My piece in yesterday’s Fin (over the fold) was about the failure of Telstra (or, more fairly, telecommunications policy) to give us even late-20th century standards of broadband service. Meanwhile Joshua Gans looks at how Telstra talks to regulators when it’s the underdog.
Make Telstra public again
Following Australian telecommunications policy is like watching one of those horror movies where the protagonist insists on going down the staircase into the cellar, even though everyone in the audience can see that disaster awaits. Or perhaps it more like Groundhog Day, where the hero relives the same bad day over and over again. Looking at the current crisis over Telstra, it’s striking that, despite the massive technological changes of the past decade, the same policy issues are being debated and the same mistakes are made.
The most salient example is the protracted sage of Telstra’s proposed privatisation. It was obvious to anyone who cared to look that the idea of partial privatisation, commenced by the Howard government in 1997 (in emulation of previous privatisations on this model undertaken by Labor) was a recipe for conflicts of interest, and for the creation of a regulatory nightmare.
As Treasurer Peter Costello said in early 2000, barely two years after the T1 sale,
If Telstra is going to be caught in a position where it is half privately owned and half government-owned, I don’t think that is going to be a good outcome. Telstra should all be either privately owned, or if people really think that nationalisation and government ownership is necessary they ought to have the courage of their convictions and nationalise it.
More than six years later, Telstra is still half-private and half-public and it seems inevitable that, even if a sale goes ahead, a substantial share of Telstra will remain in public ownership through the future fund. Certainly, there is nothing in the record of regulatory policy to suggest that full privatisation would work well. So Costello’s own logic would suggest that he should be advocating renationalisation.
But the debate over Telstra’s ownership is of secondary importance compared to the more fundamental problem that telecommunications policy has failed to meet the needs of telecommunications consumers or Australia as a nation. We lagged badly in the initial provision and take-up of broadband, and now seem certain to fall even further behind as other countries move to high-speed Internet technologies based on optical fibre all the way to the home.
More than ten years and several communications ministers ago, it was evident that poorly designed telecommunications policy was promoting investment decisions driven by considerations of corporate and regulatory strategy, yielding outcomes that were not in the national interest. The biggest example then was the race between Telstra and Optus to roll out duplicate hybrid-fibre coax cable networks, covering half the country, leaving everyone else to wait a decade or more for decent broadband access.
As I wrote at the time
the future of communications, and most notably the rapidly developing Internet, lies in digital networks based on optical fibre … the more progressive telecommunications companies in the United States are already discarding HFC in favor of building optical fibre ‘up to the curb’’ … The resources being wasted in providing duplicate analog networks could have made Australia a world leader in the development of digital telecommunications networks.’ (Pay TV’s wasted billions, Australian Financial Review, January 8,1996).
A decade later, with Japan and other countries already delivering fibre to the home, allowing high-speed Internet traffic for both uploads and downloads, Telstra finally came up with a proposal to roll fibre out, but only as far as local nodes. But, this was a mere bargaining chip in Telstra’s corporate regulatory strategy, to be withdrawn when the regulator did not give the right outcome.
So, apparently, we are supposed to rely on the second-class option of stretching ADSL technology to its limits, in the hope (contradicted by Telstra’s own statements on the subject) that the copper-wire network will stand up to the strain.
It’s time for the government to face up to its responsibilities for our national infrastructure. Telstra should be brought back into public ownership, and required to construct telecommunications infrastructure to meet national needs.
The first step in this process is that the government should take its role as majority owner seriously, and appoint a board and CEO committed to acting in the national interest. Peripheral assets like the Foxtel stake should be sold off. And the Future Fund could be used to buy out shareholders who would prefer a company more focused on short-term profits.
Australian telecommunications policy has been stuck in the same endless loop for a decade or more. If the horror movie we’ve seen so far is to have a happy ending, we need to turn around and head back upstairs.
John Quiggin 
A lot of people have the impression that because Australia has so few people in such a large area our telco infrastructure is inevitably going to lag other countries. That is not really true. Surprisingly, Australia is actually one of the most urbanised countries in the world. Australians tend to live in large capital cities. Small and medium sized towns exist in smaller numbers and have less people in Australia than most other countries.
For this reason a rollout of high speed broadband should be able to reach a larger percentage of the population and more easily than in other countries like the United States where a lot of the population lives in small towns.
“Telstra should be brought back into public ownership,�
That Mr Quiggin is communism, something the Long Tan Veterans fought against. You could ask yourself considering the behemoth the Australian political system has evolved itself into over the last 40 years, what ideology really won out in Australia after that war?
Regardless of my obtuse political concepts above, if what you allude to is true, that fibre optics is the be all and end all to high speed digital communications (although rumour has wireless evolving to a more than competitive medium in the near term), and that fibre optics is a piece of monopoly infrastructure that is ‘required’ by society. It would be akin to the need to construct a regulated toll bridge everybody has to cross— a piece of “monopoly infrastructure�.
If Telestra is silly enough not to want this piece of “monopoly infrastructure� in its portfolio, then give it to someone who does, by the creation of a new regulated monopoly for that purpose.
