A Case Study in Misleading: How Telstra Tried to Hide the Ugly Truth of its Broadband Profiteering

Telstra’s response to the Centre for International Economics (CIE) report recently commissioned by the Competitive Carriers’ Coalition (CCC) is a case study in how Telstra manipulates facts to systematically mislead.

It is useful to examine this as a case study and break down the tactics used by Telstra. If we understand Telstra’s standard pattern of response we can expose the untruths in other instances.

Firstly, by way of background, an explanation of the CIE paper.

The CCC commissioned Kerry Barwise from the CIE to analyse repeated statements from Telstra that it would require a rate of return “north of 18 percent”[1]before committing to build a national fibre to the node (FTTN) network.

The CCC asked the CIE to do two things:  to examine whether the “north of 18 percent” rate of return appeared reasonable; and, if it was inflated, to consider what the impact would be on the national economy. To do this, the CIE firstly compared Telstra’s required rate of return with the returns of companies with similar assets.

The report, titled "The Telstra Return on a National FTTN Network: Community Impacts" showed that Telstra’s rate of return was indeed inflated. The CIE then used the respected ORANI general equilibrium model of the Australian economy to estimate the impacts. The ORANI model, developed at Monash University, is considered one of the most accurate models of its type.

It is important to point out that all the numbers used by the CIE in the economic modeling were either from the most senior Telstra executives themselves or from the public markets.

The results showed that if Telstra were to get the return it wanted, the impact on the economy would be profound. Taking into account Mr Trujillo’s recent comments that the national broadband network could cost up to $15 billion to build and the required 18 percent rate of return, the CIE found that consumers would pay a total of 15 percent more per year for broadband services under Telstra than they would pay an alternative network provider. Based on a build cost, consumers would pay Telstra $1.45 billion more each year for broadband services.

On national economic measures, GDP growth would be 0.35 percent lower, inflation 0.22 percent higher and wage 0.44 percent lower.

These are figures that Telstra does not want people to consider, so its reaction was to throw the switch to bulldust.

Firstly, they used the deny-despite-the-facts tactic.

Without having seen the report Telstra’s spokespeople claimed it was based on “bogus” figures. This suggests that Telstra’s spokespeople were saying that Mr Trujillo and Mr Burgess were lying when they put the figures into the public domain.

Telstra then went on to say that the figures couldn’t be right because it had not published its proposed prices.

That is called the straw man response – talk about something that is not in the report and attempt to debunk it.

As described above, the economic modeling said nothing about product prices. This is something entirely different to the comparative rates of return and total cost of build figures that were modeled. The closest the report came to discussing prices was showing that achieving the Telstra rate of return would require revenue 15 percent higher than a standard market rate of return.

Once Telstra had actually seen a copy of the report, there followed a second straw man argument: that the report contained qualifications. That is, the report pointed out the limitations, sensitivities and areas of uncertainty which meant that the modeling output was a best estimate and not claimed to be precise to the last dollar.

This is, of course, a standard part of any responsible study of this type.

But Telstra played this up in the hope that journalists, and therefore the public, would be misled into thinking it was somehow fatal. Telstra did not highlight that the CIE said that it had taken conservative estimates wherever possible. In other words, if anything, the report was too generous to Telstra.

Finally, Telstra used the personal sleaze tactic. Sleaze is a particular favorite of some in the Telstra spin-shop. In this case, they claimed the report was tainted because it was commissioned by the CCC which represents Telstra’s competitors.

This is really an attack on the integrity of Kerry Barwise, the CIE and the ORANI model.

These are issues of reputation for the CIE to defend. Suffice to say from the perspective of the CCC, we commission external consultants in order to have them prepare and present credible and rigorous pieces of analysis.

In all of this, of course, there has been not one word from Telstra challenging the substance of the report.

The CCC believes the explanation for this is obvious – the conclusions of the report are right, and Telstra has been exposed as seeking a license to rip off Australian consumers.

Next time you see Telstra falling over itself to discredit a piece of analysis, keep in mind the tactics described above. It is probably worth taking a close look at what it is that they are so worried about.

Click here to view the full CIE research report

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