In Australia, Telstra the Incumbent claims that low cost values leading to low regulated prices for its competitors’ use of its infrastructure will ultimately make consumers worse off. Its logic is that price regulation represents a subsidy to other firms and crimps Telstra’s own incentives to invest and innovate. Not to mention that this type of regulation also kills Telstra’s profits and makes T3 undesirable.
In New Zealand, Telstra is the Entrant – TelstraClear – so what are its arguments to regulators there? It should come as no surprise that its arguments for access to the incumbent’s (Telecom) network can make you wonder whether you have entered a mirror universe. As an example, in a 2005 submission they argue that the regulator “should opt for values that result in lower rather than higher” prices because these will “result in lower prices to end-users”, “promote competition”, “promote innovation in the telecommunications industry”, and “reduce incentives for inefficient/duplicative investment in alternative networks”.
Telstra even presents studies showing that higher prices “have not had a positive impact on the level of investment in telecommunications.” Indeed, it writes that: “[t]hese findings indicate that the Commission should place more weight on the benefits from competition in its decisions on the interconnection price rather than on Telecom’s arguments about the risks to its incentives to invest.” Can this really be the very same firm?
So who should the Australian government believe? Telstra the Incumbent who claims that regulation will destroy the industry or Telstra the Entrant who sees regulation as a saviour for the industry? Or perhaps just that self-interested parties say things in their self-interest and that the government should make an independent assessment. Oh, that’s right, it is only 49% independent in this one.
Joshua Gans is professor of economics at the Melbourne Business School, University of Melbourne and CoRE Economics blogger