0:05

Welcome to the Fear and Greed Business Interview. I'm

0:07

Sean Aylmer. Optus is getting a new

0:09

CEO. Stephen Rue has resigned

0:12

from running NBN Co to take up the chief

0:14

executive role at Optus later this year. It's

0:16

a big job, and not just growing Australia's number two

0:18

telco, but repairing the damage done by last

0:20

year's major outage and the cyber attack the

0:22

previous year, that saw data

0:25

relating to more than two million customers stolen.

0:28

But it's not the only news in the telco

0:30

industry. Last week, Optus and TPG

0:32

did a tower sharing deal worth around $ 1.

0:34

6 billion in a bid to take on

0:36

Telstra in regional coverage. Meanwhile,

0:39

shares in Telstra, Australia's most

0:41

widely held stock, have been heading

0:43

backwards, down about 12% over

0:45

the past month or so. It also announced

0:47

yesterday that it was delaying the

0:49

closure of the 3G network. Over

0:52

at NBN Co, wholesale prices are rising,

0:54

with costs flowing on to businesses across

0:56

the country. Plenty happening in telcos

0:58

right now, and when that's happening, we go to

1:00

one person. Paul Budde is

1:03

a telecommunications management and business

1:05

consultant, and through his business,

1:07

Paul Budde Consultancy, has advised

1:10

more than 100 investment companies on transactions.

1:12

He's also worked with governments around the world on

1:15

telecommunications things, particularly relating

1:17

to national broadband networks. Paul, welcome

1:19

back to Fear and Greed.

1:21

Thank you, Sean.

1:22

So much going on in the industry. Let's start

1:25

with Stephen Rue, the current NBN

1:27

boss joining Optus in November

1:29

this year. What sort of

1:31

job has he got in front of him? He's probably got a lot of work,

1:34

from infrastructures through to public relations.

1:38

Yeah. I'd say that that, indeed, an interesting

1:40

move. Actually, quite

1:42

unexpected. It's also quite

1:45

unusual that, at such a level

1:47

in the telecoms industry, CEOs

1:50

just cross over from one job

1:52

to another job. Yeah, a bit

1:54

of raised eyebrows because

1:57

there are competition issues, there are confidential

2:00

issues, et cetera, that all need to be

2:02

taken into account. But nevertheless,

2:04

it's going to happen. I think

2:07

that, from Optus' point of view, you

2:10

now get the CEO which

2:12

has been incredibly well

2:14

able to navigate through

2:17

the political nightmare of the

2:19

NBN, where you've got basically

2:21

two opposing

2:23

bosses on the

2:25

Liberal side and the Labor side, who think

2:28

differently about the NBN. Particularly

2:32

the Liberal government was not

2:34

very happy with the NBN

2:36

in the first place. That

2:39

was a lot of issues that

2:41

Rue had to work around and

2:43

he did that remarkably well. Not

2:46

that everybody was happy with it, but was

2:48

able to do that. He brings a

2:50

lot of political, regulatory

2:53

insights, knowledge, experience

2:55

with him into Optus and Optus

2:57

clearly is in need of that after

3:00

the wake of last year.

3:02

Okay. What is his number one

3:04

priority, or maybe his one, two and three priorities

3:07

once he joins Optus?

3:07

Yeah. I think there are quite

3:11

a lot of issues at Optus.

3:13

Optus is rather stagnant so

3:15

it's not really growing. There

3:17

have been consistently issues

3:19

about Singtel, the boss

3:22

of Optus, selling the company. There

3:25

has been too many rumors for too long periods

3:28

of time to say, " Ah, this is all not

3:30

true." There is definitely

3:32

that issue. If you want

3:35

to sell the company, then obviously

3:37

you want to have it at its best

3:39

in relation to profitability,

3:41

cost management and

3:43

things like that. That will

3:46

be definitely an number one

3:48

issue. The other issues, of course,

3:50

are in relation to the fact

3:53

that Optus has lost some credibility.

3:55

It hasn't had a lot of direct

3:58

damage in customers that have

4:00

gone away, but nevertheless,

4:03

the shine definitely is off Optus and

4:06

it has to be very careful in

4:09

going forward. New customers

4:11

coming on board might think

4:13

twice if they want to join Optus. That

4:16

are all issues that

4:18

are in the background, as a result

4:21

the poor situation over the last 12

4:24

months. The third major

4:26

point is, of course, it's relationship

4:29

with the government and the regulator.

