Monday, June 18, 2007

Tuesday column: Calling Telstra's bluff, with malice.

Telstra says it is “unbelievable” and I am inclined to agree. The government has called Telstra’s bluff. With malice. In an election year. It was about time somebody did.

Imagine if you can a really big company, absolutely dominant, with access to the very best lobbyists money can buy.

Used to getting its own way, it decides to take advantage of the political tension in the lead up to an election to extract a really big prize from the government – one bigger than it has ever reached for before.

Perhaps because it is so audacious it asks the government to keep the details secret.

It says it will invest billions of dollars in a new cables and equipment that will give its city customers access to pretty much the same sort of service that they had before, but at a much higher price.

In order to do it will disconnect each of its customers from its existing cables and exchanges, ensuring that they have no option but to pay the higher price...

Competitors who have attached their own equipment to those cables and exchanges in order to sell a competing product will have their investment made worthless.

Its new cables and exchanges will be all but impossible for its competitors to use, and in order to make it hard for them to even to even buy its service wholesale and compete as retailers it demands the right to set its wholesale price prohibitively high and demands a guarantee that the competition regulator won’t order it to cut it.

Naturally, the government has doubts.

So the company ramps up a PR campaign so crude and so expensive that it makes the government’s own workplace blitz look modest.

(And with economic arguments so dodgy it makes you hope the company doesn’t believe them. As recently as this month the company’s Chief Financial Officer was quoting an estimate of a $30 billion economic benefit from national broadband exposed as a furphy by this newspaper back in April.)

The company delivers brochures to each of its millions of shareholders and customers asking them to lobby members of parliament on its behalf. It creates a fake “grassroots movement” and takes out full-page ads, all aimed at publicly pressuring the government to adopt a proposal it has demanded that the government keep secret.

And it imposes a deadline.

A self-respecting government would tell the company where to get off.

I am proud to say that ours just has. With malice.

It has told Telstra that in future it should take its ideas to an expert panel, not to the Minister. And it has loaded that panel with experts likely to be appalled by those ideas.

The government put carbon emitters on its emissions trading taskforce. It has put no-one friendly to Telstra on its telecommunications taskforce.

Instead it has appointed Dr Ken Henry, the head of the Treasury and an economic rationalist whose belief in the virtues of competition and views about corporate welfare are well known.

He will be joined by the head of the Department of Communications and a Deputy Secretary in the Prime Minister’s Department. Yesterday Telstra complained that the government had stopped talking to it, something that might provide a clue as the stance of those departments.

Also on the panel will be three experts on competition, all of whom have either worked or still work at the Australian Competition and Consumer Commission, the organisation from who’s oversight Telstra wanted to be freed. It is a fair bet that they don’t believe in special deals.

Rounding out the expert group will be business figure Len Bleasel, a former head of AGL whose partly-owned subsidiary TransACT took on Telstra in the ACT, and company director Dick Warburton who has run businesses including David Jones, Southcorp and Tabcorp; firms for whom communications costs mater.

Even worse for Telstra (and for the Opposition which had wanted to make the differences between the parties an election issue) the expert taskforce has been given no set deadline. It will almost certainly keep considering the proposals put to it until well after the election when the time for political pressure has passed.

There is no reason why the taskforce should have a deadline. Almost anyone in an Australian city who wants access to broadband already has it. There are some black spots, parts of Gungahlin amongst them. But they can be fixed locally. They don’t need a new multi-billion dollar national network. It may be that such a network is never needed, and it may be that the longer the expert group waits the more likely it that time, technology and the market solve whatever problems there are.

That’s how it has been to date. Reading back over the documents written at broadband at the turn of the century a few months ago I was astonished at the extent to which self-interested parties urged the government to “do something” to boost its take-up. As it happened the government did nothing, and the take-up of broadband in Australia’s cities far exceeded the most optimistic of the urgers’ forecasts.

If urban Australians genuinely want faster broadband they are likely to get it, with or without Telstra’s grand plan. Telstra itself could help by turning on the high speed equipment that it has already installed in its exchanges and is holding back for tactical reasons.

In the bush it is different. It costs real money to get broadband to some of those places, and the government has put it up. It is handing over almost $1 billion to a consortium created by Optus and Elders (named Opel) with the express purpose of providing broadband outside of Australia’s cities.

Telstra didn’t get the gig. It is livid and says that the government ignored its own lower-priced bid “refusing approaches to meet on the matter and not once asking for any further information or clarification on what Telstra could have achieved”.

If so, the government has done us all a favour. Telstra’s present behaviour can arguably be traced back to a Cabinet win by Kim Beazley, Communications Minister in the Hawke government in 1990 who pushed for the creation of a “megacom” made up of Telecom Australia and the previously separate Overseas Telecommunications Corporation. The Treasury and the Treasurer Paul Keating condemned the move and wanted the OTC to form the nucleus of a competitor that would stand up to Telstra.

Beazley won and the megacom has thrown around its weight ever since.

Opel will encourage it to behave.

2 comments:

Graeme Harrison said...

Yes, it was ABSOLUTELY necessary for the government to call the bluff of Telstra... On the deal Sol was offering, the cost was so high that the network would have left most businesses and individuals far WORSE OFF than being left with current slow broadband. With prices starting at c$100 per month per premises it would have been a hell of a windfall in terms of a monopoly rent, but a hell of a cost to the overall cost of doing business in Australia, and even living in Australia. As I have noted elsewhere, there is a diminishing return with higher speed, in that access to some form of broadband is needed for productivity, but the countries with the highest speed seem to only use that higher speed for gaming and movies, neither of which have a positive impact on national productivity!!!
Graeme

LETTER said...

LETTER TO THE EDITOR, jUNE 24, 2007

Give Telstra a fair go

Your economics editor Peter Martin (''Howard hangs up on Telstra'', June 19, p13) was right to question whether broadband will really bring the enormous economic benefits being claimed for it.

However, Martin's article was disappointing in that it joined the media bandwagon of painting Telstra as a big, bad monopolist trying to browbeat government, rip off its customers, etc.

Although I have no brief for Telstra, surely even-handed reporting dictates that Telstra's side of the argument that it is being ''over-regulated'' should also be canvassed. Telstra's attitude is understandable, for the following reasons it is forced by the Australian Competition and Consumer Commission to allow its competitors to use its (Telstra's) facilities, so that they can compete with Telstra in selling the same services to the public (it's quite rare for a business to be forced to help its competitors like this); it can charge its competitors for such access only what the ACCC decides (and Telstra has long claimed that the access price the ACCC sets is uneconomic, and helps Telstra's competitors); it is subject to special law that could have it fined $10 million for quite normal competitive conduct; and in general, Telstra thinks the ACCC administers the law in favour of Telstra's competitors, rather than to promote competition. Given its experience with the ACCC, it's understandable that Telstra wants some assurance that the ACCC won't stop it from earning a reasonable return on its investment, before committing itself to spending billions on a new broadband network.

R.S. Gilbert, Turner

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