In return for giving one firm a prolonged monopoly status, the government regulates the firm and the monopolist is not allowed to practice monopoly pricing. Instead, regulators impose price controls on the firm that usually are highly correlated with production costs to keep profits at a moderate level.
This guy goes on about Government Regulation of a Monopoly here: http://spot.colorado.edu/~kaplan/econ2010/section10/section10-main.html
It could be argued if done properly a regulated monopoly is a better outcome than a self regulated public monopoly or PPP. It allows the parties involved to concentrate on their area of expertise. Governments to regulate, corporates to provide service and make profits, Investors to get a reasonable return on low risk long term debt/equity investments and consumers get a product hopefully at a reasonable price and quality.
Here’s a government that does it:
http://publicservice.vermont.gov/divisions/economics.html
“hat Mr Quiggin is communism, something the Long Tan Veterans fought against.”
Which perhaps explains why the country they fought for had a fully publicly-owned telecommunications system, and why the majority of Australians (on your view) are communists.
Comments like this make it impossible to take you seriously. You should learn to avoid them.
I am the intellectual pigmy here and so I have a reputation to up hold, so sorry if I offend, but I will call a spade a spade.
It is unclear “the country they fought for� South Vietnam had a� fully publicly-owned telecommunications system� at the time; if it did I doubt it would have been functioning well.
If you are inferring they fought for Australian or US interests, then those countries don’t now have “fully publicly-owned telecommunications systems�. The Australians as you alluded to have stuffed their telecommunications industry; the Americans have a system like this:
http://publicservice.vermont.gov/divisions/economics.html
“why the majority of Australians (on your view) are communists�.
On my view the majority of the elite ruling political class in Australia judged by their actions seem to be communists, the majority of Australians detest communists.
I think JQ actually has a very good point. Economy, is after all about doing things in the most economic, sustainable and efficient manner. What is economical about building duplicate utility service and having to maintain both services? Surely if you duplicate a service that has high construction and maintenance costs then those costs will be passed onto the consumer. All this does is create economic “churn” without any real gains to society.
If you believe that privatisation and deregulation bring competition and lower consumer prices, then explain to me why the price of milk sky-rocketed when the industry was deregulated. Maybe it had something to do with the costs associated with moving the product from state to state to achieve the illusion of “competition�. Maybe you would also like to explain your “competition theory� to all those former One-Tel investors.
I would also like to know how you would ensure that the relationship between a government regulator and a monopoly was not corrupted. You only have to look at cases such as Enron, with the rampant price fixing that lead to the energy crisis in California in 2000 and ultimately to the demise of the energy trading company, to see that deregulation can have some really nasty side effects.
Please don’t argue for the privatisation of a monopoly at one moment and then for competition the next. It is a mater of “horses for courses”. If a business is a natural monopoly, then it should probably be kept in government hands, for economic reasons.
This should no longer be an argument about socialism or corporatism, it should be about what is good for us as a society. Labels like communist or fascist are not going to help. If its your way of communicating, please go preach it to the converted – “closed mindâ€? types.
“closed mind� types?
I’m putting forward the concept of a regulated monopoly that is (privatisation and regulation} not “privatisation and deregulation�.
John is saying we need to construct a new single fibre optic network and the only way to achieve it is by nationalising Telsta. (If nationalising is not communism I stand corrected).
An alternative to nationalising Telstra to achieve a new single fibre optic network would be to set up a Government Regulated Monopoly to do it. That is when in return for giving one firm a prolonged monopoly status the regulators impose price controls on the firm that usually are highly correlated with production costs to keep profits at a moderate level. n.b. it is highly regulated.
Say the government licenses “Aussie Optic Fibre LTD� (ASX code AOF) to solely build and run the fibre optic network. This could be done along the lines of the Four Finance and Economics Division Responsibilities used in Vermont and utilise Jay Kaplans “lag in the enforcement of average cost pricing�, this should help to ensure it doesn’t go broke or over charge. (See links on above post)
It could be argued if done properly, a regulated private monopoly would be a better outcome than a self regulated public monopoly or PPP. It allows the parties involved to concentrate on their area of expertise. Governments to regulate, corporates to provide service at a profit, Investors to get a reasonable return on low risk long term debt/equity investments and consumers get a product hopefully at a reasonable price and quality.
“Please don’t argue for the privatisation of a monopoly at one moment and then for competition the next�.
I’m not, my mind is quite closed on the matter; I’m arguing for the regulated privatisation of a monopoly.
econwit, where is the regulator of the private monopoly called AXE?
JQ,
I understand your usage of the term ‘nationalisation’ to mean ‘public ownership’. Perhaps I am mistaken in my interpretation, for econwit has a very different interpretation, namely: “If nationalising is not communism I stand corrected”
To me, nationalising is the process of compulsorily (and thus ipso facto unfairly, and presumptively for less than fair value) acquiring resources to be held and managed at the national level. It is not the continuing condition of managing them after the fact, nor the acquiring of them by other means, nor the acquiring and/or holding and/or managing of them at other levels (e.g. municipalisation), whether compulsorily or not; the Future Fund does not qualify as nationalisation on several counts.
If Australia is to have fibre to the home then it will be new infastructure. Whether this is built by the private sector or the public sector seems to be the crux of the debate raised by JQ.
