A decade and several communications Ministers ago, I was complaining about how telecommunications policy was killing the prospects for a fibre to the curb broadband network in Australia. And the sidebar quote from Richard Alston was in response to my observation that partial privatisation was the worst of all possible worlds. It looks very much as if I’ll be able to keep on recycling both complaints for another decade or so.
As some point, presumably, policymakers will realise that the only way we are going to get a modern telecommunications system is for the government to build it, or direct Telstra to do so. But there’s no sign of this at present.
John Quiggin 
It’s quite clear to me that the Howard Government has absolutely no clues at all and are totally lost when it comes to anything to do with internet policy. Truly and deeply incompetent. And they put real shining lights into the Ministerial role.
This must be killing our international competitiveness.
Imagine what executives from Hong Kong and Korea must think when they come here and find out we are only just rolling out ADSL2 ? And genuinely mobile broadband is so expensive as to be prohibitive for almost all users. Another ten years of this and it will be hard to justify calling ourselves a “first” world country.
I know that sounds like hyperbole, but imagine travelling to another country and finding that basic levels of telecommunications infrastructure were ten years behind your own country ? Would you want to invest there ?
Surely the problem would be solved if the ACCC was to leave Telstra to build what it’s customers want.
If you are interested in the subject and have a few hours to kill, you can trawl around the forums on the Whirlpool website here:
http://forums.whirlpool.net.au/
Plenty of discussion on net issues, and plenty of opinion both pro and anti telstra.
In case it may be of interest, I have written a letter to Senator Helen Coonan on behalf of the group Citizens Against Selling Telstra.
The letter calls upon Helen Coonan to cancel the sale, to make Telstra a public service once again and to remove Sol Trujillo, his “three amigos” and other expensive imports from the US.
In today’s ABC news I recall hearing that at least one Liberal backbencher also thought it would be a good idea to remove Trujillo.
I will keep people posted as to what Helen Coonan’s reply is.
Telstra seem to be doing better in NZ as TelstraClear, the services they are offering are a quantum over what are available here.
Paul Budde has observed that the TLS monopoly is crippling the industry in Australia, in NZ the loss derived from the monopoly afforded to Telecom NZ was assessed by Treasury at $50–$250 million p.a.
“I will keep people posted as to what Helen Coonan’s reply is.”
At a guess, James, it’ll be “The Minister has asked me to thank you for your correspondence and to let you know your views will be taken into account. Signed A Flunky”
The public interest has come a distant last in the race to set communications policy, under governments of both political parties.
“Surely the problem would be solved if the ACCC was to leave Telstra to build what it’s customers want.”
Only if you think it’s a solution to the problem for a monopoly to end up in private hands, Terje.
I am not in principle opposed to a private player dominating market share so long as it is an open market. Rather than every new operator just selling another flavour of the same technology an unregulated market would demand more technical innovation especially for those looking to break in.
Having said that I do think some regulation is required in the area of interconnect and number portability. In other words the market needs to be open.
Been saying much the same thing myself as you John today and yesterday in Crikey: http://economics.com.au/?p=300
Terje,
The chances that Telstra, as currently constituted, will allow a true competitor to develop in the short term are somewhere between buckleys and none. A full competitor would need to replicate the infrastructure that Telstra has built up (under government funding and protection) over many years. This would represent an investment of billions, with the certainty that Telstra could, and would, undercut the pricing once it was active. No competitor without extremely deep pockets, very understanding shareholders and a death wish would do it.
PrQ is right (IMHO) to an extent. Telstra does need to be renationalised. It then needs to be broken up and the constituent parts re-privatised. If the owner of the infrastructure is then relegated to wholesale only, the right incentives would then be in place.
In the longer term wireless is going to be a good competitor, and I hope they succeed, but I am not fully confident of this. Telstra has a few tricks up their sleeve.