4:31

They are definitely not happy with Optus. There have

4:34

been some serious mistakes, serious

4:37

issues, embarrassed the government

4:39

and they're not the right things to do. He

4:42

will have to do a lot of repair work. He

4:44

has a good rapport with the Minister, so that

4:47

is definitely a good thing as well.

4:50

That are the three key issues I see that

4:52

Rue will have to work on,

4:55

basically straight away.

4:56

Okay. Staying with Optus, I want to talk about the deal,

4:58

that tower sharing deal with TPG,

5:01

between the two of them, announced last week.

5:03

Now previously, the ACCC had blocked a deal

5:05

between Telstra and TPG because of the

5:07

concerns over competition and

5:09

Telstra's market domination. Now

5:12

there's the tower sharing deal between Optus

5:14

and TPG. I suppose,

5:16

how do these deal actually work? What's

5:18

it mean for consumers, at the end of the day?

5:22

Yeah. In both situations, the

5:24

initiative of Telstra, and now the

5:26

initiative of Optus, are basically

5:28

good for people in rural and

5:31

regional areas. For the last

5:33

20 years, I've consistently asked

5:35

for roaming situations, whereby

5:38

in (inaudible) metropolitan areas,

5:41

it's highly unlikely that you can make

5:43

huge profits by duplicating,

5:46

or even have three mobile

5:48

networks competing with each other

5:50

in a market that's too thin for that.

5:52

I have been an advocate

5:54

of sharing infrastructure in

5:57

regional or remote areas, and

5:59

then all three operators can utilize

6:01

that network. A similar thing as

6:03

we operate the NBN.

6:05

Yeah.

6:05

The NBN is a wholesale network, and

6:07

others, some 20 or 30 companies

6:09

or even more, are actually operating

6:12

on top of that network. That would be the same with the

6:14

mobile network, if you would allow for roaming.

6:17

Now this deal between Telstra and TP in

6:19

the first place, and Optus with TPG

6:21

now, are mot necessarily

6:25

totally roaming, but it

6:27

definitely it utilizing existing

6:29

infrastructure to reach more customers. In

6:32

that respect, it's really good for

6:34

people in regional or remote areas.

6:37

They now have more choice. In the

6:40

situation where there was only Telstra, perhaps

6:42

they now have a competitor. In situations

6:45

where they didn't have any signal

6:47

at all, there's now more of a chance

6:50

that they do get a signal. In

6:52

that respect, this deal is good.

6:55

The reason why Telstra fell through was of course

6:57

for competition issues. Telstra is already

7:00

a very large and big company, it would become even

7:02

more dominant and harder to compete

7:04

with. The Optus TPG is of course

7:06

different, so that's the

7:09

runner up, the competitor. I

7:11

can't see that the ACCC will have much

7:14

problems with allowing

7:16

these two companies to work together.

7:19

Stay with me, Paul. We'll be back in a minute. I'm

7:28

speaking to Paul Budde, telco expert

7:31

and investment advisor through Paul Budde

7:33

Consultancy. Okay,

7:36

so you mentioned Telstra. A

7:38

couple of things on Telstra I want to ask you about. The 3G

7:40

network, which they were due to

7:42

close in June, they've delayed

7:44

that until August. I think they're worried about

7:46

emergency phone calls. Just explain

7:49

that. But also I want to ask you, Telstra

7:52

just has been an under performer recently, obviously

7:54

lots of people own Telstra shares, I'm wondering why.

7:57

But certainly with the 3G network,

7:59

what's happening there?

8:01

Yeah. Over the years, we've seen

8:03

moving from what was simply called

8:05

mobile to 2G, and then 3G, 4G, 5G.

8:09

These are all network upgrades and these are necessary

8:12

because we are more and more using the network,

8:14

and there will be more and more mobile people

8:16

on the network, and everybody's nowadays using

8:18

it for data. 99% on the

8:20

mobile network is data, only 1% voice.

8:25

Then if you talk about data, you talk about video,

8:27

you talk about games, you talk about all sorts

8:29

of things that requires a lot of capacity.

