Vodafone targets Telstra over subsidies

Vodafone Australia chief executive Bill Morrow has opened a new front in the third-ranked telco's battle for survival, targeting government subsidies given to market leader Telstra.

Mr Morrow took aim at $880 million in government subsidies received by Telstra under the Universal Service Obligation since 1998, and at $450 million in other subsidies to build networks in remote areas.

He used a speech to the American Chamber of Commerce in Sydney to say the distribution of uncontestable taxpayer support to the incumbent telecommunications industry leader was stifling competition.

Mr Morrow said Australia's low population density and geographic expanse made the cost of building telecommunications networks prohibitive and questioned whether the competitive playing field was level.

"This is not an issue about whinging and whining and special favours for Vodafone," he said.

Mr Morrow said Telstra's profitable fixed line business allowed it to subsidise its mobile network investment in a manner not available to Vodafone and Optus.

"I would be doing the same thing - that's the obligation of those executives for their shareholders," he said.

"But again if we're thinking about overall Australia - what things need to change in order to prevent that gap from widening?"

Mr Morrow, who came to Australia to take over Vodafone in March, said he was surprised by the high profit margins Telstra enjoyed on its fixed line business.

"I have never seen profits like this," he said.

The changing telecommunications environment meant Australia was facing a "data tsunami" where data consumption over mobile networks would dramatically escalate, he said.

"This could change the economics of Australia," Mr Morrow said.

Without competition, however, Australian consumers would not get the full benefits of new technology.

"If you don't have competitors you're not going to get that consumer choice," he said.

"You're not going to have other investors that want to spend money to bring that kind of technology that the average Australian loves to enjoy."

Mr Morrow said his speech was meant to provoke discussion rather than be controversial.

The US-born chief executive said he admired the contribution of the resources sector to Australia's economy and thought there was "an opportunity for us in the tech sector ... to step up and take our turn to drive Australia a little further".

Vodafone Hutchison Australia, jointly owned by Vodafone and Hutchison, is struggling in the face of falling customer numbers - it shed 154,000 mobile subscribers in the three months to September 30 - and damage to its brand caused by previous underinvestment in its mobile network.

Mr Morrow, regarded as a "change agent", was brought in to turn around the Australian operations.

He told the American Chamber of Commerce lunch that Vodafone Hutchison Australia was "not in a great state" because it had not responded well to change in the market.

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