Confusion reigns as Telstra and NBN Co talk

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This was published 13 years ago

Confusion reigns as Telstra and NBN Co talk

By Michael Duffy

POLITICAL change is just one problem for telecommunications. Policy confusion about corporate ownership and competition policy are combining with rapid technological change to move the goalposts constantly.

Not so long ago it could be argued that Telstra's copper wire network was clearly a ''natural monopoly''. That is, like electricity grids, water supply networks, railway systems and certain other infrastructure, the costs and inefficiencies of duplication of the network would outweigh any benefits of competition that would result from duplication.

Monopoly always carried with it the problems of lack of consumer service, excessive pricing and lack of efficiency due to lack of competition. The old-fashioned solution to the problem of natural monopoly was government ownership, which could at least remedy the overcharging problem if not the lack of efficiency and customer service.

This solution fell out of favour in the 1980s and 1990s. It was replaced by a belief in some quarters that private ownership, even of a natural monopoly, would be more efficient. The natural desire to exploit such a position to extract monopoly rents was to be dealt with by strong regulators with power to mandate access by competitors and pricing.

This of course can lead to ongoing conflict between the monopolist and the regulator, which is where we have been with Telstra and the Australian Competition and Consumer Commission. Excessive regulation can also lead to a capital strike. This is arguably what happened with Telstra's rather coy behaviour - putting in a late bid - in relation to tenders to build a new national broadband network. The result was the government's decision to build the NBN itself.

Since then we have had a long-running negotiation between the government's NBN company and Telstra about whether they will ''do a deal'' to save NBN Co the cost of duplicating parts of the Telstra network. It's not clear whether a deal will emerge but both sides have been putting out information suggesting that each can live without the other.

Some of the suggestions being put out by the government make virtually no sense in terms of competition theory. Communications Minister Stephen Conroy briefly suggested NBN Co might be allowed to engage in retailing as well as wholesaling. This would repeat the previous government's policy mistake of not separating Telstra's monopoly assets (the network) from the competitive retailing business.

The suggestion has also been made that the government will ultimately sell the NBN to the private sector. This also seems problematic as it would deliver the evils of a private monopoly that would then have to be heavily regulated by the ACCC, with the same mixed results and problems as the heavy regulation of Telstra.

The latest scenario to emerge is Telstra's statement that, absent a deal with NBN Co, it would compete vigorously with the latter. This would be interesting as fair competition would then require that either NBN Co be burdened with the same regulatory apparatus as Telstra, or, if not, that some of these burdens be removed from Telstra (on the basis that it no longer has a monopoly).

Interestingly, even without an NBN competitor, the massive expansion of wireless technologies for phone and internet is already calling into question the proposition that Telstra's fixed-line network is a true monopoly asset in the market. The assumption of Telstra as a wholesale monopolist or near monopolist has of course been the basis of much past and present telecommunications competition policy.

Whether a deal emerges between Telstra and NBN Co or not, it may be time to review the whole question of ownership and competition policy in respect of telecommunications. The government needs to be clearer on what the assumptions driving its policy really are and whether these are outdated or not. The opposition needs to work out how it will facilitate better broadband without an NBN.

Michael Duffy lectures in corporations law and competition law in the department of business law and taxation at Monash University.

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