Alston must face up to his 'con job' over the Telstra monopoly

Richard Alston, already notorious for his broadcasting and telecommunications policies, has carried out yet another con job.

The Foxtel/Optus content-sharing deal that was clinched in November 2002 contained elements over which the Australian Competition and Consumer Commission was powerless.

According to ACCC chairman Allan Fels, he was only able to look at the deal in the context of pay TV and had no authority to link that to the broader telecommunications or media environment in Australia.

The deal provided Telstra with a level of market dominance that is unique in the Western world. As well as this, it enabled the company to maintain a strong valuation, which would be beneficial for the privatisation of Telstra.

But it didn't stop there. In an endeavour to be seen as looking after the broader national interests, the minister recently made the following comments: "Clearly these [Foxtel/Optus] arrangements require consideration by the ACCC under the Trade Practices Act, and the government will also seek formal advice from the ACCC concerning the extent to which emerging market structures are likely to affect competition across the communications sector, including through the provision of bundled Pay TV, telephony and broadband services. The government is keen to ensure access to content on non-discriminatory terms."

The ACCC recommended that to solve the problem of market dominance by Telstra the company should divest its interest in Foxtel. In the lead-up to this announcement it had already become clear that this was the only recommendation that the ACCC could possibly make; everybody in the industry was aware of Telstra's dominance in the market, but everybody was also well aware that the minister had no intention of implementing that recommendation.

Just like the structural separation inquiry, this has been a con job from beginning to end.

I have supported the minister on the two key issues, as he sees them, in his regulatory policy:

• Stimulate facilities-based competition (building their own network, for example Optus).
• Open up the existing Telstra network.

The Foxtel/Optus merger is limiting facilities-based competition and the ACCC recommended that Telstra should divest its interest in Foxtel in order to increase competition. Yet, having been given a chance to address the issue, the minister rejected the ACCC recommendation.

Digital TV could be used as a platform for competition and, even more importantly, so could cable TV. Every other comparable country in the world is using the telco and cable TV platforms for facilities-based competition. Alston's latest refusal to establish this level of competition in Australia puts his handling of the issue in question.

If these two platforms (Telstra's phone network and Foxtel's cable network) are not used to establish facilities-based competition, what else is there? There is little hope of fresh investments being made and, with the collapse of several networks (for example, Nextgen) and problems being encountered with companies like PowerTel, there's little chance that there will be any facilities-based competition without regulatory intervention.

And so it would appear that the minister has deliberately created a national telco infrastructure monopoly to increase the value of Telstra, single-handedly reinforcing the virtual telco monopoly in this country. He has done this instead of looking after the interests of all Australians.

So now he should face the consequences. Having created this de facto monopoly he should be obligated to regulate in such a way that Telstra cannot misuse its monopolistic powers. And structural separation is the obvious answer - a solution which, by the way, is also favoured by the OECD, the European Union, ACCC and Australian Competition Council.

If the minister flatly rejects all of the available options to establish facilities-based competition then I would like to hear what he intends to do to address the issue of facilities-based competition, earmarked by him as one of his key telco policies.

It has become obvious that the absence of competition between platforms (telecoms, broadcasting, cable TV) will mean less growth in network modernisation, broadband uptake and the development of new innovative services.

In a recent address Fels indicated that the level of regulation - based on access regulation - was achieving nothing in addressing structural industry issues such as the competition between platforms and the dominance of Telstra across telecoms, cable TV and content.

I recently put forward the view that Telstra was carefully designing its strategies for interactive services over the cable modem network and the ADSL network so as to ensure that there wouldn't be any competition that could upset the company's vested interests in the copper-based network.

Fels was naturally a little more guarded, and said only that Telstra could use its market power to gain leverage and use its powers to shut out competitors.

He used the following examples. Cable modem penetration on the Telstra cable TV network is a meagre 3 per cent and downloads on the ADSL network are limited to 1.5Mb, making it impossible to use these services for video-based services and thus protecting the Foxtel network.

With Fels gone (from July 1) I have lost a trusted ally in championing telecommunication competition in Australia. Alston's latest con job, together with the departure of the good professor, constitutes a double blow to that goal in the future.