Dispatches From the Moderate Left

Friday, August 19, 2005

Davidson on Telstra (Aust)

Kenneth Davidson is the most reliable lefty economist writing for The Age. Just last week he was spreading pseudo-conspiracies about Iraq, Iran, Oil and the Euro (sorry, not online apparently). So it was a surprise to see him have an eminently sensible and fairly conservative position on Telstra regulation:
Unless Telstra is free to compete, it won't make profits and if it doesn't make profits it can't invest in the network in the bush or the city.

The regime of regulated competition to ensure competitors don't go out of business is ersatz competition. It provides no benefits to customers and strips away the revenue needed to finance the maintenance and upgrading of the network on which the whole glitzy edifice of competition ultimately depends.

Either Telstra is allowed to use the weight of its natural monopoly to take on its competitors - such as Optus, AAPT and Primus - and drive most of them out of business or it will continue to be regulated to ensure the continuing profitability of its competitors at the expense of investment in maintenance and improvement of the network.

He's right. The whole idea of forcing Telstra to provide unprofitable services in the bush was based on the idea that they could cross subsidise them from their (natural) monopoly rents gathered from their copper wire network. However the forced regulatory access to this and other networks coupled with an explosion in the number of competitors and the changing nature of the telecom business means that its profitibility is dwinding. This can be most vividly seen by the fact that the company's share price is plummeting despite it last week posting its largest ever yearly profit (~$4bn).

Telstra CEO Trujillo also makes sense when he talks about other outdated and needlesly restrictive regulatory burdens. For instance Telstra isn't required to give access to its competitors on set terms for its existing networks, the same restriction applies to any future networks (such as 3G mobile) it builds. It doesn't make sense for Telstra to have a special regulatory burden on things like this. And the ironic thing is that the government's proposed sale of the company is only likely to add to this problem. Due to the massive unopularity of the sale, it seems that Howard is likely to place further regulations on the carrier as part of a sale package.

I've never seen anyone make a convincing case for the sale of Telstra on efficiency grounds, given that the governmnet doesn't actually do anything with its 51% stake. The threat to Telstra's efficiency comes from separate legislative regulatory burdens and if selling the company is going to increase that burden, it just seems like another reason to oppose it to me.

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