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Competing communications

By Ilya Zak - posted Tuesday, 13 February 2007

Recently, the Australian public went through a long and strenuous ordeal with the Telstra sale. While I am a massive supporter of the privatisation of profitable government assets, I can't see what problems have been solved by this sale. As Telstra remains in its current state, it will continue to be an over regulated, bloated, and inefficient provider of Internet services.

As the myriad of networks that Telstra owns gradually move towards providing all their services over the Internet Protocol (voice will be VOIP, the analog Foxtel video signal will very soon be switched off), Telstra's current asset base will have a ridiculous duplication of services. In my area, I currently have access to Telstra CDMA, Telstra GSM, Telstra WCDMA (granted these are all being merged into their new Next G 850mhz network), Telstra WiFi, Telstra Hybrid Fibre Coaxial, Telstra Copper, and Telstra Satellite.

If you consider the mobile networks as a resolved issue (as they are being merged), that still means that Telstra is providing the same service to me five times. There is no synergy or cost savings in providing this range of networks. These are for all intents and purposes competing networks, yet there is no competition, as there is no reason for any service to undercut the other: they are providing the same product, BigPond.


This is what results in Telstra being able to charge considerably more on a variety of products, because in the majority of markets their main competition is themselves.

There have been many calls for the “operational separation” of Telstra, most focusing on the wholesale and retail sides to Telstra's offerings. This however doesn't go nearly far enough. The issue we have with Telstra is not caused by their integration of wholesale and retail products, it's that no one else is able to do so, and that's why we see the ACCC constantly meddling and granting access to Telstra's network. If you separate just the wholesale and retail sides of Telstra, the problem will remain that Telstra is in control of a ridiculous variety of assets, all providing the same product.

The only functional solution is to force not the “operational separation” of Telstra - an impractical and unnecessary process which would achieve next to nothing - but to separate Telstra into its already separate companies by spinning them off in separate floats, and making sure that they are run completely separately.

What needs to be realised is that Telstra is already run in separate companies. Foxtel, BigPond, and so on, all buy their services from Telstra's various networks. This dictates how they can be sold off.

Telstra's Hybrid Fibre Coaxial network should be sold off first as it has massive potential, with new standards (Docsis 3.0, currently being launched commercially in Canada) promising a very cheap (relative to the costs of fibre to the home) upgrade resulting in 100mbps downstream speeds available to all residences and businesses which this network serves.

Telstra's small wifi network could easily be sold to another provider, and the mobile network (very profitable) spun off into a separate company. The satellite division doesn't actually exist per se, Telstra just buys its satellite services from Optus. As the only legacy part of the network, the copper network should be left till last, as it is heavily relied upon in rural communities as the sole provider of communications.


The services part of the company, more commonly known as the retail parts, can be sold off even easier than the networks. BigPond can become a wholesale purchaser of Telstra's copper wires, cable, or whatever it so chooses, as can any other provider, no different from what iiNet currently does for example. The same goes for Foxtel.

This is the only way that competition can be created, and would not be such a difficult process to undertake, as the companies are already functionally separate.

Australia, as always, is an over serviced market due to very poor investment decisions. This comes as a result of Telstra not seeking maximum returns out of all of its assets, they seem to just build new ones.

Telstra have had ADSL2+ DSLAM's installed in almost all of their telephone exchanges for a number of years, and this is already capable of providing the same service that Telstra's proposed Fibre to the Node (FTTN) network was going to provide, that is up to 24mpbs downstream, all it takes is a flick of a switch from Telstra. Granted, in less than a tenth of the exchanges that switch has been flicked, but that still leaves over 4,000 exchanges left with a service for no reason.

There is often a suggestion that Australia simply can't have the competion of the US, Europe, Korea or Japan markets due to the sparse distribution of our population over the continent. Time and time again however, Canada is shown as a shining example of this being an outright lie. The fact is that Australia already has all the necessary capital invested, however due to a history of regulation and political involvement; we have been unable to unlock the value of the assets that the capital has created.

This regulation and anti-competitive behaviour by Telstra results in over investment and under utilisation of the variety of networks that Australia has. Selling off Telstra in one piece just means this will continue with the only change being that the government takes a smaller dividend payment.

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About the Author

Ilya Zak is an immigrant from Russia, and has lived in Australia since the age of three. HeI went to Sydney Boys High School. Ilya is studying for a Bachelor of Business and Bachelor of Science at UTS in Sydney.

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