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Telstra - egalitarianism of the past or a have-and-have-not scenario?

By Mark Christensen - posted Friday, 11 March 2005


Infrastructure is much more than a mass of concrete, steel or wire. It sets the parameters of what we define as community.

The Federal Minister, Helen Coonan, outlined on Wednesday how the government intends to ensure the telecommunications sector delivers post the Telstra sell-down. While ownership, structural separation and regulation are obviously important, it is also crucial the Senator make the distinction between these policy tools and the big picture. For the former to be effective, one must first be clear on the latter.

So, what does Australia really want from its infrastructure - the egalitarianism of the past or a have-and-have-not scenario?

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For we are facing a threshold change in telecommunications capability from copper-based carriage to a fibre optic service that can provide a multitude of high-speed outputs. Telstra believes it cannot commit to a national roll-out of the new technology in the current competitive and regulatory environment. While no doubt potentially conferring a commercial advantage, this claim is nonetheless legitimate.

Without a heart-felt vision for telecommunications, uncertainty over who, if anyone, is to be guaranteed a quality standard will continue to hamper needed investment and policy solutions.

In the early-1990s, the British Government became fed-up with its problematic railway. Buoyed by ideologically-driven success, it committed to wholesale privatisation. Track ownership was also vertically separated from train services in order to promote competition. After a decade of chaos, Tony Blair renationalised the rail network and established new bodies to remedy the “fragmentation, excessive complication and dysfunctionality”.

The cautionary tale for Australia is the priority. The disastrous policy sequence for British Rail was privatise and then separate. The deeper question of what kind of network Britain wanted built was only conjured after things fell apart. A similar fate awaits Telstra. Debate over separation and privatisation is pointless while ever we lack a convincing vision - something more purposeful than a few bribes for whinging farmers.

In the old days of integrated public monopolies, equity, in terms of a universal standard of access and pricing, was more vital than efficiency. The upside of this was Australia developed an expansive network of telephony, electricity and transport by sharing the burden of infrastructure costs. A common downside was inefficient work practices, gold-plated capital projects and poor service.

The modern corporation has overcome many of these pitfalls, but at a price. Social imperatives are no longer part of the cultural fabric of network businesses. As such, Telstra will only invest in new infrastructure where it can achieve scale economies for a clientele who can afford to pay. A more collective approach would be unsustainable - competitors would cherry-pick, leaving it with high-cost users only.

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Alternatively, Telstra could roll-out fibre optic with a requirement to admit third parties like Optus, leaving the regulator to determine “fair” access.

While the theory sounds fine, this approach is a nightmare in practice. No-one knows in advance what a reasonable access charge is. All we have is a set of mealy-mouth principles, which are necessary but insufficient to manage the risks faced by Telstra. Despite this, the Australian Competition and Consumer Commission recently told a Senate Committee it could deliver certainty. If this is true, where, then, is the formula for determining fair cost attributions and rates of return?

The ACCC really meant: “Trust us, you will get a reasonable return on your $30 billion investment once we have seen it”.

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Article edited by Angus Ibbott.
If you'd like to be a volunteer editor too, click here.

First published in The Canberra Times on March 9, 2005.



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About the Author

Mark is a social and political commentator, with a background in economics. He also has an abiding interest in philosophy and theology, and is trying to write a book on the nature of reality. He blogs here.

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