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In a policy halfway house

By Mark Christensen - posted Wednesday, 2 August 2006


Commentators have mounted a simplistic argument that favouring dominant infrastructure providers such as Telstra reflects an inappropriate balance between shareholder value and public interest. Meanwhile, regulators want it both ways: to be tough and uncompromising, while pleading with natural monopolies to be reasonable and sharing.

Both positions are flawed.

The ultimate trade-off for governments is between more competition and the best possible infrastructure outcomes for the community. At the same time, regulators can't simultaneously push for more competition and greater co-operation.

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The hesitation over a competitive free-for-all in telecommunications reflects doubt about the ability of competition to deliver the next tranche of economic prosperity for the nation. As in business, what has worked well in the past may not be best in the future.

As the Hilmer report noted in 1993, competition is not a cause in itself. It is only an enabler of productivity improvements and innovation. In most situations, it's a very good one.

But it also has downsides. And these limitations are most evident when it comes to trying to squeeze the most out of natural monopoly infrastructure.

As our economy matures and the benefits of National Competition Policy are realised, the more apparent it becomes that competition conflicts with what is needed to take the final step. The telecommunications, transport, energy and water infrastructures that Australia demands require co-operation - not more competition.

NCP broke up our network industries and transformed them into budding individual champions - generators and telephone companies going head-to-head, network owners looking to beat efficiency benchmarks set by regulators.

Competition has certainly reduced the inefficiency gap. But the growing self-interestedness that got us this far is counterproductive when it comes to achieving optimal, integrated performance. It turns on itself, and the interdependencies that were the focus for former protected monoliths are discounted as being of secondary importance.

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With easy gains no longer providing a common reference point, the cause becomes survival rather than better outcomes for the community. Hence the onset of litigation, name-calling and all that is crass about capitalism.

The typical response to this situation is to pull the competition policy lever even harder, as if more of the same will miraculously convert an egotistical bunch of prospective champions into the champion team for which everyone is secretly hoping.

We need a co-ordinated, holistic approach to telecommunications. Our policy framework does not provide for this. While there is talk of teamwork, the institutional drivers remain firmly tuned into aggressive competition.

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First published in the Australian Financial Review on July 27, 2006



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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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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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