If you think that the Government’s plan to break-up Telstra is aimed at giving consumers a better deal then you are thinking just the way they want you to. The real reason the Government wants Telstra weakened is so that it’s poorly planned National Broadband Network (NBN) has an easier path into the broadband market.
Of course as soon as news spread of Senator Conroy’s strong arm tactics against Telstra, a whole range of market experts, analysts and journalists were heralding the dawn of a new era in the telecommunications market in Australia. Lower prices and better deals for consumers were just around the corner they exclaimed, even though we have little idea yet how exactly any separation of Telstra will work out in detail.
Telstra is a big company and the market leader in the telecommunications sector in Australia. As with many other former government owned telecommunications monopolies across the world it was privatised and the sector was gradually opened up to competition. In Telstra’s case it has been fending off competitors since the 1990’s and gone through three phases of privatisation via T1, T2 and T3 where ordinary investors were encouraged to buy into an Australian icon.
It is easy to look back now and say that the privatisation of Telstra should have been done differently, or it that should have been broken up further but at the time there were a lot of complicated issues to deal with, including how these measures would affect the tens of thousands of Telstra workers. Maybe the way Telstra was privatised was not perfect, but it was hardly a failure either.
The fact that there is a second large telco in Australia, Optus, is proof that the market is open and competitive enough to allow a foreign owned company to operate in the sector and make healthy profits. In fact Optus often provides some of the best returns that Singtel (the owners of Optus) receives from any of the markets it operates in.
So clearly despite all the rambling in the press and even by consumers, there is a reasonably competitive telecommunications market in Australia. Could it be more competitive? Of course. But so could most other areas in the Australian domestic economy.
One major reason prices for broadband and mobile services in Australia are high is due to our relatively small population and large geographical area. 21 odd million people is not really enough to support 3 0r 4 major telecommunications companies and there is an also a lot of area that needs to be wired up if you want to reach anything like 95% of the population.
The recent merger between Three and Vodafone Australia for example highlights the fact that the Australian market is unable to support 4 large mobile network operators. So it is not just simply a question of having plenty of companies in the sector, there also needs to be enough customers to go around to create real competition.
But I hear people say that of course greater competition leads to lower prices. They argue that if Telstra is broken up and other companies have access to Telstra’s infrastructure then broadband prices will fall. Maybe this will happen, but don’t count on it. At the end of the day someone has to invest in the infrastructure and be able to make a good return on this investment.
We can get some insight into how the broadband market might have evolved without Government intervention if we look mobile telecommunications market in Australia. In this sector Telstra has no major advantages and was was not even the first to launch 3G mobile services. Yet Telstra remains the market leader in the sector, offers competitive products and it’s other competitors have their own networks and thus have no major issues with access to the Telstra network. (yes calls may need to move through the Telstra network but this clearly does not hurt Optus)
The mobile area is also interesting because it is one where the Government has generally limited it’s role to handling spectrum issues and let the private sector get on with looking after the business side of things. This means Australia has a number of advanced mobile phone networks and fairly competitive prices when compared with other OECD nations. So if the Government took the same approach to broadband why couldn’t the same outcome be achieved?
The truth is that broadband in Australia is lagging behind many other countries because the market is yet to reach critical mass in terms of subscribers, but when that does happen Telstra, Optus and others would (and already have in some areas) push ahead and deploy higher speed broadband networks just as they pushed ahead with Cable TV. (CATV)
It is probably because of the major losses made in the early years of CATV that companies have been reluctant to push too aggressively with broadband infrastructure and have been waiting for demand to pick up. That may not be an ideal situation for many consumers but that is the way business works. If the Government simply got out of the the way, higher speed (true) broadband would spread across the nation (where there was demand) without the use of $43 billion dollars of taxpayers money.
I know it is almost a national sport to bash Telstra but it has been a a pretty successful company and one of the few large technology related enterprises we have in Australia. This is quite an achievement when you consider the company has in recent years been overseen by a lacklustre board and run into the ground by Sol Trujillo. I actually feel sorry for the people who work at Telstra, who despite years of poor executive management have struggled to move the company forward.
So let’s see this latest attack on Telstra for what it is: a smoke screen. Senator “Cyberman” Conroy has managed to get himself into another precarious position. First he cancels the previous broadband rollout project initiated by the former Howard Government, he then manages to mess up the tender process and therefore to save face decides the Government will take over Australia’s broadband future. Along the way he attempts to censor the Internet and has now also probably worked out that his NBN venture is likely to be a flop unless he can force Telstra to cooperate.
So is the Government’s move against Telstra aimed at giving consumers a better deal? Of course not, it is aimed at trying to save one of the most poorly conceived and planned projects in the nation’s history, the National Broadband Network. (or as it should be called: the Not Bright Network)
I would expect Telstra, in the interests of it’s shareholders, to defend it’s rights and not allow the Government to dictate how it should conduct it’s business operations unless it has broken the law. This is not just an issue about bashing Telstra, this is an issue that strikes to the very core of what free and open markets mean.
How can companies, business owners or investors have any confidence in the future if the rules may change depending on how the Government feels?
Yes Telstra as a company has faults, as all companies do. Yes many of us have sat on the other end of the phone and been frustrated by Telstra customer service at times. But let us not be fooled into thinking that the Government’s actions are about helping consumers, they are not.
The Cyberman’s plans for Telstra are simply a way to remove an obstacle in the path of the NBN broadband monopoly. Instead of greater competition in the broadband market consumers will be left with essentially once choice: Rudd and Conroy’s NBN Co. How exactly that will create greater competition and drive prices lower is a mystery to me and should be a question all Australian should be asking.