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'Bad for customers, shareholders' – Telstra's regional roaming rage

Culla doesn't have a post office or any shops. It doesn't even have a pub. But on Thursday morning the regional Victorian township did get a Telstra phone tower.

It was a big deal for this less-than-a-dot of a township with no fewer than two federal politicians and Telstra's chief executive Andy Penn on hand to mark the occasion.

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Ostensibly this was the launch of the 100th mobile tower built under the federal government's Mobile Black Spots, which helps explain the presence of the Minister for Regional Communications Fiona Nash and Minister for Veterans' Affairs (and local Liberal MP) Dan Tehan.

The tower will give, for the first time, the surrounding community and visitors access to Telstra's 4G network. This single tower will cover about 260 square kilometres. Previously residents relied on Optus' 3G tower in Harrow, about 15 kilometres away.

Cattle and sheep farmer Anthony Close owns Kurra-Wirra farm which now hosts the new tower. He recently switched from Optus to Telstra and says for the first time he is able to stream Netflix at home.

He wanted to catch up on Suits, a series he started watching while at agricultural college in Melbourne a few years ago.

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Another local said her husband noticed the new signals as soon as the tower was activated and will finally be able to make phone calls from home.

This farmer's rationale – which many city dwellers would take totally for granted – is also at the heart of a major territorial tussle between the nation's biggest telcos over access to towers like Culla's.

The milestone offered Telstra an opportunity to push its bush credentials and defend the billions it has invested in the regions as the competition watchdog mulls giving its rivals access to Telstra's network – and its customers.

It chartered two planes to fly journalists – including from Fairfax Media – from Melbourne and Ballarat into the region for the morning to promote the story.

Penn's pitch

Culla Farmer Anthony Close who's family property Kurra-Wirra is where the 100th Mobile Base Station has been built.

Culla Farmer Anthony Close's family property Kurra-Wirra is where the 100th Mobile Base Station has been built. Photo: Josh Robenstone

On a paddock next to the new tower Telstra staff set up a marquee, arranged chairs and banners. Tables were stocked with teacups, cakes and biscuits courtesy of the local Pigeon Ponds Tennis Club.

It is bad for customers and it is bad for shareholders.

Telstra boss Andrew Penn

"Our model is that people come to Telstra because they know we have the best network and the best coverage," Mr Penn told the assembled journalists.

"And we are able to basically make sites that might otherwise not be viable on a standalone basis work, through programs such as the mobile blackspots program ... and by virtue of the fact that we can attract more customers because they know we have the best network."

This is all part of Penn's pitch to convince the Australian Competition and Consumer Commission that Telstra is dedicated to building high-quality mobile networks around the country, but only if regulatory settings remain exactly as they are.

More specifically, that opening up mobile networks to domestic roaming would be a terrible idea that will force Telstra to withdraw billions of dollars of investment from regional areas.

The ACCC is currently deciding whether or not to "declare" mobile networks, which would force Telstra, Optus and Vodafone to let other carriers access their entire networks at regulated prices.

In late 2016 Telstra told the ACCC the only reason it builds uneconomical towers in regional towns is so it can boast it has the biggest network, which attracts higher paying country and city customers.

"The reason domestic roaming wouldn't be a good idea," Mr Penn argues, "is that it would act as a disincentive for investment. Which would mean programs like the Mobile Black Spots Programs and other sites which we might otherwise be able to invest in would become unviable."

Earnings hit

Telstra currently has an 'incentive to invest for differentiation'.

Telstra currently has an 'incentive to invest for differentiation'. Photo: Glenn Campbell

The day before the Culla ceremony Goldman Sachs telecommunications analyst Kane Hannan released a note estimating domestic roaming would cost Telstra about $550 million in earnings in a single financial year.

He calculates mobile communications is the single biggest product for Telstra and will contribute about 45 per cent of earnings, or $4.2 billion, in 2017-18. Telstra charges all mobile customers about 15 per cent more than its competitors because of its network size.

Losing the network advantage could cost Telstra about 30 per cent of its business in regional Australia, about 2.3 million subscribers nationally, and would force Telstra to reduce prices to match its competitors, Mr Kane believes.

However, if Telstra does stop investing outside the capital cities, as it has repeatedly threatened will happen, this will save about 51 per cent of capital expenditure on mobile infrastructure.