Perhaps Telstra have looked at the Mitsubishi trial in Tassie where the phone comes down your power line, with no line rental, just call charges and decided the writing is on the wall for a $4 billion fibre to the node rollout? Basically we have missed the boat with flogging Telstra and obtaining maximum return to taxpayers for our prior investment. Put that down to the ALP and its supporters like Quiggin who somehow think they know the best direction for telecommunications in future with our taxes underwriting them. I’d be a lot more confident if any of them had any experience whatsoever in running a profitable telecommunications company, which presumably they recognised as a shortcoming when they sold off the Commonwealth Bank. Remember these are people who want you to believe big bad oil companies are fixing prices with our petrol, despite dozens of enquiries to show otherwise and the glaringly obvious- if that’s true then why aren’t we all paying the top of the cycle price, or do oil company execs just like a bit of fun? They also want you to believe the only thing that stands between you and coolie wages is their industrial relations laws and the unions. Sorry professor, some of us didn’t come down in the last shower, particularly those who held on to their Kodak shares too long. Personally, my telecommunications has never been better value for money with Optus and Vodaphone on the scene compared to the old PMG and Telecom days. Professor Quiggin can keep his nostalgia for the ‘good old days’.
Observa, your comments here and elsewhere are getting increasingly silly and offensive. In particular, having referred directly to me (and no one else), you claim:
(1) That I am a supporter of the ALP , particularly in relation to telecommunications policy
(2) That I “want you to believe big bad oil companies are fixing prices with our petrol, ”
(3) That I supported the sale of the Commonwealth Bank
Would you like to back up any of these claims ? (Your description of my views on IR is a caricature with racist overtones, but I’ll let that pass – it is at least true that I support unions and oppose the new IR laws).
Andrew,
If we had our time over I would also have wanted Telstra split prior to privatisation. However more along regional lines that carved up the suburbs (like black and white squares on a checker board). It would also have been feasible to split it into multiple operators. Such a setup would have allowed subsequent competition from cross suburb border incursions.
However given where we are at I think we need to remove the regulations on copper access and move to a full privatisation. If the private monopoly created is such a good deal then the share price will go through the roof and the government will be flush with funds to compensate any losers (preferably via income tax cuts). I use telecommunication lots and nearly none of it relies on Telstra copper.
Regards,
Terje.
Can I say nationalisation of a natural monopoly (like a copper network and ADSL infrastructure) is a good thing without people throwing rocks (and dial-up modems) at me?
Alpaca,
What compensation would you pay to Telstra shareholders and would they ever vote for you again?
Regards,
Terje.
Alpaca,
What compensation would you pay to Telstra shareholders and would they ever vote for you again?
Regards,
Terje.
The actions of the ACCC regarding monopolies may have contributed to some of TLS malaise, they were instructed to let Optus use their cable which meant they stopped putting in cable; they had to ditch the analogue mobile band to give Vodaphone a fair go and they lost a large part of their fixed radio antenna service when they were disallowed from tendering on the wavelength license as they were conducting the sale.
And then there are the voters.
Terje – I don’t see how you conclude that deregulating Telstra would result in it building someting new. To the contrary, if the local loop were not being unbundled, Telstra could sit back and make monopoly profits on its copper wire unless and until a new technology that doesn’t require a physical network begins to compete, which is many years off. Telstra would have absolutely no incentive to offer anything new.
Unless the G9 thing is real (probably not), the only way you end up with both competition and new technology is either for the government to make Telstra sell Foxtel (bearing in mind that it is the cable operators that have driven competition in the U.S.) or for it to build a new fibre network itself and give access to everyone.
As for the TLS “malaise”, it’s worth bearing in mind that this is no different to what every other incumbent telco has gone through in the developed world. The only difference is the degree of denial: initially that it was happening at all, and more recently the attempt to pretend that it’s somehow unjust that it gets treated like any other owner of an infrastructure monopoly.
