What’s
happening is not much more than a robust negotiation over ULL pricing.
ULL stands for unconditioned local loop, and it’s the term for Telstra
selling wholesale access to the copper wire running between its
telephone exchanges and its customers’ premises. Unconditioned means no
dial tone – that is, plain copper wire which another phone company can
use to connect its own equipment to customers.

ULL pricing is
the big one, and that’s because it is the basis of broadband
competition, and broadband is what the future of telecommunications is
all about. Fairly soon all communications services – phone calls,
internet, even TV channels – will be delivered to everyone by broadband.

Telstra
is both retailer and wholesaler of broadband. The whole key to its
profitability in future will be the extent to which it can use its
ownership of the copper wire access to every customer in the country to
get a monopoly rent and prevent its competitors getting a free ride,
and the key to that is ULL pricing.

Sol Trujillo is trying to
withdraw an undertaking Telstra has already made on ULL pricing and
increase the price. This year, before Trujillo arrived, Telstra lodged
a series of ULL undertakings with the ACCC and the regulator accepted
them. They are series of four bands of wholesale ULL pricing according
to distance from the CBD: band 1 (CBD), $13 a month; band 2 (suburbs),
$20 a month; band 3 (regional cities, outer suburbs), $40 a month; band
4 (remote areas), $100 a month.

Trujillo has arrived, looked at
the $20 per month figure for the suburbs and realised that Optus is
going to eat Telstra’s lunch because it’s too cheap. Telstra’s
competitors will be able to buy wholesale access to the copper wires,
minus dial tone, for $20 a month and sell “bundled” communications
services (phone calls, internet and maybe TV) for less than Telstra is
charging retail.

So he has proposed an average price across all
bands of $30 per month. It’s an interesting idea in the context of the
argument over services in the bush and the political power of the
National Party because it would mean a lower price for rural Australia
and a higher price for the suburbs. But it’s in the ‘burbs that Telstra
will have problems with competition.

Because Trujillo is trying
to have a previously agreed position unwound – to put Humpty Dumpty
back together again – he and the new management team believe they have
to push very hard and aggressively to get the Government to lean on the
ACCC.

That is what the argument is all about – including the
talking down of Telstra’s share price, and the statement by the head of
regulatory affairs, Phil Burgess – that he wouldn’t recommended the
stock to his mother.