Disconnected competition

It’s short odds Sol Trujillo and his amigos are agitating the Federal Government with their recent decision to abandon Telstra’s proposed national fibre network.

What critics overlook, however, is that this situation is not of their making. We want Telstra to be mature and act in our collective best interests, yet the system it has been asked to work within is seriously flawed.

As Telstra executive Phil Burgess recently pointed out, the telecommunications policy framework is “confused, conflicted and counter-productive”. The source of this conflict lies in the incompatibility of competition with the unique oneness of networks.

Telecommunications is a network business like electricity, water, rail and other forms of transport. It is defined by its inter-connectedness.

You know what it’s like on the road. An accident or hold-up at some distant point in the network can affect you through complicated flow-on effects right through the system. Similarly, there is no advantage in removing a notorious bottleneck if the one down the street is left festering. To operate efficiently, networks must be managed in a holistic fashion that has regard for all actual and potential users.

Though I may never actually use it, I benefit from the fact I can telephone someone in Longreach or Tennant Creek. Networks also have a common good. I take heart in knowing people in remote areas have a similar level of service. The shared commitment bonds us as a society.

Putting values on these benefits is difficult. How much am I willing to contribute towards Telstra maintaining the existing network or rolling out a new fibre option to every Australian?

In the old days, this balance was struck behind closed doors between politicians and the Commissioner of the railway, electricity or telephone monopoly. We had to assume decisions were made in the interests of all.

The post-National Competition Policy world is both better and worse. On a positive note, third party access has pushed network owners to improve their performance, while greater transparency means investments are less likely to be politically motivated.

The downside is competition draws us all away from the big picture that is so vital for co-ordinated development of key infrastructure on behalf of the community.

If Telstra takes the view that all Australians are “in this together”, it would assume all users have the same effective cost to serve. It would look beyond the fact stand-alone costs to supply a person in Brisbane are much lower than those in regional Queensland. The benefits of a truly integrated approach would be more vital than the efficiency effects of applying individual user pays.

Mandated competition, however, demands access prices that give others a chance to compete. For this to happen, regulators must set access prices below what an efficient network business needs to cover the cost of serving all its users. If it didn’t, no one could compete with an efficient network owner and they’d be out of a job!

On this basis, it’s not hard to be confused by ACCC statements that it will give Telstra a fair deal and promote competition.

The Howard Government didn’t vertically separate Telstra because it wanted a world-class telco with integrated network and retail operations. This is sensible provided your policy framework doesn’t also expect long-term competition.

An efficient Telstra keen to deliver a national service will necessarily dominate. The only way to check this is to allow others to cherry-pick urban customers through third party access. This is now a problem because Telstra understands it cannot win. Expect the petty name-calling and shifting of the blame for a fragmenting industry to intensify.

The Government wants it both ways: to encourage a vertically-integrated Telstra to provide a national telecommunications solution, while also demanding it yield to a regulator that cannot adequately cover its true costs because the regulatory regime favours competition over big picture needs.

The Telstra chaos offers Kim Beazley his best opportunity yet. The Howard Government’s ideological attachment to competition and private ownership means there is no way through the current impasse.

A credible policy alternative is to buy back the partially privatised Telstra (as Tony Blair did with the railway network in the UK), separate out the network and then sell off the retail function.

There would be a loss of synergies, but at least Australia would have a dedicated vehicle for delivering our telecommunications requirements. The obsession with competition can then be played out between independent companies able to access a single network focused on our nation as a whole.