a deal with NBN Co within the next few weeks.
The company is well advanced on plans to upgrade its cable network to speeds of up to 100 megabits per second for homes in Sydney, Brisbane, Perth and Adelaide to match what has been available in Melbourne since late last year.
The customer take-up of the high-speed cable offer in Melbourne has been very low, with only a few hundred households signing up out of about one million homes passed by the cable. This is mainly because the broadband offer has been so expensive and requires a combined Foxtel premium service on a two-year contract.
The government has used the lack of interest by consumers to suggest that Telstra will never be able to compete with its new national fibre network using cable or a degrading copper service.
A chastened Telstra in the post-Trujillo era has also tried to avoid suggesting it would aggressively compete with the new fibre network via investing in cable.
But despite months of negotiations, there is no agreement with the government NBN Co on the price it is willing to pay for Telstra's assets.
The implementation study released this week said it would be financially feasible to deliver a fibre network without Telstra, although the logic of its its involvement was "compelling" for both parties. This has led some analysts to suggest that Telstra no longer has any real option but to concede. However, Telstra is relying on the fact that the new network will take years to get established, and one option is to better exploit its existing strengths in broadband in the meantime.
Despite the impact on its traditionally very high margins, Telstra was already planning to slash its prices on cable to try to drive much-needed growth for a company that has been losing market share to cheaper competitors.
Without an NBN deal, it will now invest in upgrading its cable to a further 1.7 million homes in other cities and separate broadband from the Foxtel service in order to increase numbers.
The software upgrade will take a few months. Telstra is believed to regard the investment in upgrading cable as commercially sensible -- despite the relative lack of consumer interest in 100Mbs service and the fact it is getting virtually no return on broadband now.
Telstra is also preparing to dramatically cut prices on the existing broadband services available on copper through ADSL, to try to regain momentum after a disastrous several months. The urgency and size of the proposed additional cuts in broadband prices are only accelerating given the company's need for growth.
The implementation study by McKinsey and KPMG suggested that the government could impose a special "cherry picking " levy on competitors trying to target high-value consumers in high-density areas where it is easier and cheaper to build. This tends to be in areas already covered by cable.
The study said this levy should only be regarded as a last resort and as a mechanism to prevent "cherry-picking builds" during the eight-year roll out of the NBN.
But the government would be expected to retaliate strongly with some fibre cherry-picking of its own against Telstra in the richest areas if it decides to compete.
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COMMENT: Competition must be coming as a real shock to Telstra as it comes out of its shell and
realises how disgustingly it has been treating the people of Australia since its incorporation in 1975.
Senator Stephen Conroy is the quiet achiever who has taken the Telstra goons out of the 19th century.
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