Lets assume we need a government owned fibre network to the home. Given that Telstra does not own such infastructure nationalising Telstra does not of itself achieve the objective. Once nationalised you would still need to build the infastructure. So why not leave Telstra out of the equation entirely? The reason is of cource due to conduits. Rolling out any new fibre infastructure would be expensive without access to the conduits.
So why not just nationalise the conduits if that is what is really wanted. The old Telstra copper could compete with the new government fibre and both could run through the nationalised conduits.
However if you are going to nationalise conduits I would suggest that ownership should pass to local governments who also own the footpaths and local roads that the conduits transit.
Personally I think the problem is mostly with the ACCC and its brief, however that is a somewhat separate discussion.
Terje,
1. Who is going to coordinate the decisions of local governments in your suggested option of nationalised conduits for fibre optic telecommunication network?
2. Who is going to pay for the time spent by consumers working their way through time series of advertising and promotional material issued by various telecommunication providers that offer of non-standardised services?
PML says:
“To me, nationalising is the process of compulsorily (and thus ipso facto unfairly, and presumptively for less than fair value) acquiring resources to be held and managed at the national level………….
“the Future Fund does not qualify as nationalisation on several counts. ”
Why does the Future Fund not qualify as ‘nationalisation’ in your scheme of things?
‘the government should take its role as majority owner seriously’
This, I think, is the most important component of your argument. The government has been a passive controlling shareholder, and have allowed management to run wild – destroying shareholder value. Rather than waste money in offshore adventures, Telstra could have paid higher dividends (for example).
What I’m not clear on, is why total ownership is a better solution to the current situation where the government (could) excercise total control, yet have chosen not to. It’s not clear that Telstra would be run any differently under any regime where government has effective control over the orgnisation. In short, government has been a poor controlling shareholder. Restoring Telstra to complete public ownership doesn’t overcome that problem.
The Government’s ability to regulate Telstra while there are private shareholders is severely constrained by the corporations law, which stops majority shareholders from oppressing minority shareholders. This is why partial privatisation of a dominant and powerful company like Telstra is the worst of all worlds. The solution is to have it either fully government-owned, in which case it can be directed to to be run in the “national interest”, or to have it fully privately owned but tightly regulated so that it doesn’t abuse its market power.
Sinclair Davidson,
In which sense was the government a ‘passive controlling shareholder’?
The public message which came across for many years was, IMHO, very clear: We want to sell the shares we hold on behalf of the public. We want to get a good price and we want to delegate any obligation toward the public to a regulatory body.
As far as I am concerned, the ‘privatise and regulate’ model is not internally logically consistent (it is not ‘incentive compatible’; or at least none of the major players involved has found an incentive compatible mechanism) and it is wasteful of real resources.
It is interesting to see that history has taught us little in this argument. We have emotive arguments about “communism” from Econwit which is aimed at those who react in a knee jerk manner.
However Sir Tom Playford who was as good a conservative as any thought that a single electricity outlet under the control of the government was a more economically rational way of operating. In the light of the effect of privatisation of the electricity market in SA which has done nothing to address infrastrcucture issues and long term reduction in costs it seems that he was right.
Telecommunications is another industry where if there is government control then ideas such as the national good and long term goals can be factored in – although the political cycle and the increasingly emotive reactions of media don’t help in the good governance of the country.
As we have gone down the road of privatisation and deregulation then we should perhaps deregulate altogether and see what happens. Those in the country who supported the coalition so thoroughly would then see the effect of their decisions on themselves. That we would all be likely to pay dearly as our telcos were bought up and controlled by overseas interests who may not have our interests at heart would be the end result of the “market forces” argument. That has been the experience of the electricity experiment in SA.
Nationalisation was something Australia embraced after poor performances in those areas seen as vital to the national good. It was embraced by conservative politicians. Perhaps when we study history this would be a topic which could yield a great deal of valuable information in our current dilemmas.
Surely the only difference between a regulated monopoly and full Govt. ownership is that in the former case the private sector raises the capital and reaps the dividends, whereas in the latter case the taxpayer provides the capital and reaps the dividends. Of course, there is an intermediate case called “corporatisation”, where the Govt. remains owner but management, capital raising and dividend collection are kept at arm’s length. Since in a monopoly situation the risks are minimal in all three cases, I have never seen the point of corporatisation – except for political purposes.
So the argument reduces not to a capitalism versus communism alternative, but to a “who gets the loot?” alternative. From the point of view of the professional politician, the regulated monopoly or corporatisation alternatives provide more opportunities for payoffs and kickbacks, so are nowadays seen as preferable. I suspect that that is all that is going on here.
EG,
1. As I envisage it local governments would own the conduits and the use of these would be coordinated in much the same way that the interconnection of local roads is coordinated. No doubt some local governments would outsourse the management of this resourse. If people didn’t get the results that they expect they could elect a different mob. I would expect that a number of defacto standards would emerge pretty quickly similar to the ones that provide wiring standards for telco access in privately owned high rise buildings.
2. Time expended by consumers in researching telecommunications choices would not be compensated. Just as nobody gets compensated for the time taken deciding who to vote for, the time taken planning how to structure your income for tax purposes or what type of pizza to order on friday nights.
