Monday, September 21, 2009

The case against Conroy


Gittins and I love what Conroy's done. As Gittins says: "For Telstra to have been given immunity - an eternal licence to rip off Australian phone users - would have been intolerable"

But Ken Davidson argues today that part of Conroy's vision appears to be to force us to pay more by cutting off what we have now.

An extract:
"It is a blackmail attempt by the Government designed to force Telstra (owned by 1.4 million voters) to divest itself of a copper network, which generates cash flow of around $6 billion a year, and make it worthless within eight years. It is doing this in order to replace it with a system that nobody wants or needs at a cost to households and businesses for access to the telecommunications network 30 to 40 per cent higher than now."

The full thing is below.


Be careful what you wish for. Telstra's competitors - such as Optus, AAPT and Primus, who have led the charge for breaking up Telstra into two companies in order to protect their own arbitrage businesses - may have shot themselves in the foot.

Forget about competition, level playing fields, cheaper, faster telephone and internet services. What is unfolding in the policy announced by Communications Minister Stephen Conroy is a $43 billion protection racket designed to keep Telstra's competitors in business.

The competitors are basically marketing and billing organisations. With the assistance of the Australian Competition and Consumer Commission, they are allowed to tap into the telecommunications network at the telephone exchanges at a price that doesn't reflect the cost of building the network, and then resell the capacity at a price that allows them to undercut Telstra in the profitable major city markets. Telstra, of course, is expected to build and maintain a network that covers the whole country.

This cosy arrangement in the name of competition was threatened by Telstra's announcement in 2005 that it would begin upgrading the network by rolling out fibre to the node at the end of the street as part of the evolutionary upgrading of the network - as has occurred over the past 100 years.

The point was that it would bypass the exchanges and put the arbitragers out of business.

So what? The introduction of automatic exchanges and the change from analog to digital network destroyed more than 40,000 Telstra jobs during the '80s and '90s, which was managed by the former public monopoly without major union disruption.

By comparison, the job destruction as a result of technological change bypassing exchanges and putting the arbitragers out of business would be a flea bite by comparison.

Most of the jobs are in call centres, which are being moved offshore to India and the Philippines in any case.

Fibre to the node is a sensible intermediate step to eventual fibre to the home if it is ever needed.

Big institutions such as hospitals, universities, utilities, big corporations, government departments and even schools already have access to direct fibre connections.

Copper wires, properly maintained, can give speeds up to 50 megabits, which is more than adequate for any need a household might conceivably imagine.

In Devonport and Hobart, where the Tasmanian Government has been experimenting with building fibre to the home at Commonwealth expense, shows nobody wants it while the cheaper copper alternative is available.

The mind boggles. What could a sensible government do with $43 billion to invest over eight years? Think global warming. Think of the infrastructure such as electrification of rail lines, urban public transport, base load renewable energy, conservation and recycling water, which will be needed to reduce our carbon footprint in order to ensure that the world will be a fit place to live for our children and grandchildren.

Meanwhile, Telstra could use its internal cash flows to upgrade the network, supplemented by a multibillion- dollar sell-off of more than a thousand large exchanges, most occupying valuable real estate in the major cities.

Now that would be a win-win situation leading to lower real prices.

What Telstra's competitors hoped was that, by splitting Telstra in two, they would keep their privileged access to the copper network. Not so. As the experience in Tasmania makes blindingly obvious, the only way customers can be induced to take up the fibre-to-the-home option is if the copper network is closed down.

Under the plan, the copper network will become progressively redundant as the NBN network is rolled out. Even with the febrile imaginings of the ACCC as to what constitutes competition, it cannot set a wholesale price for access to the new network that is lower for Telstra's competitors than for Telstra retail.

Without scope for arbitrage, the competitive advantage to Telstra's competitors disappears. Even with the arbitrage handicap, Telstra still holds 70 per cent of the fixed-line market and would be able to drive its competitors out of business, based on a level playing field.

It is bad public policy. Even worse, it is politically disastrous.

It is a blackmail attempt by the Government designed to force Telstra (owned by 1.4 million voters) to divest itself of a copper network, which generates cash flow of around $6 billion a year, and make it worthless within eight years. It is doing this in order to replace it with a system that nobody wants or needs at a cost to households and businesses for access to the telecommunications network 30 to 40 per cent higher than now.

The way this policy was arrived at cannot bear the most superficial examination. When the Opposition stops staring at its navel, it will realise this is Rudd Labor's equivalent of WorkChoices with the same capacity to destroy the Government.


Published in today's SMH and Age

Graphic: From here


5 comments:

MkeM said...

Does Ken Davidson's mother own Telstra shares?

I note that the often idiosyncratic opinion pages of The Australian Financial Review today contain an op-ed by Phil Burgess staking similar territory.

Burgess, former Telstra group managing director, public policy and communications, left shortly before his boss, Trujillo, was ousted.

It's very odd to find the liberal/conservative side of politics arguing that an oligopoly is good and market competition is bad. Has NIck Minchin become an agrarian socialist?

Anonymous said...

As 1 of 1.4million Telstra Share holders a notice to Conroy... You will only be there for only a short time. KISS MY VOTE GOODBYE. KOCHI

Wil said...

Copper wires, properly maintained, can give speeds up to 50 megabits, which is more than adequate for any need a household might conceivably imagine.

Bzzt! wrong! Concievably imagine a lot of things needing more bandwidth than that.

djm said...

I used to read Mr Davidson's columns quite a bit, until I saw the arguments he made against the NBN shortly after the government threw out its original vision and replaced it with something much more sane and forward-looking.

I hadn't previously had the opportunity to benchmark Mr. Davidson's writings against a subject area that I knew something about. I was pretty appalled with the arguments that he brought out, including how current broadband speeds are basically enough for just about everyone and a totally nuts one about how stringing fibre over power poles is dooming it to unreliability.

This sent me into a frantic search to try to remember what other opinions I had that had been influenced by his columns, so I could fact-check them against some source less reactively tendentious. I'm sad to say that I lost a bit of faith in The Age that day.

djm said...

Anonymous (KOCHI?), you do realise that Telstra has basically recovered all the value it lost on the announcement of Conroy's plan to separate it? It is almost like the market had priced in a separation in Telstra's future already... :)

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