Wednesday, December 17, 2008

Radical reform needed to clear up the telco mess

Telstra's exclusion from the bidding process for a national broadband network reinforces how much of a fiasco Australian telecommunications policy really is.

The Labor Party's high-profile promise that it would have in place by November 2008 a fibre-optic network was supposed to outflank the regulatory stagnation that had developed since Telstra first announced its plans to build such a network in late 2004.

Communications Minister Stephen Conroy clearly had no idea how difficult and entrenched the regulatory problems were.

The latest decision sets a terrible precedent for a minister with an already poor reputation.  The Government is claiming the Telstra proposal was rejected because the company had not included a detailed plan to involve small and medium enterprises in the network's construction.  The first striking thing about this requirement is just how extraordinarily micro-managing it is.  Does the Government want the fibre-to-the-node or not?  Surely voters don't care whether their broadband network is built by big companies, little companies or robots subcontracted by aliens.

Nevertheless, it is hard to avoid the impression -- and certainly this is Telstra's view -- that being excluded over this odd requirement is nothing more than a convenient excuse to kick Australia's biggest telco out of the running.  After 11 years of forced access regulation, there is a lot of bad blood between Telstra, the industry, the regulators and, of course, the Government.

This decision signals a government willing to make decisions based on animosity rather than neutrality.  Big Australian companies will be quickly learning how important their Canberra lobbyists are under the Rudd Government:  with a resurgent industry policy, an emissions trading scheme with more exceptions than consistencies, and a steady program of commercial bail-outs, it has been a long time since having the ear of a minister has been so important.

The Government can't claim to be concerned about the influence of lobbyists in the halls of Parliament while making it impossible for companies to do business without them.  The problem facing Australia's communications industry is deceptively simple.  The original regulatory approach was to try to inject some competition after the industry's partial deregulation.  And so Telstra was forced to allow its competition to access the copper wire network, and at a price set by the ACCC.

Yes, Australia has seen an explosion of small telcos.  If competition is a synonym for hundreds of companies selling pretty much the same product, then regulators can declare victory.  But the more important point of the forced access model was to encourage companies -- after they had a comfortable foothold in the industry -- to build their own networks.  That has not happened.  Instead, Telstra's competitors have invested more and more of their own resources into the ageing copper-wire network.

And when the idea that we need a new network comes along, it creates a perfect storm.  Telstra isn't sure how the access regime will be applied to a whole new network on which it wears all the financial risk.  Telstra's competitors are disgruntled because suddenly all their expensive equipment will become obsolete, and mortified by the prospect of being unable to compete with a flashy new network.  The Government doesn't like copping public criticism from a company that used to be its political stress ball, and the regulators would prefer it if they could issue orders unchallenged, as they could before.

With stakeholders at each other's throats, the industry is unable to build the network.  But this is no market failure by any definition of the phrase;  it is a failure of the Government's regulatory policies, which discourage investment in infrastructure.

It must be easy for politicians to imagine that a government could magically fix problems by throwing money at them.  But yesterday's exclusion of Telstra from the broadband tender indicates that the Labor Party might find our regulatory mess a trifle more complex to deal with.

The forced access framework has, ironically enough, cemented Telstra even further into the centre of the telecommunications industry.  It will take radical reform to fix the telco mess.  Governments are going to have to step back from micro-managing the telecommunications sector.  Market forces need to determine the shape of such a quickly developing industry, not regulators.


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