Regards,
Terje.
“In which sense was the government a ‘passive controlling shareholder’?”
In the sense that the shareprice fell from $7-odd to $3-odd with little turnover in the board of directors and senior management. An active controlling shareholder would have sacked a lot of the directors (and management).
I agree with your point that the rhetoric on Telstra has been clear, but then what else would they be saying?
Terje,
1. I do not agree because ‘wishful thinking’ is not a plausible solution.
2. Comparision are unconvincing. Easiest one to illustrate the problem: Pizzas do not constitute infrastructure; markets work quite well for pizzas (even allowing for limited competition in some localities); search costs are minimal; ‘good’ is non-essential; people can avoid working through advertisments by throwing the lot into the bin and not watch commercial TV. Comparison of the consumer choices of telecommunication services in a pseudo-market of differentiated ‘products’ with the acompanying advertising and sales promotion machinery to elections of governments, is, IMO, silly. But this is a point where you differ and I don’t wish to spend energy trying to convince you otherwise.
“I agree with your point that the rhetoric on Telstra has been clear, but then what else would they be saying?”
I don’t know. I was not a member in any advisory team at any stage.
[In which sense was the government was a passive controlling shareholder?] “In the sense that the shareprice fell from $7-odd to $3-odd with little turnover in the board of directors and senior management”
To the best of my knowledge, the government did not buy Telstra shares at $7.–. Why should the government look after the interests of shareholders who paid $7.– ?
Equity capital used to be known as risk capital. This includes the risk of share prices falling. At times, majority shareholders go for a take-over when the share price is ‘low’ relative to what they think it is worse. Isn’t this what a return to public ownership would amount to?
I’m not sure if anyone else remembers, but there was a 7:30 Report story back in ’99 or 2000, that covered the issues around the deregulation of the electricity industry in SA and Victoria.
The crux of the story was that the privatised energy generators (i.e. the owners of the power plants) were manipulating the spot price by turning off their generators (on hot summer days), to force up the price. They would then turn them on once the price had reached a certain level. Their claims that the generators had broken down were of course, a load of baloney. This was the exact same method that was sanctioned by Enron in the energy crisis of 2000/2001 in the US.
If you want to look at the history, refer to this wiki link:
http://en.wikipedia.org/wiki/California_electricity_crisis
This sort of manipulation is not new. The US government brought in the PUHCA (Act) in the 1930’s to ensure the competitiveness of the energy generation and distribution industry. Look up “PUHCA FOR DUMMIES” on Google if your interested.
As Jill Rush said, maybe we should allow total deregulation of all utility businesses to see what false economies that would create.
‘To the best of my knowledge, the government did not buy Telstra shares at $7.–.’
Not sure what you’re saying here. Nobody saying the government bought Telstra shares.
‘Why should the government look after the interests of shareholders who paid $7.– ? ‘
I agree, as a general rule, the government per se shouldn’t look after the interests of shareholders. But the government in the Telstra case was also a shareholder itself. Why did it allow it’s 50 percent ownership stake to decline from $7- to $3- and do nothing, or very little, in the process? Even if the government was unconcerned about the minority shareholders, it was also apparently unconcerned about the value of its own stake.
“Why did it [the government] allow it’s 50 percent ownership stake to decline from $7- to $3- and do nothing”
The share price is determined in the share market. The share price is not an administered price.
(The story in some Finance texts that the objective of corporate finance is to maximise shareholders’ wealth (interpreted as share market capitalisation) is an interesting one because it contradicts the notion of ‘competitive behaviour’ in the sense of price taking.)
“Even if the government was unconcerned about the minority shareholders, it was also apparently unconcerned about the value of its own stake.”
Good point, as long as the government persists in planning to sell the remaining 50%. Hence my earlier comment re switching from ‘sell’ to ‘buy’.
PM Lawrence said that:
“To me, nationalising is the process of compulsorily (and thus ipso facto unfairly, and presumptively for less than fair value) acquiring resources to be held and managed at the national level.”
Seems a bit strange. I remember reading somewhere, that when Margaret Thatcher privatised (either the water supply industry in the 90’s or the electricity industry in the 80’s – that’s really testing my memory), those investors who were lucky enough and wealthy enough to invest, on average, receive a dividend of 100% of their investment, after just one year.
Couldn’t you then say that privatisation is the process of compulsory (and and thus ipso facto unfairly, and presumptively for less than fair value) acquiring resources to be held and managed at the private level.
Here is a quote from a MotherJones.com article from 2002 about the privatisation of water supply:
…
Yet corporate water’s record in fixing those problems — or even maintaining the industrialized world’s systems — has been mixed at best. In 1989 Prime Minister Margaret Thatcher pushed through a program to privatize the United Kingdom’s water supply; costs to consumers soared over the following decade, despite billions in government subsidies to the water companies. In some cities, water bills rose by as much as 141 percent in the ’90s, while thousands of public-sector jobs were lost. Even the conservative Daily Mail declared that “Britain’s top ten water companies have been able to use their position as monopoly suppliers to pull off the greatest act of licensed robbery in our history.”
