We’re a little concerned that all the talk on when it will be ok for the government to sell Telstra has focused on whether services to the bush are adequate.
We at Crikey support the full privatisation of Telstra, but are dismayed that the focus has been solely on whether or not Telstra’s services in the bush are up to snuff.
Certainly, that is an important issue.
But it has surely been given disproportionate importance because of the government’s heavy reliance on the bush vote.
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Of more critical importance in our view is what to do with Telstra’s monopoly over the telecommunications network, the so-called “last mile”.
There are plenty of other issues too. Like why is an Australian telecom dumping $5 billion into Hong Kong telecommunications infrastructure when it is acknowledged that our own infrastructure is not up to speed? And what about improving the inherently unreliable ADSL network?
Crullers kick-started the debate on what he perceives as Telstra’s line rental rip-offs with this contribution to our sealed section on Wednesday 31 July:
“TELSTRA SALE GETS CLOSER
Cabinet discussed the sale of Telstra yesterday, but in all the hoo-ha over whether service levels in the bush are adequate, one vital question has not been asked. What is going to be done to break up Telstra’s monopoly over line rentals?
Let’s face it, line rentals have been the backbone of Telstra’s recent profits.
Without them, the PCCW $1 billion catastrophe would have caused far more consternation than it did. It was a bit rich of Richard Alston to describe it as a “minor hiccup”.
Last year they gloated about how good their result was in a bad year for telcos, but when you take into account the $1 billion PCCW write-offs you can only possibly reach one conclusion – they have been grossly ripping customers off on line rentals.
That’s no news to anyone, especially after the latest round of line rental increases.
Still, they have the hide to argue that their line rental charges have been uneconomically low!
But we’re alarmed that there has been so little debate on what to do about Telstra’s line rental monopoly.
Private enterprise monopolies are not the consumer’s pal – just look at Qantas after Ansett fell over.
One idea has been for the government to buy back the network and flog off the rest of the publicly listed company. While political pressure hasn’t been sufficient to keep line rental charges down to reasonable levels with Telstra 51% government owned, perhaps if the network was wholly government owned, the government might listen to public outcry about line rental rip-offs.
This would require a massive restructure, but perhaps it is the only solution.
According to Telstra’s industry analyst briefing at the start of the year, they controlled 83 per cent of the local call market, 86 per cent of the basic access market, 72 per cent of the long distance market, 50 per cent of the international market, 50 per cent of the mobile telephony market, 53 per cent of the pay TV market and 96 per cent of the directories market.
So 10 years of competition has done little to break up Telstra’s market dominance.
While we’re in favour of Telstra eventually being fully privatised, there are plenty more issues that need to be addressed – on top of services in the bush – before we can be comfortable that the telco behemoth won’t have us all completely by the short and curlies.”
– Ends –
Crullers’ cynicism about Telstra’s claim of line rentals being “uneconomically low” was given short shrift by a couple of correspondents in the Thursday 1 August sealed section:
“CRULLERS PULLED INTO LINE OVER TELSTRA LINE RENTALS
A telecom industry insider writes:
“Stephen, in response to Crullers’ complaints today about the `Telstra line rental rip off’ and the lack of competition, it might assist if he was made aware of the history behind it.
During 2001 the ACCC conducted an inquiry into Telstra prices, including line rentals.
It found that other companies could not fully compete against Telstra for telephone access because government price caps – dating back to the Telecom monopoly days, kept the monthly rentals artificially low. At the same time call prices were kept higher than they should be to make up the shortfall. This is known as the access deficit – a term you have probably heard of.
Most of us pay around $20 a month for line rentals. The ACCC says the true price should be about $32.
The Government passed legislation earlier this year to allow Telstra to slowly increase line rentals to fully recover costs over the next few years.
The same legislation forces Telstra to reduce call costs at the same time and provide subsidised services to protect pensioners and low income earners.
The theory is that as line rentals reflect their true costs, other companies will be better able to compete, which is why the entire industry and the ACCC support the recent changes.
Hope this helps explain the theory.
And another who has worked overseas in the telecoms industry for many a year adds:
“Just been reading your notes in today’s members email. Hope that this is not out of line.