Telstra shareholders other than the government have every reason to hope for a buyback of their shares as the government will not let Telstra operate freely in the market. For instance why should Telstra shareholders subsidise those areas of Australia ie most of it in order that the people in these areas receive telecommunications at a reasonable price?
The conditions in Australia are unlike any in the world in terms of distance, conditions and population and yet we are asked to believe that the national good can be dictated on a carrier which has been set up to be in private hands.
It was clearly a bad investment decision by the government to sell off some shares in Telstra from a point of view of national security and equity of access.
Renationalisation would be the best result for the long suffering shareholder who is beholden to a failed executive from USA to make money – something that is unlikely to happen as he has failed to understand the regulatory environment or the psyche of the Australian character. It would also be the best result for those who are in desperate need of good communications as a way to stay in contact with their fellow human beings because of the distance they live from townships and services.
By what logic would TLS shareholders expect that one of the shareholders “buy back” their shares? This is bizarre, those that hold TLS should not wish that their poor investment decision be under written by the taxpayer. People have to understand that they are entering into a business not an insurance scheme.
rog,
A buy back is normally at the current prevailing price, or an amount reasonably close to it.
The problem is that Telstra is such a profitable business on its legacy services (voice and data) – that maximising shareholder value and investing in the newer technologies (which cannibalise its base business) are mutually incompatible. This is a fundamental flaw in the way that Telstra was originally structured – and highlights the massive conflict of interest that the government has in being both the majority shareholder and the regulator of the business.
It seems to me that the only way to move forward is for T3 to happen as soon as possible, and for Telstra to be broken up into an infrastructure and retail business. T3 would be the ideal time to do this.
The government could buyback the infrastructure part of Telstra in exchange – essentially by swapping it with the reatil part – so that current Telstra shareholders end up owning 100% of Telstra Retail, and the Government ends up 100% of Telstra Infrastructure.
Telstra is worth less broken up than whole (elimination of the monopoly rent on its infrastructure) – so the government would have to wear some pain to do it – but it would be a non-cash transaction, so just a write-down of the government’s carrying value. Small price to pay for fixing up Australian telecoms.
Andrew,
I largely agree that the taxpayer (not the government) needs to wear the pain to fix the balls up the original privatisation was, I just cannot see that the way you have suggested would work.
To be honest, though, the chances of the government recognising that the original move was a balls up and moving to fix it properly are close to nil.
JohnQ,
Your criticism is valid but you’ll have to pardon the Observa as he gets a little acid at sanctimonious claptrap, combined with a dash of hypocrisy. As a result I was suggesting that lying down with mangy economic dogs may give one fleas that itch, but feel free to scratch me here for that.
As you say-
“A decade and several communications Ministers ago, I was complaining about how telecommunications policy was killing the prospects for a fibre to the curb broadband network in Australia.”
Bully for you, but unfortunately you, nor anyone else laden with taxpayer cash, knows for certain this technology is the best bang for buck technology for Oz. In fact Telstra’s current attitude to those who want to interfere in such a speculative venture by them, is to cut and run for wireless. As I pointed out, perhaps that’s all they needed to heed some warning signs for your grand fibre plan here
http://www.zdnet.com.au/news/communications/soa/Tasmania_powers_up_12Mbps_broadband/0,2000061791,39211616,00.htm
So many experts, so few risk takers, unless someone else is bankrolling them naturally.
On top of that we have the news yesterday that Telsta suffered a 26% drop in profits last year, which puts the kybosh on the theory it’s a lovely earner of monopoly profits. The share price(that’s 51% of us as taxpayers) has dropped accordingly in that time. What’s more it has dropped from a high of $5.40 to below $3.80 today over the long haul, as Labor frustrated the govt’s efforts to gain maximum return for taxpayers. It’s a bit rich now for supporters of govt ownership at any cost to make the “observation that partial privatisation was the worst of all possible worlds”. Who’s fault is that? The current govt who had the foresight to recognise telecommunications was changing that rapidly, it would be more of a headache to hang on to than the Commonwealth Bank or Qantas in their respective changing marketplaces. (wouldn’t Ansett shareholders and workers dearly love to be operating under the two airlines policy these days eh?)