…
Seems to be a case of – privatise the profits while you socialise the costs.
‘The share price is determined in the share market. The share price is not an administered price.’
Are you having me on? When company share prices fall in the market to the extent Telstras did, the management and directors would normally get the boot. The Telstra management were allowed to follow polices that led to share price declines with no adverse impact on their employment. An active controlling shareholder would have done more than the government did.
Just a postscript to my last post.
The arguments as to whether an asset is a “national” or a “local” asset seems to be confusing the issue as to whether it should be in private or public hands (thanks to the “communism” comment). If I go back to my original argument, (and JQ’s) – an asset/utility/infrastructure that is costly to construct and maintain, should not be duplicated for the purposes of competition. Such an idea is just wasteful and uneconomic.
The argument that could be used for duplicating a service is, capacity constraint. But the questions that should be asked in this situation are:
Is it more cost effective to build multiple copper/coax networks to overcome capacity constraints or is a single fibre-optic network more economic? And how future proof are each of these technologies? That is, will the capacity of a copper or coax network increase with new technologies or are there known physical limitations? And of coarse, do Australians really care? What percentage of Australian’s want to be able to download movies on demand? What other things might I be able to do with this greater telecommunication capacity? I don’t know.
And I am still not convinced that the idea of regulating a private utility monopoly is any more reasonable than regulating a government run utility. At least with a government run utility you are not under pressure to make a profit for the shareholder. Except when the government of the day takes out loans against the utility as Peter Beattie did with Energex and Ergon a couple of years ago – but that’s another story that has many facets. The market forces in such a situation are to keep the costs down, because the shareholder is the consumer. A large government run utility also has the ability to keep costs down because of its size (economies of scale). But, that also applies to a private monopoly.
How about some real arguments, instead of these emotive and baseless arguments? The idea about having Telstra manage the inter-city network and opening up the local telecommunication networks to competition seems fairly novel. Especially if communities in different locations have different telecommunications needs. Maybe not all of us need fibre to the door.
The Future Fund isn’t nationalisation in at least the following respects, and possibly more:-
– It’s held at arm’s length from the national level (I agree that this is a quibble if, as I cynically suspect, that is a mere polite fiction).
– The resources going into it aren’t compulsorily acquired there, or even with a view to transferring them there, though I quite see that many resources that may be transferred to it in due course may well have been nationalised previously. Even so, there is no nationalisation involved in transferring resources to it or in holding them in that form over time.
On privatisation, we can say that it is presumptively done for unfairly low prices, or people wouldn’t clear the resources with their associated sovereign risk fast enough (hence all the stagging, although that is in part to diversify the sovereign risk of continuing to hold them). But it isn’t done compulsorily, since it is done voluntarily by the holder that sells off the resources (notwithstanding that there is a strong argument that it was not properly holding them, and that it did not transfer wealth to those who were in fact deprived by the earlier form of holding).
However, this is far more a case of what is now called privatisation, not what I would have meant by the term (just as “free trade” isn’t). Privatisation, pure and simple, should only involve private participation being opened up for what was preveiously a government preserve – an abolition of the constraints rather than a distress sell off of the resources.
In relation to Jill Rush’s position, consider the origins of the Hanson Trust. In the ’20s Lord Hanson’s father owned and ran a small bus company. To consolidate routes etc., a Conservative government nationalised it (along with its competitors nationwide), for much the reasons JR cited. The only difference from Labour nationalisation was, that the compensation was much more realistic.
However ever after Mr. Hanson was disgusted with both sides of politics, considering that “Labour were nationalisers in principle, and Conservatives were nationalisers in practice”. He set up the Hanso Trust to apply the newly liquid funds to property speculation and similar less sovereign risky activities, even though that was much less productive than an undistorted use of the funds would have been.
EG,
When Optus digs up the street to run a conduit (ie separate to Telstras) as it does in some places at some times it has to deal with the local government. In each part of the country it deals with a different local government. Do you think coordinating access to local government owned coduits would be any more complex than coordinating access to local government owned streets? I would think that it would in fact be simpler most of the time.
Regards,
Terje.
No, I am not having you on. While I agree with you on Telstra’s overseas investment, I should think that Telstra did no more than what corporations (not exactly all of them) did do during the hype generated by the word ‘globalisation’. Telstra did other things which corporations did do during the grand ‘restructuring’ management fad period. They fired engineers and hired marketing people. These and other factors may well have an influence on the share price, both, on the way up and on the way down. The government did what other influential shareholders do, they hired a new CEO, who brought his management team along. None of this changes my point that the share price is determined in the market.
One can ask, what information is consistent with a share price of $7 and what information is consistent with a share price of $3 (I am using these numbers as bench mark indicators for the purpose of a simulation study rather than exact share price data). One hypothesis to start off with is that $7 is a ‘free’ (monopoly) market price and $3 is a ‘regulated (monopoly) market price. There is nothing to stop share traders taking positions on who wins in the political arena. The share price did not fall overnight from $7 to $3.