As a computer scientist who works in the area of Telecommunications (never in Australia) I do wonder what returns the line rentals provide to Telstra. The cost of provision and maintenance of these is astronomical in the context of a highly geographically diverse country. I doubt that they provide Telstra the same kind of revenue/head that any other incumbent telco (Baby Bells, BT, Deutsche Telecom) receives.
In all fairness to Telstra, they were one of the few companies in telecommunications that did not descend into an orgy of service provision for imagined demand. Their results last year seem to reflect that, rather than any gouging of line rentals. The PCCW deal was a strange move but not a Global Crossing and, quite frankly, an expected error in the context of a company the size of Telstra.
Handing the last mile into the hands of government would seem to me to condemn Australia to perpetuity as a technological backwater. Considering that during the government owned years of Telstra they did not consider data a service to be provided over the PSTN and any complaint was usually dismissed with a suggestion to order an ISDN service; which was priced in order of magnitude above other OECD countries. This is simply not a viable solution – government lacks the vision and initiative to be in control of a rapidly changing asset.
While I do not have a solution to the monopoly situation I have not seen one anywhere else. I would imagine that a strong ACCC would be the best way of managing this. Telstra get reasonable profits and therefore incentives to upgrade the network without gouging.
The Baby Bells have shown themselves to be very untrustworthy with these monopolies and have continued to show themselves they are also untrustworthy with broadband. I believe that a viable alternative is the cable network – of course in Australia, Telstra has a 50% share of the only commercially viable network. I cannot see them allowing voice over IP traffic to be carried, thus depriving them of revenue; while satellite has just too great a latency for voice. Of course, that leaves wireless…”
CRIKEY: Our industry insiders make good points – perhaps the way to go is a strong ACCC presence backed up with specific legislation once Telstra is fully privatised. Whatever the case, we stand by our comments yesterday that there are plenty of issues other than just the adequacy of services in the bush that need to be considered before Telstra is flogged off.”
– Ends –
And we also received this excellent dissection of Crullers’ original article from someone not too sympathetic to the plight of those in the bush:
“On Wednesday the 31st, Crullers opined:
> Private enterprise monopolies are not the consumer’s pal – just look at Qantas after Ansett fell over.
Alas, neither are public monopolies. What I learnt in first-year economics was that a “welfare maximising” public monopoly always runs at a loss. Said loss must be made up for by government – through taxes. Alternatively, public monopolies can be run as if they are private, and prices will shoot up. The fact is that one way or the other, monopolies gouge the public. Ownership has nothing to do with whether a monopoly will rip out more than it should.
The answer to capitalism’s ills is, as usual, more capitalism. Specifically, in this case, more competition. Which brings us to Cruller’s next point:
> One idea has been for the government to buy back the network and flog off the rest of the publicly listed company.
I “used” to think this was the solution … but I interrupt Crullers, who continues:
> While political pressure hasn’t been sufficient to keep line rental charges down to reasonable levels with Telstra 51% government owned, perhaps if the network was wholly government owned, the government might listen to public outcry about line rental rip-offs.
Alas we fall back into the same trap. Right now Telstra enjoys a “last-mile” monopoly. As I noted above, whether Telstra is public or private, welfare maximising or profit maximising, it “will” extract its pound of flesh.
Since it is, on the balance of things, better that the Government own no companies at all, the balance clearly states that Telstra should be flogged, in whole or in bits.
Crullers runs off Telstra’s terrifying figures, then:
> So 10 years of competition has done little to break up Telstra’s market dominance.
Telstra had what no other telco in Australia has ever had. It had an owner with unlimited credit, which spent billions of dollars to establish a last-mile monopoly, in addition to the country’s main coast-to-coast long haul network. Frankly, you can’t compete with a company that can’t go broke.
Telstra also enjoys substantial inertia in the marketplace. Telecom owned the Australian telecoms market, Telstra has simply inherited it.
When – not if – Telstra becomes wholly private, you will most assuredly see it become a real bastard of a thing. This will inevitably be blamed on the Howard Government and on the Manic Imperatives of Global Capital ™. But the real culprit is the ghost of governments past, who so totally and completely distorted the Australian telco market that it probably won’t right itself for decades.
There is no way around it. The current status quo was created by the weight of government, and it will take the free market a long time to recover in the face of such a massive attack by the state.
