The opposite of what got George Maltby fired by Bob Hawke at the end of 1988, Trujillo to spend his 5 years at loggerheads with Howard et al and Michael Quigley to be on Turnbull's "First to go" list:
To draw the ire of their Masters, all these heads of Australian Telcos exercised their discretion in doing their jobs and stood by their judgements.What most voters may not appreciate is the extent that Government Business Enterprises (GBE) are directed by the Government and Minister. Sure, there is a Board, but they, and the manager, just follow orders. To do otherwise is cause for banishment - think of the number of ABC directors that have been "moved on".
In uncontroversial portfolios where profits are small, e.g. IP Australia, the Boards and CEO just get on with it. Telcos have always been highly political and seen by politicians as limitless pots of money. It's a great way to raise revenue without raising a tax or having to pass pesky legislation.
Government, not the GBE, decide the dividends, leading to Trujillo's 2005 criticism that Telstra had been dipping into Capital Reserves to pay its dividends. This is exceedingly poor business practice that in a private business leads to eventual insolvency.
Maltby had similarly complained in the 1980's that O.T.C., "the most profitable public utility", was being required to pay too much money back as dividends, forcing it to borrow more than was necessary. Governments for years had milked these cash cows. As O.T.C. steadily increased both its revenues and profits, while decreasing call costs every year, through the decades of the boom fed by Satellite & Cable improvements, successive Governments availed themselves of this newly found piggybank.
In August 2005, just five weeks on the job, Trujillo lobbied Howard and his senior ministers for significant changes. Telstra was in serious trouble, its income dependent on a failing business, Telephony. In 19 slides, Trujillo devoted to illustrating his point: Telstra was in serious difficulties, had been for some time and things would only worsen. Was he banging the table? I would've...
Trujillo didn't leave it there, he went with a plan to fix the problems: create an NBN with a FTTN network.
He thought they could be finished by the end of his contract, 5 years.
To meet Telstra and normal "Traditional" Telco financial targets, Telstra needed regulatory changes to allow them to charge enough and control the market in ways they wished. Ostensibly, this withholding of this regulatory change was what created the rift between Trujillo and his team and the Howard government.
Could it though?
Telstra was in deep trouble that had been worsening for at least 5 years. We know from Thodey, the current CEO in a 2009 briefing, that in 1995 Telstra had seen the writing on the wall and formulated a commercial strategy to replace the copper PSTN (Public Switched Telephone Network) by 2010. This telephony only Fibre to the Node network would've been cheaply upgradeable to ADSL broadband, just as Telstra have done with their "Top Hat" programme.
Telstra have executed part of that strategy with around 8,800 RIMs & CMUX's deployed, serving an estimated 1-2M lines.
Why weren't successive Telstra CEO's allowed to execute this strategy fully, given it could've been executed within its usual financial envelope?
A first guess is two-fold: a) Governments took excessive dividends putting the investment out of reach and b) successive Governments directed the network not be replaced.
When Howard sold Telstra in late 2005 for $3.60 a share, well below the $7.50/share of T1 and under the $4.50 anticipated in the Budget. Do you think Telstra would've been worth more or less with a well advanced FTTN? I think more, at least the $7.50 of T2, probably 20-30% more.
Could the regulation of that FTTN network been handled simply?
It was obvious, possible and trivial right up until the T3 sale: split Telstra in two corporations, one wholesale only and the other retail. Perhaps with a third corporation with all the mobile phone business.
The Howard government didn't just stuff things up, they created a nightmare that is still far from resolved and so the sake of maybe $2 billion invested in 1999, robbed themselves of $20 billion in increased value.
This is where Trujillo came in.
The Howard Government went out and deliberately recruited the best Telco executive team they could find in the world, then argued with them when told there were problems and how to fix them!
Could Telstra CEO's since 1995 not have been telling the Howard Government, in power in early 1996, that the organisation was in deep trouble, needed to fully execute the "replace the PSTN" strategy, that they could do it cheaply and it would add significant value to Corporation when it was privatised?
I don't believe any competent Telco CEO could have failed to notice the structural shifts and business challenges and know the solutions available. I also think that Ziggy Switkowski, a PhD in nuclear physics, was smarter and more perceptive than most managers and didn't miss this change.
Ziggy also planned all three tranches, T1, T2, T3, of the Telstra sale. I can't believe the Telstra economists and actuaries weren't also commissioned to run forecasts of the impact on the sale price of investing, or not, in a PSTN replacement. If that's the case, the timing of the T3 sale in 2005, well after the 1999 T2 tranche, may have been chosen by Ziggy. The share price fell steadily from the highs of the "Dot Boom", but still stabilise. Were the forecast models out by just 12-18 months?
Did the internal Telstra models show a positive Net Present Value as you'd expect by removing a huge maintenance overhead and creating multiple new lines of business with good Gross Margins?
Did these models get presented to the Board and the Government as you'd expect?
And did they go onto the Howard Government?
All we know for sure is two things:
- The "replace the PSTN" strategy was never fully executed, creating a predictable financial crisis by mid-2005 when Trujillo arrived and
- Ziggy said nothing publicly about this aspect of the business at the time, nor since.
In many eyes, this makes Ziggy "The Perfect Employee", enough it seems to get him pre-hired by Turnbull as CEO of NBN Co.
What do Sol Trujillo and Mike Quigley have in common?
Before coming to Australia, they both ran large, global companies involved in Telecommunications, known for aggressive competition between companies and for "very robust" internal politics and "no bull" cultures.
It seems that being very competent, straight-talking executives who will robustly defend their views is anathema to Australian Governments. We know from Maltby v Hawke this is not solely a Coalition problem.
Quigley has another feather in his cap as far as I'm concerned: he didn't need the job, as demonstrated by donating his first years' salary to charity.
There are two things in there - he took the role on because he was prevailed upon and he has a strong moral centre which he won't compromise. Donating a $2 million salary to your favourite charity is the mark of a very secure and committed individual who won't compromise their principles and beliefs.
I guess that's another reason Quigley and Turnbull don't get on.