There is only one thing worse than a public monopoly, and that’s a private one.
Before the new Government could even have its first Cabinet meeting, Telstra was flexing its privatised muscles this week. One of its aggressive US executives, Group Managing Director. Phil Burgess, said he wanted Telstra to be a “premium provider charging premium prices”.
We all know about Telstra’s premium prices, especially when it is providing a service that no-one else can provide because it has got a monopoly on the network – whether it is a twisted copper wire to the home, the fibre to the node or the Next G tower in a rural area.
We are not so sure about the premium provider – the endless la-la line when seeking technical help or querying a bills, the waits for installation, the black holes of mobile overage and so on.
With a new Government installed, the big question is how Prime Minister Kevin Rudd’s promised 12 megabit per second broadband network to reach 98 per cent of Australians by 2013 will be achieved and what role will Telstra play in it. Bear in mind, the Government wants an open-access, competitive network.
It also wants co-ownership which Telstra chief Sol Trujillo rejected this week.
Australia would already have been a long way into construction of a much higher speed network than we do now, but for the poisonous relationship that developed between Telstra and the Government, the former Communications Minister Helen Coonan and the regulators.
Telstra was up to its usual monopoly tricks – trying to gouge as much profit as possible from its position. It sought approval from the Australian Competition and Consumer Commission for a price structure for competitors to have access to any network it built. The ACC would not have a bar of it, so Telstra stalled.
It now has a second chance.
But from the national perspective we are in a similar position to the visitor to Ireland who asks the way to Dublin and gets the reply, “If I were going to Dublin, I would not start from here.”
The Rudd plan has a lot of hurdles, and the tyranny of distance is only one of them. The biggest obstacle is that the copper wires from the nodes in the street to every household are owned by Telstra as a private monopoly. And the most cost effective way ($4.7 billion from the Government’s Future Fund and $4 billion from Telstra) to deliver 12 megabit per second broadband is a network of fibre to the nodes and to deliver from the nodes on Telstra’s copper wire.
Trujillo presumably wants the Government to throw its bit in as a subsidy if there is to be no joint ownership.
So Telstra has Rudd over a barrel, up to a point.
Telstra is going to demand a fee from the competitors that the Government insists will have access. And it will be a high one. Moreover, Telstra will want approval for it before it does any work on the new network.
The back-of-the-envelope figures are not pretty. Under the previous government Telstra sought a wholesale access charge of $85 per month per account for a basic half megabit service of internet and telephony with free calls. For 12 megabit it will be more. Add some service cost and a small profit for the companies seeking access and consumers will be paying, say, $150 a month – much more than what they are paying now.
And note, if Telstra gets a high access wholesale price it will have created a high-price environment it which it can charge its own customers far more than it should.
If Australian households are charged up to $2000 a year for access to this network it may be self-defeating. Sure, 98 per cent of households will have physical access, but a high proportion will be shut out on cost grounds.
And just say all nine million households sign up, how do those sums stack up? It would result in between $15 billion and $18 billion a year income – not a bad rake off for Telstra and the Government’s $8.7 billion investment. Sure there are costs other than installing the network, but the overall picture is grim for consumers, the Government and the national interest.
The Government is going to have to stare Telstra down. It may well degenerate into the sort of slanging match we saw with the previous Government. That seems to be Telstra’s style.
But if Telstra will not be stared down over wholesale access fees, Rudd still holds a mighty big stick that the previous Government was unwilling to wield.
Having promised the network, if Telstra’s terms are too harsh, Rudd can turn to the consortium of non-Telstra carriers to build a full network from scratch right to the home, by-passing Telstra’s copper wires.
It would be more expensive to roll out, but it would rid us once and for all from this turbulent vertical monopoly. And be cheaper in the long run.
We would have one company (publicly owned, private or hybrid) running the infrastructure and a number of competing companies using it to provide services to consumers. This is the ideal that has eluded governments from the moment the privatisation of Telstra began because hitherto it would have required an expensive buy back of Telstra’s copper network which could only be acquired on “just terms”, according to the Constitution.
Now the constitutional requirement is neatly overcome. No property would be acquired from Telstra. It would keep its copper wire network – it’s just that no-one would pay to use it.
This would be a better starting point on the way to Dublin.