Short of a miracle, I can’t see how the goverment can adhere to its privatisation strategy and get a ‘high’ price in the near future (the underlying model is, IMHO, not internally logically consistent). In any case, by fixing its strategy on ‘sell’ and making it public, strategic games are possible which would not be possible if the government would adopt a general objective such as to act in the best interest of the people of the country. This would not rule out switching from ‘sell’ to ‘buy’.
PS: Apologies for the typos I discover in my posts when it is too late.
I think Terje’s idea is very good. Ernestine Gross’s objec
Essentially the way it works at the moment from ADSL is that if an ISP wants to service an area they put in a pipe and their own ADSL equipment into that area’s local exchange. Telstra own the exchange and the local loop, so thi ISP has to get Telstra to hook the local copper loop straight into the ISP’s ADSL equipment. I believe the ISP pays Telstra a service fee for the connection and an ongoing line rental.
To me it would be pretty straight forward to replicate that structure with the local council replacing Telstra. Or with the local council owning the local loop, whether it is fibre or copper and the exchange and contracting out management of it on the proviso that it connect any ISP at a set rate within a set SLA. The local council would have a stronger incentive to invest in a high speed network than Telstra. Telstra only gets monopoly rents, which are not much greater for higher speed broadband than normal speed broadband. Local council’s get widespread economic benefits from attracting high wage knowledge workers so they have a stronger incentive to invest in high speed broadband.
I don’t see a great need for other levels of government to get involved. The ISP’s can talk directly to the local council’s and connect the local networks to the internet via their own already existing infrastructure. Standards seem to have been effectively self created in the rollout of ADSL2. Or you could get it all done via the State or Federal governments, but I think that may end up with a politically designed network.
Terje, you skipped the investment decision problem. If local governments are to own the conduits they will have to finance the construction and they have to agree on it. This is the coordination problem. Have you ever been at a local government council meeting?
Robert Cringely has an interesting column on the concept of government ownership and investment in the local loop According to estimates if 40% of user’s in an area hook up to a FTTH (optical fibre right to the home) it can be done for $1000-$1500US per connection. For that $1500 you get a gigabit connection, 50 times faster than the fastest ADSL2. More bandwidth than even I would know what to do with, future proofing anyone for at least 10 years, probably more like 20 to 50.
Private ISP’s don’t really have an incentive to make that kind of investment. They are unlikely to be able to get 40% of households in an area to sign up, so they will never make a profit, and if they do they will charge monopoly prices negating the whole point. But such a scheme would have incredible economic benefits. It would create enough bandwidth to make pretty much any broadband application viable, with all that implies, at a one off cost of $1500 per dwelling. So there is a good case for government to take some action.
Its the kind of policy that labour could adopt. It would be idealogically impossible for the government to support, popular, visionary and make economic sense. But this labour wouldn’t do it. Sigh.
still working it out,
In your opinion, what is the technological know-how in Telstra which has to be duplicated in each Council area to make the idea technologically conceivable? (Number of staff and qualifications would be indicators.)
PML, I understand that the ‘seed money’ (a big one) for the Future Fund consists of tax revenues exeeding government expenditure. Have you changed your mind on taxation?
Ernestine Gross,
I can’t give you a proper answer to this question. I just don’t know. But the reason I still think it is feasible is that management of the exchange could be outsourced to existing telco’s in a fairly straight fortard manner. There could be a standardised contract, or state/federal legislation creating a standardised contract for agreements between the Telco managing a local loop/exchange and the local council that owns it which could avoid the telco’s using their information advantage to con unfair contracts out of local council’s.
In this situation the decision making process for a local council would be relatively simple. The local council would only have to consider prices and level of service. The local council might only need a couple of staff dedicated to telecommunications itself. Their job would be to escalate and document incidents where the managing telco failed to meet the service level agreement based on complaints from residents. Very little technical knowledge is required to do that. It is primarily a vendor relations capability which council’s already do reasonably competently.
Initally it could simply involve signing an agreement with Telstra to continue things as is which requires almost nothing of the local council in terms of new abilities. Or it could be an opt-in system, where if local councils that are unhappy with Telstra could take control themselves and arrange for another telco to manage the local loop/exchange. Eventually local council’s could develop their own telco capabilities if they found that more economic, but I imagine they would always get a substantial amount work done by existing telcos or smaller contractors.
still working it out, I suppose not everybody sees beauty in simplicity.
Terje (say TAY-A) Says:
“So why not leave Telstra out of the equation entirely? The reason is of cource due to conduits. Rolling out any new fibre infastructure would be expensive without access to the conduits. “
It might be possible to leave Telstra out of the equation entirely;
With fibre optics, you have complete immunity to electromagnetic interference (EMI). The implication being it might be possible to piggy-back fibre optic cables anywhere a power cable can go. If you have underground power in the area the fibre optic cable can share the power conduits, or if the area has poles it can be run unobtrusively bungled with the power lines right into the home, unlike the Optus cables that have to be distanced from power lines.
“If Telstra is silly enough not to want this piece of “monopoly infrastructure� in its portfolio, then give it to someone who does, by the creation of a new regulated monopoly for that purpose.�
Smiley Says:
“And I am still not convinced that the idea of regulating a private utility monopoly is any more reasonable than regulating a government run utility. At least with a government run utility you are not under pressure to make a profit for the shareholder�.