Or as Mr Penn tells Fairfax Media about the roaming proposal: "It is bad for customers and it is bad for shareholders."

He added that networks need continual reinvestment and Telstra currently has an "incentive to invest for differentiation", but roaming would remove that incentive.

For the record, Mr Kane does not think the ACCC will introduce roaming.

A spokesman for the ACCC said it does take the commercial impact of its decisions into consideration. However, its main aim is to promote competition and encourage efficient use of infrastructure.

"We will consider the likely future state of competition in the relevant market, with and without declaration of the service," the spokesman said.

Poor review

Telstra chief executive Andrew Penn in Culla telling journalists Telstra may not participate in the third round of mobile black spot funding if the regulator declares mobile roaming.

Telstra chief executive Andrew Penn in Culla telling journalists Telstra may not participate in the third round of mobile black spot funding if the regulator declares mobile roaming. Photo: Josh Robenstone

Telstra is contributing $165 million towards the towers, the federal government $95 million and the Victorian government about $21 million.

However, the first funding round was subject to a scathing review by the Australian National Audit Office in September, which found the program beset by "weaknesses" with many sites poorly targeted or pork barrelled into Coalition or politically convenient electorates.

Round two adjusted the criteria and Telstra received funding for 148 towers, Optus 114 towers and Vodafone four.

The audit also found towers awarded in the first round often consolidated existing coverage rather than provided new coverage.

Indeed, at least one bar of Optus coverage was present on Kurra-Wirra Farm, but would probably fade off a few metres down the road. And certainly not be strong enough for streaming video or tracking livestock.

Investment continues

(left to right) Telstra chief executive Andrew Penn, Minister for Regional Communications Senator Fiona Nash, and Minister for Veterans' Affairs and Member for Wannon Dan Tehan.

(Left to right) Telstra chief executive Andrew Penn, Minister for Regional Communications Senator Fiona Nash, and Minister for Veterans' Affairs and Member for Wannon Dan Tehan. Photo: Josh Robenstone

Both Coalition politicians boasted of the benefits of the MBS program, with Senator Nash saying it fixes a "market failure" to provide coverage.

"From our perspective as the Coalition government it is just so important that we continue to invest even more in rural communications," she said.

And Mr Tehan boasted his seat of Wannon was awarded 16 towers out of 100 awarded to Victoria. Independent Cathy McGowan's seat received about 30 towers.

Within the telco industry MBSP is controversial because it forces regional consumers to switch to the company which receives funding for the new towers, as the residents of Culla are currently doing.

Or as Mr Penn said on Thursday: "It's basically a service that if people want to take advantage of they are going to have to have a [mobile] plan with someone and Telstra is the company that has actually put the money into the investment so that's Telstra. There isn't another tower around here by another operator, but I would encourage all operators to make the investments and take advantage of the program."

While technically Telstra must allow other companies to co-locate on all its towers – particularly those partially built with public money – few towers in the bush have equipment from multiple companies.

Vodafone's chief strategy officer, Dan Lloyd, says it sometimes finds Telstra hasn't built enough space for a second or third telco's equipment and the cost of connecting to the network is too expensive.

"We find it amusing that Telstra is claiming public infrastructure is the answer and co-location is the answer when that same company is doing everything in their power to raise barriers against infrastructure competition and co-location," Mr Lloyd says.

He is leading Vodafone's push for the ACCC to declare domestic roaming.

About 44 per cent of the 74 sites Vodafone is building with MBSP funding will have co-location.

A Telstra spokeswoman confirmed it will still build all 577 towers that it was awarded funding for under MBSP rounds one and two but will have to reconsider whether it takes part in the smaller third round if roaming is declared.

"Over the past 10 years, Telstra has enabled co-location in 97 per cent of applications it has received for design and construct," the spokeswoman said.

"The Mobile Black Spot Program is guided by clear rules on co-location. We have and will continue to offer other network operators the opportunity to use space on our mobile base station to install their own equipment and offer services to their customers. We'll also continue to request co-location of our equipment on other operators' sites so that we can improve coverage for our regional customers."

Whatever the background battles, the locals at Culla are enormously grateful to now have decent mobile coverage.

A representative of the local Country Fire Authority brought home the importance of a reliable service without any thought of competition or economic efficiencies simply by saying: "It will be great to have reception at the shed to be able to call the crew."