8:33

All these three, four, five technologies

8:35

use radio spectrum. Radio

8:38

spectrum has a finite situation.

8:41

There's not plenty of it, like glass.

8:44

Fiber, you can go forever, and you can have

8:46

two, three, four, five cables. That's not

8:48

the situation with spectrum. There

8:50

is also the aviation, there is the

8:52

fire brigades, the police.

8:55

Everybody's using the radio spectrum. There's

8:58

a limited amount that's available for mobile,

9:00

and therefore what they want to do, if

9:02

you go to 5G, or 4G, or whatever,

9:05

then you start reusing your old

9:07

spectrum for the new system. Therefore,

9:10

you can't just continuously to use the

9:12

3G system technology anymore

9:14

because the spectrum that's used by 3G

9:17

will now be used by 4G and 5G.

9:20

That's the reason why it's necessary.

9:22

Now some phones, 400,000

9:25

of them out of the 30 or 35

9:28

million phones that there are in this country,

9:32

less than 400,000 of them are

9:34

still utilizing the 3G technology,

9:37

or within 4G, an older

9:40

version of 4G. That means

9:42

that those phones won't work

9:44

anymore after the

9:47

shutdown of the 3G network.

9:49

Now many of these phones are basically

9:51

not in use, or are a second or third

9:53

phone that people are using,

9:56

so lots of them are not really active

9:58

in that respect, but nevertheless, there will

10:00

be tens of thousands of phones that

10:02

are active and these phones need

10:04

to be replaced by new ones if you want to continue

10:07

with your mobile service. That's

10:10

a bit of the issue that, again,

10:12

it became political. It becomes political,

10:14

the Minister has to step in and everybody

10:17

complains, " Oh my God, we can't do this," so

10:19

it becomes political. Telstra

10:22

and Optus have to do a better job in

10:24

informing the last 300, 400

10:27

phones that are there. What's

10:29

next is happening is that Telstra is sending

10:31

a particular message to everybody who still

10:33

has an old phone that makes a mobile call to

10:36

indicate that that phone can't be used anymore

10:39

after August. Now, that's what

10:41

is happening at the moment. Hopefully

10:43

most people that are still using those

10:45

phones are then prompted

10:48

to do so, or just to make

10:50

the decision that they don't want to do that. Quite

10:52

obviously, they might be in a situation

10:55

that they don't need to upgrade the phone because they

10:57

already have another phone. As I mentioned,

10:59

it might be the second or third phone.

11:01

Okay. Paul, we're totally out of time, but just very

11:03

quickly, Telstra share price has been going

11:06

the wrong way, for Telstra shareholders at

11:08

least, over the past month or so. Is there anything

11:10

much in that, from where you stand?

11:14

It's a global situation, Sean,

11:16

because what is happening is that telecommunications

11:19

companies are further and further pulled back into

11:21

a utility sort of environment.

11:23

Yeah.

11:23

It's very, very difficult for them to

11:26

come up with all sorts of new services

11:28

that create new revenues. Again,

11:31

there was the big hype around 5G, all

11:33

sorts of new things would happen and there would be

11:36

rivers of new revenue would flow

11:38

in. None of that is eventuating

11:41

and that's the continuous message now, for

11:43

the last 10 or 20 years. Since

11:45

the internet arrived, since the smartphone

11:47

arrived, a lot of the extra value

11:50

is going away to call

11:53

it the Big Tech companies,

11:55

the digital companies, the Googles, the Facebook,

11:57

the Amazons, et cetera. There's

12:00

very, very little hope for telcos

12:02

to actually tap into these

12:05

new revenues. They're still

12:07

a good job, it's a utility, but then you

12:09

have to start looking at them as gas, electricity,

12:11

water, et cetera.

12:13

Yeah.

12:13

Then obviously, the share price is rather different.

12:16

Paul, thank you for talking to Fear and Greed.

12:18

My pleasure, Sean.

12:20

That was Paul Budde, telco expert

12:22

and investment advisor through Paul Budde Consultancy.

12:25

This is the Fear and Greed Business Interview. Remember,

12:27

this is general information only and you should always

12:29

seek professional advice before market investment decisions.

12:32

Join us every morning for the full episode of Fear and

12:34

Greed, Australia's best business podcast.

12:37

I'm Sean Aylmer, enjoy your day.