Date created: 3/5/07
Last modified:3/5/07
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John Quiggin

Make Telstra public again

John Quiggin Australian Financial Review

17 August 2006

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 is an ARC Federation Fellow in Economics and Political Science at the University of Queensland.

John Quiggin is an Australian Research Council Federation Fellow in Economics and Political Science at the University of Queensland.

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