LATE last year, when Telstra was in a standoff with the Rudd government over its plan for a super-fast national broadband network, a business executive asked a senior minister how the government could be sure it would win the stoush. The reply, delivered only half in jest, was telling.
"The dead hand of socialism is always open to us," the minister replied. "Just remember what Joh Bjelke-Petersen used to say: the parliament can do anything."
This week, Telstra found out just how far the Rudd government was willing to go to achieve its aim of an NBN and true competition in telecommunications. The answer was, just as the minister had warned, to the absolute limit of its parliamentary powers.
The battle between government and the telco had gone several rounds between that private conversation and the announcement by Communications Minister Stephen Conroy this week. The government's ultimate intentions were already clear: it was going to break up the "800-pound gorilla" that had dominated for decades and establish a separate part-government-owned broadband provider.
Even so, Telstra, which had already seen the wisdom of changing management and becoming far more conciliatory, was shocked by how hard and how fast the government was forcing its hand.
In fact, the government's need for speed was dictated by politics.
It wants the business case and the cost of its new broadband network to be clear before it faces a possible early double-dissolution election next year. It does not want the process to become hostage to electoral timing.
The Telstra announcement is a clear indication it still considers an early election a possibility.
Senator Conroy admits his ongoing discussions with Telstra have been "constructive" but explains that his dramatic announcement, which initially knocked $1.75 billion from Telstra's market value, was dictated not by a breakdown in the talks but by Senate rules and legislative timing.
"The government wants this settled before Christmas and, under the rules of the Senate, if this legislation wasn't introduced this sitting week, it would not make the cut off to be considered this year," Conroy told The Weekend Australian.
Conroy said the end-of-year deadline was essential because this was an "urgent reform and swift action creates market certainty, including for Telstra".
Since the talks between Telstra and the government have been under way for months and will continue for months yet, few observers see "certainty" as the full reason for the urgency.
Because of the extreme market sensitivity of the announcement, it had to be kept absolutely secret. Telstra discovered the full extent of the government's resolve and urgency about 9.30am on Tuesday, at the exact same time as Conroy was briefing the Labor caucus and just before it was announced publicly.
Conroy's staff gave a simultaneous briefing to two members of Telstra's "NBN engagement team": Tim Watts, himself a former Conroy adviser, and Tony Warren, a former employee of prominent NBN critic, economist Henry Ergas.
The decision had been made by cabinet a few weeks earlier and "fine-tuned" between Conroy, Kevin Rudd and the Prime Minister's staff -- including "war-gaming" of how the company would react.
The first reaction was surprise, as Watts and Warren were told the government intended to legislate to give Telstra the "choice" of "voluntarily" breaking up its wholesale and retail arms. If it didn't make this "choice" it could be banned from buying the wireless spectrum it needed to deliver new mobile phone services, and be forced to divest both its cable network and its stake in Foxtel.
The immediate reaction on the stockmarket was shock, with Telstra shares shedding 14c almost straight away, before recovering over subsequent days -- a risky roller-coaster ride for the 1.4 million people encouraged to buy shares in the telco by governments in the past.
The Coalition was aghast. "The Labor Party never told the Australian people when it went to the last election that after it got elected it would sneak through the forced break-up of Telstra," thundered Coalition communications spokesman Nick Minchin during Senate Question Time.
"It has never been Labor policy to propose the forced break-up of Telstra.
"The government will, of course, go on pretending that it is not about forcing the break-up, but it is evident from the statement made today that the government intends to hold a cannon -- not merely a handgun, but a cannon -- to the head of Telstra to force it to behave in the fashion which this Labor government wants to dictate to it."
Minchin was right. The legislation gave Testra no real choice at all, but was phrased that way to avoid the possibility that Telstra could sue for compensation.
And, by exercising its single "choice", Telstra will not be able to compete with the new National Broadband Network and is likely to have to sell parts of its existing network (the bits the government wants) into the new NBN at a relatively low price, helping the Rudd government to deliver its promised service far more cheaply than its "worst case" $43bn estimate.
Given that the total cost is likely to be less, the project will attract private investors and NBN Co will also borrow to fund its rollout, it is now thought the project may be delivered with less than $10bn in direct taxpayer investment. Understandably this is something the government desperately needs to clarify before a federal election campaign.
On the day of the announcement, Conroy spoke to new Telstra managing director David Thodey before Senate question time at 2pm and heard first hand Telstra management's "disappointment".
Even more disappointingly for Telstra, this truly extraordinary government intervention met with widespread approval, largely because the ends were considered desirable enough to justify the means and because the belligerence and bungling of the previous Telstra management meant previous opportunities for Telstra to roll out the broadband network within some kind of reasonable rules of competition went begging.
Even last November, Telstra was continuing its brinkmanship, with its refusal to put in a compliant bid for the tender the government was then running for the private construction of the NBN, sweetened with $4.7bn of government funds.
In April the government called Telstra's bluff with its game-changing announcement that it was abandoning the tender and was prepared to build the thing itself.
The legislation pushing forward that decision also puts the federal opposition in an invidious position.
Minchin has "grave reservations", but given that Telstra is now almost certain to do a deal with the government, Minchin also knows that by opposing the bill he may be left taking a hard line on no one's behalf.
And the Nationals are far more inclined to support the government's bill, if they are sure it will end up delivering better services to the bush, meaning it could end up being another issue that divides the Coalition parties.
The Greens seem positively disposed, as does senator Nick Xenophon, meaning it would require either senator Steve Fielding or one Nationals senator to get the legislation through after a Senate inquiry into it reports back in late October.
Conroy also describes as "bizarre" the argument that he is killing off one monopoly in order to create another, because this wholesale monopoly will be properly regulated.
"This is a bizarre argument," he said. "The Australian Competition & Consumer Commission and the Productivity Commission and the National Competition Council all said this is what should have happened before Telstra's privatisation, it finally removes the incentives for Telstra's wholesale arm to favour its retail arm."
As the minister told the businessman last year, with enough will the parliament can achieve anything.
