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Telstra, competition and regulation « Previous | |Next »
February 22, 2005

So Telstra has finally been fined by the ACCC for anti-competitive behaviour. This conduct was associated with its aggressive pricing in the broad band internet market that was designed to shut wholesale customers out of the game.

Senator Coonan, the Federal Communications Minister, said it proved the regulatory regime of the telco market was working effectively.

So, do we have a competitive market that operates competitively for the benefit of consumers?

The fine is $6.5 million, when Telstra was facing a fine up to $300 million flowing from a competition notice. It took a year to resolve the issue, the fine is a slap on the wrist (a parking fine from a negotiated deal with the ACCC), and Telstra used the aggressive pricing to gain even more market share. It has a million broadband customers and broadband revenue running at $600million a year. So competition notices are an ineffective way of ensuring a competitive telecommunications market.

Secondly, the fundamental flaw of the telecommunications market is unchanged. As Paul Buddle observes Telstra has an infrastructure monopoly as the country's only owner of a natural copper wire broad-band network, which supplies ADSL technology for high-speed broadband.

In order to prevent Telstra from acting in an anti-competitive manner, you really need to establish competition, so that for commercial reasons they [the Howard Government] can't do it...This is not improving the underlying situation in the industry and that's my worry. We have been unable to utilise this situation to actively prevent Telstra from doing it another time.

So Senator Coonan is wrong. She is speaker as a shareholder of Telstra, not in terms of governance of the telecommunications market to get its structure right. This event suggests that the Howard Government is not interested in ensuring a competitive market through a good regulatory regime once Telstra has been privatised and the government has the $30+ billion cash in its kitty.

If the Howard Government is not going to empower the ACCC, or bring Telstra under the court-enforced processes of the Trade Practices Act, then some structural separation of Telstra is required to ensure market competition. But don't hold your breath for this. This is not a government committed to competition. It is one that cannot get tough on telecommunications regulation leading up to the T3 sale because this would adversely affect Telstra's share price.

So what would the post T3 regulatory regime of the telecommunications market look like? One that would facilitate the building of a competitive and innovative industry that contributes to Australia's productivity, international competitiveness, and civil society. I've seen no sign of such a regime. Anyone else seen anything?

Update: 23 February
There are some comments by Meg Lees on thie structural separation of Telstra. For once, the editorial in Australian Financial Review is good. It reinforces the point made in the post:

Communications Minister Helen Coonan's hasty embrace of the outcome as evidence the system works merely confirms that the government, as shareholder, vendor and archcitect of the regulatory system, is hopelessly conflicted.

The editorial then goes on to add new information about the credibuiilty of the government as architect of the regulatory system:
Senator Coonan has whistled up a departmental inquiry, but it explicitly excludes the options of separating Telstra from its basic network and pay televiosn busisnesses, presumably because this would only complicate things. It also lacks the independence that outside groups would bring to bear.

The AFR's concern is with the wider public interest of getting the competitive structure of the telecommunications market right. It says that:
...the broadband saga as not dispelled the suspicion that competitive regulation in telecoms isn't working. It's time the government whistled up some expert advice as to how it might work better.

What is the best way to do that? The AFR says in "the circumstances, the wider public interest requires an inquiry by an independent expert group or a credible agency such as the Productivity Commission." That's good advice.

| Posted by Gary Sauer-Thompson at 12:44 PM | | Comments (0)