TELSTRA'S high-stakes game of brinkmanship over a national broadband network has blown up in its face, as it suddenly stares at the prospect of it losing its near monopoly.
Almost $6 billion was wiped off Telstra's market value yesterday in its biggest one-day fall since it was floated in 1997, after the Federal Government dumped from its tender process the company's proposal to build a broadband network because it failed to meet a basic requirement.
The Government will not allow Telstra to re-enter what has narrowed to a three-horse race to build a $10 billion-plus national broadband network.
Telstra's hope now is that the Government decides that the other three national bids - from Optus, the Canadian telco Axia NetMedia and a consortium of Melbourne businessmen including Solomon Lew and former Telstra executives - do not meet its demands and instead opts to begin a new tender.
But its removal from the negotiating table raises the spectre for Telstra that the Government will in effect force a split of its businesses. The winning bidder will need access to its copper-wire network to launch a national network, a move that Telstra will fight in the courts.
The heightened regulatory risk invites questions about the strategy the chief executive, Sol Trujillo, and the chairman, Donald McGauchie pursued.
The Minister for Communications, Stephen Conroy, has vowed to continue with the tender, saying the Government is "ready to take the tough decisions necessary".
"Telstra's board will have to explain to shareholders why it has decided to sideline itself from a process that will shape the Australian communications sector for the next decade," he said. "The NBN process has always been bigger than Telstra."
Shares in Telstra fell almost 12 per cent, or 48c, to $3.65. ABN Amro downgraded Telstra from "buy" to "hold" because of the regulatory risks.
Citi analysts estimate that $10 billion could be wiped from Telstra's market value if it does not compete to build the network. But some analysts say Telstra is still the only company capable of funding and building a new fibre-optic network.
The managing director of White Funds Management, Angus Gluskie, said: "It's a massive risk [for Telstra]. It raises the prospect of … a requirement for Telstra to separate its businesses."
Telstra has been excluded from the race because it did not include a plan for small businesses, one of five basic requirements under the tender.
Mr Trujillo said it had been ruled out on "the basis of a triviality" and again said it was the only company with the know-how and means to build the network.
Senator Conroy said Telstra had had more than enough time and resources fully to understand what was required for the tender. "The Telstra board sought special treatment by proposing its own process. The rules … were set down eight months ago."
But the prospect of Telstra pursuing legal action to prevent a split of its businesses heightens the chances of consumers waiting longer for faster broadband speeds. The construction of a network is already months behind schedule.
An analyst with JPMorgan, Laurent Horrut, said: "This thing will have a major impact on the returns that Telstra will generate from its fixed-line business for the next 20 years."
