Thodey has rivals reeling in his wake

Telstra’s chief executive David Thodey won his board’s backing to launch an attack on his competitors three weeks ago, and yesterday he launched a missile. His chief operations officer, Brendon Riley, announced that the telco would be deploying special funding to accelerate the rollout of its new ultra-fast 4G wireless coverage from 40 per cent of the population to about 66 per cent over the next 10 months.
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Coverage in Sydney, Melbourne, Brisbane, Adelaide and Perth will more than double. In Melbourne, for example, Telstra has already rolled 4G out as far east as Hawthorn East and Camberwell, fairly densely populated suburbs about nine kilometres from the central business district.

Coverage will now be extended as far east as Ringwood, 23 kilometres out. Middle western suburbs of Melbourne will be added to create a footprint on that side of the CBD that stretches unbroken to Werribee, and coverage in the north will extend 22 kilometres out to Epping, embracing a fast-growing part of the city.

In Sydney the initial 4G rollout ringed the harbour, and covered the eastern suburbs, suburbs as far south as Botany and Banksia, and others as far north as Chatswood. The new

footprint will extend as far as 29 kilometres west to Greystanes, west of Parramatta, as far as Hornsby in the north, and as far as Kogarah in the south.

More than 1000 new 4G base stations will be installed to underpin the expansion, and by the time it has done that work Telstra will have a huge lead on a mobile platform that is destined to dominate the mobile telco market.

Thodey has secured a special capital expenditure budget of about $400 million for the assault, which is occurring before its competitors have launched competing 4G services. Optus and Vodafone are still at the trial stage.

How Telstra got to this position is something for its competitors to analyse, but they appear to have misread what Telstra was doing last year, when it trialled a 4G service on 1800 megahertz spectrum in the first half, and then, in September, launched it in capital city central business districts and 30 regional and metropolitan centres.

Vodafone was focused on fixing coverage problems with its own 3G network at the time. Optus appears to have regarded the 1800 spectrum launch as a preview of the real battle, which would begin when 700 MHz spectrum was freed up by the shutdown of analog TV.

Optus was right – to a point. The 700 MHz spectrum is going to be needed to fully convert the Australian market to 4G. It will be auctioned off by the federal government next April, but won’t be available until after analog broadcasting ends at the end of 2013, and might go live as late as 2015.

By launching early on spectrum that became available as its old 2G mobile service wound down, Telstra has secured first-mover advantage. It has sold more than 340,000 4G mobile devices including 160,000 4G smartphones since it launched the service a year ago, and by June next year will have built 2000 1800 MHz base stations that can be adapted to offer 700 MHz when the spectrum is available. The group is aggressively advertising its 4G offer at a time when it has the market to itself.

The new 4G service isn’t going to be a replacement for the land-based national broadband network. Like all shared mobile networks, it will become congested if enough users crowd on, and it will not download data-hungry services such as large screen video as quickly as land-based fibre. The rule that mobile is best suited to devices that can be carried in the hand will still apply in a 4G world.

The new service is, however, significantly faster than 3G, and in voice communications, it is crystal clear. Telstra is achieving 14 per cent traffic growth a month in 4G, and is now going to double its coverage in its key urban markets. It has a lead it may never relinquish.

Carbon cost

The government’s decision to abandon plans to impose a $15 floor price for its carbon trading scheme between 2015 and 2018 and link to Europe’s carbon trading regime from 2015, but also cut the percentage of credits that can be imported to cover local emissions from 50 per cent to 12.5 per cent, doesn’t fix the big problem with carbon trading.

The international carbon trading system is broken. Europe’s carbon trading regime is meant to be the switching mechanism, but European carbon prices are so low the switch is inoperative.

Carbon credits are like options over shares. They have a strike price, and if the carbon price is above it, they are in the money, and capable of being cashed in by project financiers who have earned credits by investing in low-carbon projects. Europe’s carbon price is well below the strike price, however, undermining the economics of future projects, and stranding existing ones.

Regardless of what Australia does, a global trading system will not develop until Europe’s carbon price recovers. It will take an artificial contraction in the supply of credits to achieve that, and European Union meetings set for September 7 and September 17 will frame the odds on that happening any time soon.

The Maiden family owns Telstra shares.

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