As you say John you are a supporter of the unions and oppose the govt’s IR laws. I note Peter Costello’s observation that since Workchoices was introduced in March, 159,000 new jobs have been created. Not exactly what the union IR critics have been peddling about the place. My humble apologies for uncouth terms like ‘coolies’ here. Perhaps I should have said for comparison, ‘foreign scab guest workers’ that undercut unionist’s wages to be more PC with the usual IR union critical mindset here. Mind you some of us see the need for guest workers as a shameful indictment of those on sitdown money, but it could be said many of the latter are victims of mangy dog economics that passes for protecting the power of big unions and big biz these days. That’s the part that really sticks in Labor’s craw with privatising Telstra. No featherbedded, big union powerbase any more. They like the wharfies have to sing for their supper rather than bark for it, just like the rest of us nowadays.
Having said all that, I’ll take my hat off to you for exposing grubby big biz/govt/union PPPs that dud the taxpayers. Keep up the good work.
Andrew,
What I do wonder is how TLS could buy back when the decision to do so would be made by the majority shareholder.
You go around in circles on the whole thing; the govt has no business owning a business.
That might be too simple for some…
Observa,
It would be better if you argued the topic at hand.
It is also worth observing that it is not those who opposed the sale of Telstra who are to blame for the current malaise but those who have and continue to make decisions in relation to that organisation – including mass sackings whilst the bosses reap rewards that aren’t there.
There were always huge risks in selling part of the company – this was quite predictable by those who sold the first two tranches. The risks should have formed part of the original calculations as it would in any good business.
The original decision to sell was made for political not business reasons and now almost everyone has been a loser either directly as a shareholder or indirectly as a taxpayer. The three amigos may be winners as they run down a great company and get paid out in order to get them to stop causing damage.
My understanding is that the cost or regional services is subsidised using the “universal services obligation” funds and that these funds come from all the telecommunications companies, not just Telstra. As such this subsidy is not coming from the pockets of Telstra shareholders but from the pockets of telecommunications consumers in urban areas.
“It would be better if you argued the topic at hand.”
Yes I didn’t think the Telstra privatisation denialists would want to discuss a wee bit of context here. Of course what they have to come to grips with is that the govts equity in Testra has fallen by $8 billion in the last 12 months alone, as Sol Trujillo tells it like it is. Now if as Prof Q bemoans, Telstra has abandoned his precious $4bill fibre to the node rollout, he has only himself and his edeological denialists to blame. The govt could have paid for 2 rollouts with its losses here and if it was feeling really generous, instead of leasing the networks, given them out gratis,( eg one to Telstra and one to Optus/Vodaphone etc.) and how much better would taxpayers be then? Food for thought and some of us will look forward to ProfQ being as hard on Telstra privatisation denialists as he is on global warming ones. He should have a lot more empathy for them now.
Observa, the government has already lost so much money on the first-stage privatisation (a third of Telstra sold for about $12 billion) that any decline in the share price now can’t make the decision look good. Check your figures before making claims of this kind.
(The second-stage privatisation looks better, but only because of the overinflated value of Telstra’s dotcom assets at the time. I suggested selling these while the bubble lasted.)
rog,
I agree the government has no business owning a business. The pity is that the government ever set up a telecoms company under the old PMG (the post – another business they should not be in) department.
Be that as it may, we have to deal with a massively over-subsidised, protected entity that is acting like a bull in the middle of a (to update a metaphor) server room. Telstra is consistently acting to block progress until it can control it and it is using its copper monopoly to further that.