Compare AGL and Sydney water:
AGL has operated gas distribution systems located within city centres and towns within NSW effectively as a regulated private utility monopoly for many years. Over the last ten years based on my experience it has provided good services at reasonable prices with gas to most customers capped to CPI. It has paid dividends to its shareholders and interest to its lenders. It has maintained and upgraded its infrastructure when required as well used its retained earnings to expand the business by acquiring new cash generating assets and infrastructure.
Sydney Water supplies water and sewage services to Sydney. It is a government run monopoly utility. Over the last ten years based on my experience its services have deteriorated. All Its additional charges have increased substantially with connection charges for new properties going from $300 to $3000. Water rates have increased significantly above CPI plus the addition of environmental levies and alike have been put on top. Over the period it has had $ 4 billion siphoned out of it to be squandered by the social democratic labour government. Its failure to manage for the long term and the theft of it retained earnings, has left it unable to maintain or upgraded its infrastructure as required, to the point where large capital expenditures are now essential to maintain supply.
Its a hard choice considering the results of the test HA HA;
Bob Carrs residue coupled with his associated cronies or Paul Anthony and his executive team?
Econowit,
I think Powertel is close to being the third biggest telco if we leave out mobile services. It was formed by state owned power companies that have a stack of fibre capacity in power conduits throughout many of the major cities. It is not hypothetical.
Regards,
Terje
EG,
The conduits don’t need to be built. We were talking about stealing stuff from Telstra shareholders and I merely stated that in order to roll out a fibre network to the home there was no point stealing infastructure other than the conduits. Stealing the copper would only be necessary if it was in the way. So I am not sure what investment question you are refering to.
As for simplicity. The simplist option would be to remove the regulatory burden that is currently causing Telstra to bork at a fibre roll out. And to remove the access regime that has made all the Telcos build business models dependent on Telstra infastructure.
Regards,
Terje.
Terje wrote: “We were talking about stealing stuff from Telstra shareholders …”
The rightful owners and the still majority shareholders are the Australian public who, together with their parents and grandparents, have paid for Telstra many times over through their taxes and many hefty phone bills. It is the value of their investment has been eroded far more by the ill-conceived policies of corporatisation, deregulation and privatisation than even those who bought shares in the T1 and T2 floats.
The money ostensibly gained for the public purse from the shareholders has been largely wasted in projects designed to suit the political needs of this government in marginal electorates.
It is time that the needs of the country for modern high bandwitdth telecommunications services took precedence over the sectional needs of private shareholders, most of whom, in any case, according to a poll in August 2002 also opose full privatisation.
A buyout of shares and making Telstra a public service once again is the only possible way that the mess can be properly fixed.
James,
If the government sells something then in my view it is owned by those that paid for it. You can spend 10 generations and all your families sweat and tears building something but when you sell it then it is no longer yours. Just because you have an emotional attachment to the thing you sold or just because you wasted the money you received does not mean that the buyer ownes it any less.
You can complain about the government decision to sell but that is a separate matter. I would note however that we live in a democracy and if the government decides to sell stuff it is a bit rich to then steal it back. Certainly it is within the governments power but it does not change the nature of the activity.
Of course the word nationalisation means different things to different people. If the intent is to buy back Telstra at the market rate then I am sure that the shareholders might sell willingly. Although as a taxpayer I would object to such a move.
Regards,
Terje.
Terje,
I could also accuse of trying to pull emotional heartstrings when you wrote, “We were talking about stealing stuff from Telstra shareholders …�
This may well be a subjective view, but I would consider the T1 and T2 sales as theft from the Australian public, regardless of whether the share prices were ‘over-valued’ or ‘under-valued’. The value that the public got from the short-term uncoordinated piecemeal public projects funded from the sales effectively amounted to little more than trinkets compared to the value of the asset sold.
T1 got through because Howard and the proponents of privatisation had cleverly mislead the Australian public into believing that partial privatisation was never intended to be the first step towards full privatisation.
Had he been honest about his true intentions he would not have gotten away with it.
The sorry mess that ensued is all history.
In a democracy we are entitled to decide what is the best way to fix up the mess without giving undue consideration to sectional interests above the public interest.
I think those that have gained at the expense of the Australian public should be held to account for what they have done so dishonestly, and be made to reimburse us from whatever ill-gotten gains they have made, even though it could not possibly be sufficient to repair the harm done.
Of course, most of the costs of fixing up the mess will have to be somehow borne by taxpayers, Telstra customers and the ordinary T1 and T2 investors. At the moment I am not in a position to be able to say precisely how this should be done.
econwit:
I agree. If we are going to run organisations as if they were commercial ventures, then we should ensure that the laws are in place to enforce that requirement. That is, governments should not be able to take out loans against utilities that they operate, expecting the utility to pay back the loan (as I eluded to in one of my previous comments).
But then again, why should this just apply to government owned and regulated business, why not the government itself. Why for example, should the federal government get away with taxing petrol and syphoning the revenue away from transportation? I know there are arguments for this, it is just a rhetorical question… don’t get angry now.