> While we’re in favour of Telstra eventually being fully privatised, there are plenty more issues that need to be addressed – on top of services in the bush – before we can be comfortable that the telco behemoth won’t have us all completely by the short and curlies.
I get tired of this “services to the bush” stuff. Let me break it down for you.
1. Before there were telephones, there were radios. Radios still work, and they are a lot cheaper to maintain than phone lines for remote farms and communities.
2. You can’t eat a telephone. It isn’t necessary to sustain life. So tell me again why it’s just so darn important to have one, when you could use radio? (Or satellite, for that matter.)
3. Why should I, as a fat city slicker, subsidise what is ultimately a life-style choice? Nobody drove bush-dwellers to the bush with guns and dogs. No one has forced them to live there. Yet every time I pay taxes and subsidise their phone calls, I “am” threatened with the State’s force to provide the money. Or else.
I am in particular angry about point 3. If I were to propose a tax on farmers to subsidise my short black coffees, there would be a huge uproar. If I proposed a grants scheme to help out cab-drivers when their business dries up, people would laugh me out of their homes and businesses. Yet whenever someone proposes to prop up bush life-style choices, or to transfer the risk of farming to the taxpayer, nobody ever seems to bat an eyelid.
As for Telstra having us by the short-and-curlies, there’s really nothing to be done about it. There’s no way to restructure the market which doesn’t leave Telstra with some kind of whip hand. The only choice is to get out as soon as possible. The sooner Telstra is sold, the sooner the market can begin to reclaim its competitive equilibrium and sooner decades of distortion can be undone.
– Ends –
Jacques probably sums up the city slickers’ grievances with the focus on Telstra’s services to the bush.
While everyone has his or her own gripe about Telstra, it’s just not politically correct to slam the government for pandering to the bush.
Our greatest fear is that once the government decides that services to the bush have reached that nebulous “adequacy” standard, the people charged with making the privatisation decision will forget all the other problems with our telecoms behemoth vis a vis a competitive telco market in Australia.
Send your gripes in, people!
And here’s what the opposition spokesman on telecommunications, Lindsay Tanner, had to say:
LINDSAY TANNER MP
SHADOW MINISTER FOR COMMUNICATIONS
TELSTRA PRICES UP TOMORROW
Telstra is introducing a raft of price increases tomorrow that will hit hard the hip pockets of all Australians with the full approval of the Howard Government. Home phone line rental costs will increase on most plans by between 10% and 14%, local call costs will go up significantly for Homeline Budget customers, and many Telstra network features prices will rise substantially.
Senator Alston is trying to hide this fact by announcing today slightly cheaper local calls for Telstra customers in remote areas. This is of little comfort for consumers all over Australia suffering from Telstra price hikes.
Whilst cheaper local call rates for Australians in remote areas are always welcome, people shouldn’t forget Telstra’s raft of general price rises, applicable to all consumers and effective tomorrow. These include:
* Most Telstra home phone plans line rentals go up by $2 to $3 per month (a 10% to 14% increase), with no reduction in local call rates.
* The one plan where line rentals don’t go up (HomeLine Budget) sees local call cost rise from 22c (and 15c for neighbourhood calls) to 30c for all local calls (a 25% to 100% increase). Some help for low-income earners, Telstra!
* Phone features such as Message Bank and Calling Number Display will see prices rise by between 50c and $6.
* Telstra call connect and directory assistance connect goes from 99c to $1.10-an 11% increase just for flicking a switch. Wake Up and Reminder fees go up from $2.15 to $2.55.
In regard to the remote call offer consumers should check the detail. Will consumers lose any other benefits if they take up this option – like outer-metropolitan consumers who lost neighbourhood call rates if they chose Telstra’s wide area call option last year?
Senator Alston’s press release says remote communities can phone community service towns “up to thousands of kilometres away”. Telstra’s release says the new option only extends to “distances of up to 800 kilometres”. Senator Alston may well be exaggerating. Again I urge consumers to check the detail.
What Telstra gives with one hand they more than take away with the other. Consumers have every right to be disgusted with the Howard Government letting Telstra off the leash in this extraordinary round of price rises. This is only a small taste of things to come if the Government gets its way and privatises Telstra.
July 31, 2002
For further information contact Lindsay Tanner or Peter van Vliet on 0408 188 055 or 0419 881 282.