Copyright 2002 The Age Company Limited The Age
(Melbourne)
May 23, 2002 Thursday
SECTION: Business; Pg. 3
LENGTH:
1282 words
HEADLINE: Too Late For Talk Of
Telstra Break-up, So Labor's Calls Are Out Of Order
BYLINE: Stephen Bartholomeusz
BODY: Labor, if reports are correct, appears to have
forgotten that at the onset of the introduction of competition to the
telecommunications industry it took a considered decision to leave Telstra as an
integrated carrier.
It also appears to be unable to
accept that, when the Howard Government privatised Telstra as an integrated
carrier, the opportunity for politicians to revisit that original decision was
surrendered.
And it appears unconcerned that two
million shareholders, predominantly ordinary Australians, bought shares from the
Federal Government on the basis that Telstra would remain an integrated carrier
for the foreseeable future.
It may be that the reports
of a discussion paper containing a series of radical proposals for carving up
Telstra are misguided. The Opposition has, however, consistently talked about
structural solutions to the "problem" of Telstra's dominance.
The report in yesterday's Sydney Morning Herald said options Labor
would consider included selling Telstra's mobile and pay TV businesses to fund a
buyback of its copper network, dividing it into a series of regional
mini-telcos, divesting it of all but its fixed-line network, splitting it into
separate retail and wholesale entities and funding its competitors to build
networks of their own.
The common theme to those
options is that Telstra has to be made smaller and weaker to create consumer
benefit and an efficient industry.
As discussed last
week, structural separation, no matter the model, doesn't necessarily achieve
those objectives. Indeed it could undermine them.
Labor
appears to have fallen for the same seductive pitch from Telstra's competitors
that recently ensnared Richard Alston; that because the smaller players are
finding conditions tough it inevitably follows that Telstra is abusing its
position of dominance. That dominance flows from its ownership of the copper
wire network.
There are, of course, other possible
explanations for the inability of the smaller players to dance rings around a
lumbering Telstra.
They include the possibility that
some of the challengers aren't very good competitors; that some of them don't
have financial resources to be playing in such a capital intensive industry,
particularly after the dot-com and telco meltdown, and that the domestic market
isn't big enough to sustain the number of players still jostling for
position.
It is also possible that the access regime
that allows Telstra's competitors to piggyback on its infrastructure isn't as
effective as it might be, or at least as effective as Telstra's competitors
would like it to be.
The other possibility, wild as it
might sound, is that Telstra is a good competitor - that the combination of its
brand and its ever-improving efficiency enable it to meet and beat competition
that includes some of the world's bigger telcos. In areas where Telstra isn't
regulated because it isn't dominant, it more than holds its own.
Fundamentally, the success of the deregulation of the sector cannot be
measured by how many competitors there are, or how much money they make, or how
quickly market share or profit can be stripped from Telstra (which would
ultimately tie the success of deregulation to the failure of Telstra).
It should be judged by how much consumer benefit is
created by the sector, Telstra included. In principle, competition could drive
an enormous level of consumer and economic benefit while leaving an increasingly
efficient and effective - and fairly competing - Telstra as dominant as ever.
All the objective data says that deregulation has
generated substantial consumer benefit in the form of better and more efficient
- and ever-cheaper - services, more service providers and considerable
innovation and technological development.
As discussed
last week, the latest thinking on telecommunications competition policy in the
US has labelled structural separation a "non-remedy for a non-problem", and
indeed suggested that it would create inefficiency and that its costs would
exceed any benefits.
Telstra is an integrated telco,
operating a digitised copper network with ADSL functionality, two wireless
networks and a broadband cable. It has spent $20 billion in four years to build
and upgrade those networks.
The networks are themselves
integrated at a technological level - the wireless networks sit above and
interact with the copper wire platform - and obviously interact at the corporate
and customer level.
There are substantial economies and
benefits of both scale and scope that flow from Telstra's size and its
integrated model, some of which are shared with its competitors through the
regulated-access regime and through the CPI-X formula used to cap and reduce
prices in its core basic telephony businesses.
Its size
and financial strength also give it balance-sheet strength and credibility - it
is one of the most highly-rated telcos in the world - and enable it to make
investments that would be beyond the capacity, or ambition, of most of its
rivals in this market.
If Telstra is dismembered,
whether it is carved up vertically or whether it is divided into a series of
"baby-Telstras", those economies of scope and scale and that capacity to invest
on the scale of recent years will be destroyed.
If its
copper network were nationalised and used as a common platform for all comers,
would there be the same capacity and incentive for entrepreneurial
investment?
The incentives for the state-owned operator
would be to maximise cashflows from the existing network, avoid risk, and
therefore avoid being at the leading edge of technological developments.
Nothing would be built in the hope/belief that customers
would come - utilities only invest for near-certain returns - and the distancing
of the investment decisions from the end-customers would slow innovation.
Funding, presumably with taxpayer funds, Telstra's
competitors (including the Singapore Government-controlled SingTel Optus?)
surely isn't even being considered by Labor or anyone else.
Quite apart from the fact that there is no evidence that structural
responses to Telstra's continuing dominance of basic telephony would benefit
anyone but its competitors - it could simply shift value from Telstra's
shareholders to them without consumer gain - the sector is a dynamic one.
Already it would appear that wireless is increasingly
substitutable for the copper network. With SingTel Optus and Vodafone owning
their own wireless networks, and Hutchison building a 3G network to go with its
existing CDMA network, there is plenty of competition and innovation. There are
even wireless local loops being rolled out to attack Telstra in its
heartland.
SingTel has a broadband cable, which could
be digitised and already carries voice and data, the free-to-air broadcasters
are digitising their signals, and the Telstra broadband cable
could also be digitised within an open-access regime. Plus
there is satellite capacity.
There isn't, therefore, a
shortage of communications capacity, which virtually ensures there will be
increasing intensity of competition across the range of communication services.
Or at least the opportunity for competitors to compete.
It would be a tragedy for Telstra, its shareholders and ultimately its
customers if, in their enthusiasm to promote Telstra's competitors, politicians
from either side of Parliament created a less efficient, dynamic and ambitious
sector and destroyed value within Telstra for no good reason, or at least no
certain and substantial gain.
The success of
deregulation was never meant to be measured in terms of the damage it inflicted
on Telstra. Nor should it be.
Document 6 of 16. 