[LINK] Opinion: Protection racket is bad policy

[David Boxall]

This is obviously opinion, rather than fact. Comment from informed 
Linkers might shed some light.

<http://www.theage.com.au/opinion/protection-racket-is-bad-policy-20090920-fwob.html>


    Protection racket is bad policy

September 21, 2009

The Government's Telstra policy comes under scrutiny. /Photo: Peter Braig/

*B*e careful what you wish for. Telstra's competitors - such as Optus, 
AAPT and Primus, who have led the charge for breaking up Telstra into 
two companies in order to protect their own arbitrage businesses - may 
have shot themselves in the foot.

Forget about competition, level playing fields, cheaper, faster 
telephone and internet services. What is unfolding in the policy 
announced by Communications Minister Stephen Conroy is a $43 billion 
protection racket designed to keep Telstra's competitors in business.

The competitors are basically marketing and billing organisations. With 
the assistance of the Australian Competition and Consumer Commission, 
they are allowed to tap into the telecommunications network at the 
telephone exchanges at a price that doesn't reflect the cost of building 
the network, and then resell the capacity at a price that allows them to 
undercut Telstra in the profitable major city markets. Telstra, of 
course, is expected to build and maintain a network that covers the 
whole country.

This cosy arrangement in the name of competition was threatened by 
Telstra's announcement in 2005 that it would begin upgrading the network 
by rolling out fibre to the node at the end of the street as part of the 
evolutionary upgrading of the network - as has occurred over the past 
100 years.

The point was that it would bypass the exchanges and put the arbitragers 
out of business.

So what? The introduction of automatic exchanges and the change from 
analog to digital network destroyed more than 40,000 Telstra jobs during 
the '80s and '90s, which was managed by the former public monopoly 
without major union disruption.

By comparison, the job destruction as a result of technological change 
bypassing exchanges and putting the arbitragers out of business would be 
a flea bite by comparison.

Most of the jobs are in call centres, which are being moved offshore to 
India and the Philippines in any case.

Fibre to the node is a sensible intermediate step to eventual fibre to 
the home if it is ever needed.
[I'd say *when* it's needed.]

Big institutions such as hospitals, universities, utilities, big 
corporations, government departments and even schools already have 
access to direct fibre connections.

Copper wires, properly maintained, can give speeds up to 50 megabits, 
which is more than adequate for any need a household might conceivably 
imagine.
[50 Mb: over what distances? Is basing an opinion on a limited 
imagination wise?]

In Devonport and Hobart, where the Tasmanian Government has been 
experimenting with building fibre to the home at Commonwealth expense, 
shows nobody wants it while the cheaper copper alternative is available.

The mind boggles. What could a sensible government do with $43 billion 
to invest over eight years? Think global warming. Think of the 
infrastructure such as electrification of rail lines, urban public 
transport, base load renewable energy, conservation and recycling water, 
which will be needed to reduce our carbon footprint in order to ensure 
that the world will be a fit place to live for our children and 
grandchildren.
[There are always other things that can be done. We elect governments to 
decide what is done.]

Meanwhile, Telstra could use its internal cash flows to upgrade the 
network, supplemented by a multibillion- dollar sell-off of more than a 
thousand large exchanges, most occupying valuable real estate in the 
major cities.

Now that would be a win-win situation leading to lower real prices.

What Telstra's competitors hoped was that, by splitting Telstra in two, 
they would keep their privileged access to the copper network. Not so. 
As the experience in Tasmania makes blindingly obvious, the only way 
customers can be induced to take up the fibre-to-the-home option is if 
the copper network is closed down.

Under the plan, the copper network will become progressively redundant 
as the NBN network is rolled out. Even with the febrile imaginings of 
the ACCC as to what constitutes competition, it cannot set a wholesale 
price for access to the new network that is lower for Telstra's 
competitors than for Telstra retail.

Without scope for arbitrage, the competitive advantage to Telstra's 
competitors disappears. Even with the arbitrage handicap, Telstra still 
holds 70 per cent of the fixed-line market and would be able to drive 
its competitors out of business, based on a level playing field.

It is bad public policy. Even worse, it is politically disastrous.

It is a blackmail attempt by the Government designed to force Telstra 
(owned by 1.4 million voters) to divest itself of a copper network, 
which generates cash flow of around $6 billion a year, and make it 
worthless within eight years. It is doing this in order to replace it 
with a system that nobody wants or needs at a cost to households and 
businesses for access to the telecommunications network 30 to 40 per 
cent higher than now.

The way this policy was arrived at cannot bear the most superficial 
examination. When the Opposition stops staring at its navel, it will 
realise this is Rudd Labor's equivalent of WorkChoices with the same 
capacity to destroy the Government.

/Kenneth Davidson is a senior columnist. He does not own Telstra shares.
/

kdavidson at dissent.com.au 
<http://www.theage.com.au/opinion/%22%22mailto:columnist.kdavidson@dissent.com.au%22%22>

 From a quick scan of the web site <http://dissent.com.au/>, the 
magazine appears reasonably balanced. The author of the subject piece, 
however, seems rather more conservative.
 
-- 
David Boxall                    |  I have seen the past
                                |  And it worked.
http://david.boxall.name        |               --TJ Hooker