Put Telstra out of its misery

SOMETIMES it takes a long time for politicians to grasp the obvious.
Communications Minister Stephen Conroy said this week that the Government would be open to changing Telstra’s ownership structure, including separating its retail and wholesale (infrastructure) businesses.

“I think that’s a very sensible suggestion that a number of people have made recently and it’s certainly something we’d be prepared to consider,” he said.

“Recently!” – who’s he trying to kid.

The first time I mentioned the bleeding obvious was in the time of the previous Labor Government and I am not claiming to be Robinson Crusoe here. Any number of people writing about telecommunications have pointed out the evil of Telstra’s vertical monopoly over the past decade and a bit and called for the company to be broken up.

And the Government can do that under trade practices legislation without incurring a constitutional claim for massive compensation.

When considering Telstra ownership, the Government should not merely attempt to reverse the idiocy of past policy, but also try to get future policy right.

If it is going to separate the infrastructure from the retail arm it should not limit itself to the copper-wire network. It should also force the splitting of Telstra wireless-mobile infrastructure from its retail arm.

Australians suffer some of the highest telecommunications costs in the developed world. Some of it is due to our geography, but much is due to Telstra’s vertical monopoly. Telstra makes it difficult for others to get access to the network to compete with Telstra’s inflated consumer prices. Extra costs arise from foolish duplication in the mobile network.

Australia should have (and can still work towards) matching the ownership structure with the geography.

Optus, of course, is calling for Telstra to be split, but not out of any pious pursuit of public good. Any suggestion that Optus should surrender its mobile infrastructure to a single, non-retailing mobile-infrastructure entity would be met with great resistance.

But that is what we should do.

Conroy also said this week that the Government would keep at 51 per cent stake in its proposed $43 billion national broadband network. That’s fine. It does not matter much whether it is all public, private or a mixture, provided the owner is obliged to allow all retailers equal access and is not a retailer on the network itself.

That way consumers will get the benefit of competition. At the moment most consumers are at the mercy of Telstra – particularly in rural and regional Australia.

Telstra is in no position to argue. It is busily expanding its wireless broadband network but in the long run it will not be able to compete with the government’s fibre to the home network – something which should have been started long ago.

At present Telstra’s charges are little short of horrific for what on the world scale are small amounts of bandwidth and downloads. But charges aside, fibre cable to the home will change the whole of telecommunications and media delivery in Australia.

Telstra’s copper wire network will be worthless. Even now people can use their computers to make calls for next to nothing. With fibre, conference video telephony for virtually no extra cost will be commonplace.

Telstra CEO Sol Trujillo got it catastrophically wrong. Instead of worrying about a loss of Telstra value if the monopoly over copper was ended, he should have been worrying about what would happen when copper’s economic value in total ends – monopoly or not.

The copper wire network will be like vinyl records, VCRs and the horse and buggy before too long. Don’t hang on to your Telstra shares.

Telstra should have led or at least joined a joint public-private venture to have a single infrastructure company to run fibre to the home and unified Australian mobile network. And that infrastructure company would not be allowed to retail.

Instead, Telstra’s clinging to its monopoly; its resort to litigation; its resistance to wholesalers seeking access to its networks; its excessive pricing and confusing schemes which gouge consumers have all had the exact opposite effect than intended.

They were intended to boost or at least preserve Telstra’s share price. When the second tranche of Telstra was sold in 1999, shares went for $7.50. They are less than half that now.

Incidentally, it turned out to be a good deal for the Government (at the cost of ordinary punters). The second tranche alone raised $16 billion for the Government. That was 10 years ago so it is worth a lot more now. And there were two other Telstra sale tranches.

It puts the present Government $43 billion broadband in perspective. It is well within the bounds of a reasonable business case. The new broadband will deliver all the copper network and all the ADSL broadband and more – like high-definition, recordable TV, medical and educational applications and things we have not invented yet.

There will be huge opposition, not only from Telstra, but also from the three commercial television networks and the pay TV companies.

But the government should not be deterred. Governments can get funds at low interest rates. It would only take a few hundred dollars per household per year to cover the costs. Most people pay that now for a vastly inferior internet and telephony service.

For too long Australia’s telecommunications and media policies have been marred by mates and ideology. The Government should set the goal, forget the entrenched interests, and forget privatisation for privatisation’s sake or public ownership for public ownership’s sake.

The private monopoly of Telstra and the special deals for the commercial broadcasting networks have not worked.

The game is finally up. It’s time to put consumers first.

For too long Australia has had, by world standards, poor quality telecommunications at inflated prices. We can overcome the geography with technology.

Conroy should put Telstra out of its misery by cutting it in two so it can revitalise or letting it and its copper network wither into irrelevance.