The Telstra Problem
Posted by Possum Comitatus on December 7, 2007
John Howard, not content with his political legacy of turning the Liberal Party into a dysfunctional zoo, also left a charming little economic legacy in the telecommunications sector – it may not be quite as bad as feral tenants leaving raw prawns in the curtain rods upon their departure, but it’s not far from it either.
We are, of course, talking about that giant monopolist sloth Telstra.
Over at LP, they’re having a nice chat with a cup of tea and a few Iced VoVo’s (suddenly the biscuit de jour in political circles) over Telstra’s chest thumping demands regarding Labor’s proposed new Fibre-to-the-Node broadband network. Rather than clogging up their comments section with a vast monologue (and eating all their biscuits) I thought I’d blurt my contempt for this policy mess out over here instead – but I encourage all to go and have a squiz at the LP post.
It’s not like Telstra is asking for much really – they merely want to keep their existing monopoly, they want the ACCC to take a hike so they can extract even greater monopoly rents out of their infrastructure, they wish to make it as difficult as possible for any of their competitors to compete on price, and they have told the Rudd government that they will effectively do everything possible to thwart the building of a new broadband network unless its built, owned and run on Telstra’s terms.
Mind you, this isn’t the only economic policy nugget left in the slippers on the front porch by Howard; we’ll be finding more of these charming little economic legacies of the Howard era over the next few years to be sure.
The Telstra Problem was always going to happen – it’s the great “told you so” issue of national infrastructure over the last decade. Every man and his dog told the Howard government that privatising a public monopoly on an “as is” basis will simply result in a more aggressive private monopoly that will screw consumers six ways to Sunday and basically hamper not only telecommunications development, but economic growth opportunities for those industry sectors heavily reliant on telecommunications price and speed.
Lo and behold, that’s basically what has occurred – and it’s time for Rudd to sort out the mess.
Unfortunately, there is no easy, cheap fix here – such is the size of the pile of policy shit the Howard government left behind over this. To ignore Telstra in building the new broadband network requires duplicating much of the existing infrastructure which significantly blows out the costs of constructing the new network – possibly to the point of making it economically unviable from the outset. To haggle with Telstra effectively means handing over to Telstra some level of monopoly rent and removing a large amount of competition from the system…. forever. Nationalising the so called ‘last mile’ of Telstra – the local exchange to the house, would be enormously expensive.
Regardless of which option is eventually pursued, the public will get screwed – either through nine zeros worth of taxpayer dollars being spent upfront on fixing the mess, or through permanently higher telecommunications charges.
“Do you want to be rogered smooth and slow, or hard and fast?”, becomes the key question. There is no escaping the rogering – the question is just how we’d all like it to be done.
Remember – this need not have been the case, a simple split of the Telstra sloth before it was sold, and flogging the retail and mobile phone components off as one company, and bringing new players into joint ownership of the infrastructure side would have prevented all this nonsense from ever needing to be done in the first place.
However, the nationalisation of the last mile might end up being the only way forward if things really turn sour. But the big problem, and it would become the really big problem, would be determining the actual value of the just terms compensation to be provided. Telstra would undoubtedly have the audacity to argue that the compensation would need to be significantly higher than what would be offered because the government would be effectively removing their capability to extract monopoly rents!
If the government acquired the last mile, it could then on sell a large chunk of it into whatever new public/private consortium would be used to build and manage the proposed FTTN network – that would at least partially offset the large total public costs of nationalising the last mile. The beauty of the government being able to bring the last mile to the table for the proposed network would be that there would become no shortage of willing participants in transforming the network into FTTN and later, perhaps, FTTH as the demand required – from existing telcos like Optus and Internode etc through to infrastructure units of companies like Macquarie, especially since the Labor policy is to run the proposed new network as an open-access regime. The more companies you can get in the tent with a stake in the new network, the more likely it would be that the network would continue to develop technologically at the speed of its fastest members, rather than the speed that guarantees the greatest monopoly returns which is the current case.
It would also have the benefit of removing at least some of the monopoly effects that currently plague the system, even if it doesn’t actually remove the monopoly proper. It’s arguable that even though such a network would still be a monopoly, there would actually be some level of competition in terms of competitive effects, but within the organisation between its separate stakeholders rather than between networks as we’ve all become used to analysing.
Whatever option eventually plays out and becomes our telecommunications reality, and whatever the costs will be in fixing this mess – all of the drama and the telecommunications retardation we’ve been experiencing as users over the last decade has been entirely unnecessary. It has been the consequence of gross political and economic policy negligence by the Howard government, a government that seemed to believe that fast, cheap and accessible broadband speeds were all about downloading porn and pirated movies rather than the modern drivers of productivity growth, business development and high paying new economy employment growth – not to mention its potential for enhancing public service delivery.
I’d be interested in your thoughts about this, and the possible ways forward on the Telstra Problem?
Via a heads-up from Tassieannie, fibre optics via sewer ducts in the UK.