But I still don’t see why you cannot acknowledge (in the numerous examples I have given), that when certain businesses are privatised, (even where there is a great deal of government regulation) the commercial pressures seem to lead to a reduction in the regulation and the increase in corrupt business practices (ultimately hurting the consumer). Please, make some comments. Or maybe you have no comments to make at all.
I also find some of your arguments a bit difficult to believe. Take for example your claim that Sydney Water now charges $3000 for new connections. I thought that utilities (like Sydney Water) no longer directly employ people (i.e. the plumbers and backhoe operators) to do the actual connection. I thought that utilities like this charge you a fee to run the analysis of the network in your area, and send out inspectors before the job is completed. You pay for the connection separately through a private contractor. If you go to the Sydney Water web site, you can download a list of their fees and charges:
http://www.sydneywater.com.au/BuildingDevelopingandPlumbing/DevelopingYourLand/FeesandCharges.cfm
And are you matching the facts to fix your argument? Is the $300 connection fee to a property next to an existing main, and the $3000 fee for a property that is 0.5 km from the nearest main? I don’t know. I don’t live in Sydney.
Maybe if you gave links to actual news stories that backup your claims, I would take you a bit more seriously.
James,
When the government sells something that you would prefer they retain then you may regard it as theft. However it is not unless they never owned it to start with or if they made their decision under duress (which would be a pretty funny suggestion given who we are talking about). Lets not forget who runs the army and owns all the guns, cages and instruments of force.
Even if we you limit your accusation to the executive wing of government it still does not stack up. They did not do anything that was not approved by the legislative wing.
Now nationalisation may or may not involve duress, coercion or force. However if it does, then their is a much clearer case to claim theft. Democracy or not.
Regards,
Terje.
“Now nationalisation may or may not involve duress, coercion or force. However if it does, then their is a much clearer case to claim theft. Democracy or not.”
What about taxation under the same circumstances could you label that theft?
Smiley,
I agree with your first 2 paragraphs 100%.
“But I still don’t see why you cannot acknowledge (in the numerous examples I have given), that when certain businesses are privatised, (even where there is a great deal of government regulation) the commercial pressures seem to lead to a reduction in the regulation and the increase in corrupt business practices�
It is perceivable this happens, but in my view it is due to the government not doing their fundamental job which is regulating properly.
In relation to the Waterboard it is dependant on what suburb you are in.
We are involved in a subdivision in Castle Hill. The property has existing water and sewerage connections that can be connected straight into without any upgrade. It is a small infill development. The Waterboard are charging $ 3679 per lot. Being $1362 + $192 water connection fee and $2036 + $89 sewer connection fee. We still supply and install the infrastructure to the lots. When someone builds on a lot they are then hit with another round of plumbing and drainage fees per fixture plus inspection charges.
This is just one of the charges and they just go on and on, it is mind numbing.
Castle hill is one of the cheaper suburbs look at some of the others here:
Click to access _download.cfm
And this price gouging isn’t just confined to Sydney Water. Energy Australia another publicly owned monopoly recently charged us $2000 to turn the power off then on again at a property in Bondi, just for the privilege of upgrading their infrastructure at our expense. AGL charges $150 for a similar ‘stand by’. The total duration of Energy Australias part of the Job was 2 men 1.5 hours. or $666 per hour, OH to be a monopoly!
You can couple the above bloody-mindedness with the other crap the self seeking political class inflict on us during our commercial activities: 5% stamp duty on purchase, Stamp duty on the mortgage, Stamp duty on insurances, $20,000 per lot contributions, $3000 per lot application fees. Local Government fees. Land and Environment court fees, Power utility fees, Gas utility fees, council rates, Water rates, land taxes, payroll taxes, PAYG taxes, capital gains tax, GST on top of all these charges at sale, purchasers stamp duty on sale and company tax not to mention the other hidden taxes and excises like fuel taxes and the $20 toll to go to work and back.
I use to be apolitical, but now I am being driven to a libertarian economic philosophy, due to the elite political class from either side and their expansionist tax and grab policies.
Please remind them capital is mobile and unlike the last 20 years, a large proportion of our capital is not actively supporting the Australian economy by employing people and producing things directly. It has been given to the arbitrage chasing, rent seeking, money shuffleing managers in the secondary equities market to do something productive with.
EG, I haven’t changed my mind about taxation. It’s just that it is important to distinguish what is going on, who is being victimised and so on. For instance, nationalising (say) a coal industry involves ripping off the previous owners, and what’s more it is bilateral. But acquiring a coal mine or two on the open market, ultimately paying for that with taxes, isn’t nationalisation and the previous owners don’t get ripped off. That is something quite regardless of the ripping off involved in getting the funds, and those ripped off are yet other parties.
So acquiring a Future Fund on the open market isn’t nationalisation – even if hands got dirty elsewhere, the particular misbehaviour is different misbehaviour.
Econowit,
I have no problem labeling taxation as theft. In fact I find it amazing that anybody can deny that taxation is theft. But does this further the discussion or just cause it to digress?
Regards,
Terje.
econwit Says:
What was the work that was done? On what do you base your comparison with AGL?
econwit Says:
It sounds to me that you’re a corporate shill, and we should take no notice of your manufactured stories of your employer’s hardship. You poor, poor, put upon property developers.