Companies

Oct 25, 2010

If the Liberals oppose the NBN, they have to back splitting Telstra

If the Liberals are serious about an alternative approach to NBN, they have to start with the vertical separation of Telstra, write Bernard Keane and Glenn Dyer.

What a peculiar situation we now have over the Government's Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2010. Telstra supports the bill, which imposes structural separation on the company. And Malcolm Turnbull agreed that there is "a very strong commercial case for Telstra to structurally separate its network." But the Coalition plans to oppose exactly those sections of the bill. While some excitable journalists were claiming a "formal shift of policy" by Turnbull on structural separation last week, in fact Turnbull had said virtually exactly the same thing at a CommsDay conference the week before. Indeed, in one of his earliest interviews in the portfolio, he indicate he was keeping an open mind on structural separation. The problem for Turnbull is that the Coalition, unless it is determined to be entirely obstructionist and opportunistic (and that has never been Turnbull's style, in contrast to his leader), can't oppose both the NBN and structural separation of Telstra. The last person to hold that position - putting aside the brief era of Tony Smith as the (extremely) shadow communications minister -- was Turnbull's good mate Nick Minchin, and the only people to take Minchin seriously on telecommunications matters were the senior levels of Trujillo-era Telstra, whose interests he vigorously defended. The Nationals certainly weren't enamoured of Minchin's line, but stuck with the Liberals for the sake of unity in the lead-up to the election. The Coalition can't be opposed to both because there's no realistic way of driving any non-NBN investment in a proper broadband network in competitive markets while Telstra remains integrated. A vertically integrated Telstra -- that monolith delivered to us by Kim Beazley, John Fahey and, most of all, by Minchin -- is the rock on which a market solution to the problem of lack of broadband investment has foundered time and again. The latest front to be opened against the NBN by Turnbull, some media commentators and economists and the misnamed Alliance for Affordable Broadband is on competition, with the argument that the NBN will simply be one giant monopoly to replace Telstra. Henry Ergas had an extensive rant about this last week in -- well, you can guess which media outlet. That would be the Henry Ergas who made a motza representing the interests of monopolists and oligopolists like Telstra and Qantas, during the course of which he was found by the Australian Competition Tribunal to have an "inability to  express an objective expert opinion upon which reliance can be placed", lamenting about a lack of competition. We'll take your concern for competition with several tonnes of salt thanks Henry. Competition issues have been considered before in the context of the NBN, back when the Government spent millions of dollars testing the market for a Fibre-To-The-Node network -- a period of the NBN's history is repeatedly ignored by critics who prefer to give the impression the NBN reflects some secret socialist impulse lurking buried in the Labor heart. As Alan Kohler noted at the time , all of the bidders for the Rudd Government's FTTN tender process demanded protection from Telstra building a rival network. Telstra, as Optus has previously pointed out, had cannily used the mere threat of building a broadband network to deter competitors from doing so. It left the Government with the choice of, in Kohler's words, a "legislative non-Telstra monopoly or non-legislative Telstra monopoly." The NBN won't have the sort of legislated monopoly position that the FTTN NBN bidders demanded in 2008. Competitors can build rival networks, but they have to make them available on the same terms as NBN makes its network available i.e. open access. The staunch advocates of infrastructure competition who are dismayed at the prospect of NBNCo not facing unconstrained competition were apparently unfazed at the prospect of a privately-built FTTN being given absolute protection back in 2008. Perhaps back then memories were a little clearer about the last major exercise in infrastructure competition in telco infrastructure, when Telstra wrecked Optus's HFC rollout by replicating it, as Optus's Maha Krishnapillai reminded us a fortnight ago. Incidentally, you'll struggle to find any coverage of Krishnapillai's comments in News Ltd papers -- not, one suspects, because of the War on the NBN™ but because of the advantage the Telstra rollout gave Foxtel and Fox Sports, 25% and 50% owned by News respectively. The NBN, in contrast, threatens the monopoly Foxtel has of metro subscription TV markets, and the monopoly Fox Sports has in supplying the three most watched subscription channels, Fox Sports 1, 2 and 3. But back to Turnbull's conundrum. The Coalition agrees that government has a role in driving faster broadband in both regional areas and more contestable markets -- it recognised that it needed to spend at least $6.3b doing that in the broadband policy slapped together before the election. Without an NBN, Turnbull needs to find investors willing to fund broadband infrastructure -- and presumably without any of the monopoly conditions insisted on by the FTTN bidders. After all, having railed against the NBN “monopoly”, the Coalition could hardly restrict competition to facilitate its own version. Whether that's achievable (and achievable for significantly less than $26b, bearing in mind NBNCo has the advantage of being partly funded by government-issued debt) is the key question. But you can't even think about answering it while Telstra remains vertically integrated and a threat to any competitor that might want to invest in broadband infrastructure. In short, regardless of what sort of broadband policy Turnbull devises, its first step is splitting Telstra so that it is no longer a threat to the rest of the industry and potential investment in broadband. There is indeed, as Turnbull says, a very strong case for the separation of Telstra -- for his own broadband policy, whatever its shape. If the Coalition really wants to wreck the NBN, it has to start by wrecking Nick Minchin's Telstra monolith.

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