Bad faith drives desire for more competition

Competition, regulation and general cynicism denies such co-dependency is much more valuable than the artificial divisions engendered by competition. Only relationships internal to a vertically-integrated organisation can properly understand and capture more than the sum of the industry parts. Hence the decision to not structurally separate Telstra or direct Fortescue onto BHP’s railway: and why our electricity industry will never be truly efficient.

There are a number of challenging consequences from this. First, no amount of transparency can match Telstra’s integrated commercial assessment of the optimal investment and pricing package for the community. Access negotiations are becoming overly litigious because the mounting claims and counter-claims of who is right can’t be proved either way.

Second, an infrastructure owner, if operating at minimum cost, must always have an advantage over competitors wanting to use its network. Competition should improve network performance to the point where it renders itself ineffective. That is, dominance by an integrated infrastructure provider is a sure sign competition has succeeded.

The government won’t admit this because it would necessitate having faith in Telstra to make needed investments like Fibre To The Node on a monopolistic basis. Instead, ministers continue with the façade, lacking the courage to confront public perceptions that believing the best of business would be at a minimum naïve and at worst reckless.

The government can’t keep having an each-way bet. In deciding to keep Telstra whole, the government effectively confirmed competition inferior to vertical integration. To get the full value of this decision, however, it must also acknowledge the costly impact of the bad faith embedded in competition policy and mandated third party access.