Date created:19/4/03
Last modified:9/4/03
Maintained by: John Quiggin
John Quiggin

No alternative for Telstra

Australian Financial Review

13 February 2003

I hate being conned. Although I knew that the House of Representatives inquiry into Telstra's structure was a stunt designed to embarrass Labor, I thought it would provide a useful forum for debate and might even contribute to a sensible policy outcome in an area characterised by bipartisan bungling for at least a decade.

As a result, I, along with 60 or 70 other misguided individuals and groups, spent a good part of the summer working on a submission to the inquiry. But bipartisanship on this issue embraces political chicanery as well as incompetence, and my time was wasted.

Just as the inquiry was about to start taking evidence, Labor announced it was dropping the idea of structural separation. This was a discreditable backflip but par for the political course. Labor was left with no coherent policy, but that has been the norm in the Australian telecommunications debate: the government has been in this position ever since the first partial privatisation.

What was unprecedented, as far as I know, was the decision of the government majority on the committee, led by Christopher Pyne and acting on the orders of Communications Minister Richard Alston, to kill the inquiry altogether. No evidence was taken and submissions were cut off, marking another milestone in the growth of executive contempt for parliament, and in the decline of the committee system.

Moreover, it appears that the suppression of the inquiry was motivated by pressure from Telstra, concerned that the evidence would be unfavourable to its commercial interests and share price. This grossly improper behaviour is an indication of the kind of monster that would be created if Telstra were fully privatised in its current form.

Having killed off the most promising forum in years, Alston exposed the incoherence of the government's own policy in these pages ("Find another way for telco competition", AFR, February 11). He began with the claim that Telstra's market dominance was typical of developed countries such as the United States and Britain. In reality, there is no telco anywhere with vertical and horizontal market dominance comparable to Telstra's.

Telstra not only maintains market dominance in the realm of the traditional public telecom monopoly (local, long-distance, international and mobile telephony). It is also the leading provider of internet connection services and a major supplier of internet content. Similarly, it dominates pay TV connections and content through Foxtel.

A similar monopoly in the US would encompass AOL Time Warner, AT&T, the local "Baby Bells" and the cable TV companies. No US administration would even contemplate permitting the formation of such a behemoth.

That's not the end of it. Both Channel 9 and the Fairfax press have been suggested as possible buys for Telstra and there is nothing in current law that would prevent this. Such acquisitions would be under the personal control of the shareholding ministers and the boards they appoint, a frightening prospect for Australian democracy.

Having recognised that Telstra is, for all practical purposes, a natural monopoly supplier of infrastructure, Alston contradicted himself by resurrecting the ghost of "facilities-based competition". The last time Australian telecommunications consumers heard this ominous phrase we ended up paying between $4 billion and $8 billion for two duplicate sets of pay TV cables.

The form of structural separation most commonly proposed, with separation between wholesale and retail services, may be problematic. But there is no justification for allowing Telstra to dominate content as well as carriage. At a minimum, Telstra should be forced to divest its interests in Foxtel and BigPond.

The problem neither party will talk about is Telstra's ownership. Just as in structural terms (Telstra represents an unacceptable combination of natural monopoly communications services and vertically integrated content provision), the current half-private, half-public status is an unsustainable mess, as even the government that created it now admits.

Telstra should be renationalised and the peripheral businesses should be sold off. This could be done in many different ways, including legislation or through a takeover by a newly created government business enterprise.

This simple solution is unthinkable to politicians with a 1990s mindset such as Alston. But in the past few years, Britain in effect has renationalised its rail track network, the US has nationalised airport security and New Zealand has created a new publicly owned bank, among many other instances.

There are good arguments for and against public ownership in particular cases. But in Telstra's case, to quote Margaret Thatcher, there is no alternative.

Professor John Quiggin is a Senior Research Fellow of the Australian Research Council, based at the University of Queensland and the Australian National University.

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