Yesterday Telstra shares fell 48 c - an 11.6% drop - on the news that the Telco had been dumped from the tender process for the National High Speed Broadband service.
Telstra has long played hardball when it comes to negotiating with the government and in a glaring attempt to use it's muscle to it's own advantage it chose to ignore one of the five mandatory requirements of the tender process.
It failed to include plans to allow " small and medium enterprise participation " - SME - to allow a wide range of providers to supply goods and services to the project.
By shutting out the rank and file, Telstra obviously intended to keep work on the project " in house " - and thus be able to enhance it's profits from behind a veil of secrecy.
It seems to be a case of Telstra issuing a dare. It believes it is so big that the project can not proceed without it's inclusion - and in that respect it does hold a huge advantage.
The broadband project does not intend to deliver a broadband service to every home and office in the country. The plan is to provide it " to the node " - which means to the telephone exchange in each city and town.
Telstra owns the copper wire that delivers telephone services from these exchanges to every home and office, and it is declining to make that copper wire available unless it gets it's own way and controls both the system - and the prices it chooses to charge.
It is a dangerous brinksmanship. The cheapest way to connect the exchanges to homes and offices would be via the existing copper cable network - but that is not the only way possible.
The government could opt to up the ante and replace copper cable with a wireless connection - similar to the mobile phone system. If that happened, Telstra would be left with a billion dollar investment in place that would be instantly redundant - and which would turn from an asset into a liability.
Copper wire is old technology and Telstra is playing with fire if it pushes too hard. The losers would be the Mum and Dad investors who bought Telstra shares in the hope of a bonanza similar to the Commonwealth bank issue when Telstra was privatized.
This s a high stakes poker game. If Telstra finds it has a losing hand of cards the executives in charge will walk away rich men - and the shareholders will bear the losses.
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