My position is simple. The break up (IMHO) to restore proper competition in the telecoms market will be massively value destroying for Telstra shareholders and would be unfair to those who bought them in good faith – the Mums and Dads and even the institutions. To get the gain of proper competition for the economy there would be some financial pain and that should be worn by those who will benefit – the taxpayer.
Buy Telstra back, break it up and then re-sell it. It will hurt, but bits could be sold quite quickly. Bigpond and the retail business could go quickly, followed by wholesale. The other bits up to (but not including) the copper could go over a short time frame.
The infrastructure could then be sold with some restrictions that apply for a few years to allow for proper competition to build up – the wireless industry could then develop properly, allowing full competition.
This half way house is silly.
Andrew,
Buying back Telstra and reducing it’s market value and then selling it will not be a win for the taxpayer. The ultimate winner (according to your competition thesis) would be the consumers. So it would be fairer if the cost of any such break up was worn by the consumers not the taxpayers. I am a taxpayer but I don’t use and Telstra services so I don’t know why I would want to pay for this reform that you propose. Unless it means that Telstras competitors (ie my suppliers) are going to reduce their charges as a result, which seems somewhat speculative.
Prior to PMG there was actually a lot of private sector investment in telephony. Unlike the telegraph a large chunk of the early infastructure was built by finance external to the public sector. The law reforms adopted post federation effectively terminated the private sector telecoms industry and socialised telecommunications under the PMG.
Regards,
Terje.
“Buy Telstra back”..its too late, Telstra is a corporation owned by the shareholders and limited by guarantee. The only way would be for the govt to launch a takeover bid but that would run contrary to “government has no business owning a business”
I imagine that if the govt were to own and run the car industry or the fuel industry, both vital elements of our economy, we would still be driving Austins when fuel was available. As it is the govt owns most of the roads leaving the market free to provide consumers with a choice of fuel and vehicle.
Rog, you don’t need to use imaginary examples. Under public ownership of telecommunications, Australia was at least on a par with other OECD countries. We were among the leaders in getting connected to the Internet for example. Now we are well behind and falling further behind.
Similarly, Terje might note that the reason private ownership was abandoned nearly everywhere (or, in the US, replaced by regulated monopoly) was because people found the results unsatisfactory.
PrQ,
When was private ownership abandoned “nearly everywhere”? Are you referring to the 1910s and 1920s or something a little more recent?
John,
Large parts of the world also abandoned private ownership of farms last century. It does not mean it was a wise thing or an improvement.
One could counter your point easily by stating that the reason most of the world has now moved towards a private ownership model is that the previous setup of government ownership was found to be unsatisfactory. Of course this type of argument by precedent does not take us anywhere. Just because people changed policy directions in the past does not mean that it was a good decision. If you advocate nationalisation of Telstra you must see the irony in your position.
Regards,
Terje.
Also telecommunications is for technical reasons more open to competition than it was in the 1920s. Things like GSM, G3, WiMax, VoIP etc were not around back then.
If Australia has fallen behind the OECD there are multiple possible reasons:-
1. Government ownership is better for telecommunications.
2. Other OECD nations have wasted resources and over engineered telecommunications.
3. Our regulatory environment sucks.
It is also not a fair comparision if the argument is about the mode of ownership. Lots of OECD nations have a private ownership model so you would need to separate out the data.
I think (3) is the answer Terje.
I’m just pointing out that our actual experience provides a counterexample to Rog’s hypothetical claim, and to his claim that government ownership is always inappropriate.
John,
Fair enough. Although I do note that Rog seems to be okay with governments owning roads.
We have seen telecoms go from almost exclusive private ownership to government monopoly and back (soon maybe) to full private ownership. I wonder how many times we will ocsillate over the coming century. Next time the socialists come in to bat I’m hoping that they use local government as the vehicle rather than central government. However I don’t have a lot of faith in the future of politics. Democracy seems to damn us to perpetual reruns of the same old disputes over and over again. Groundhog day indeed.
Regards,
Terje.