Nick Minchin

Wednesday, September 23, 2009

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This article was published in The Australian on 23 September 2009:

The Australian public should not be deceived into believing that the main objective behind the Rudd government's move to break up Telstra is to enhance competition in the Australian telecoms sector.
That is just the spin it is using to disguise its real motive, driven by stark realisation and political necessity.

After almost two years in office, nothing can hide the fact that despite its election promise to start rollout before the end of 2008, this government has failed to deliver a single new broadband connection under the guise of a national broadband network.

Following the collapse of its first NBN tender process, Labor pledged to build a big-bang $43 billion fibre-to-the-premises network. The key underlying message was that the government was prepared to, and could, build it with or without Telstra.

The cynicism of this announcement has been subsequently exposed by the ultimatums and threats that have been made against the company, including its 1.4 million shareholders, 30,000 employees and nine million customers.

Curiously, the $43bn figure for the NBN represented about $1bn more than the capital value of Telstra on the day of the April 7 announcement. Was this how NBN Mark II was actually costed, simply to send Telstra a message? The reality is there is no way known that any rational government would even contemplate building a new national network from scratch to compete against an incumbent.

Labor's real objective, of course, is to force the migration of Telstra's millions of fixed-line customers into the NBN and to do whatever it takes to reduce the company's capacity to compete against it.

That was spelt out by Anthony Albanese as one of the dubious choices the company had when he introduced Labor's telecommunications reform bill to the parliament.

"Telstra progressively migrating its fixed-line traffic to the NBN over an agreed period and under set regulatory arrangements and for it to sell or cease to use its fixed-line assets," he said.

If Telstra does not agree to break itself up to the satisfaction of Communications Minister Stephen Conroy, the government will stop it acquiring additional spectrum to bring online higher-capacity, next-generation mobile broadband services.

The mobile sector is highly competitive and is one market where Telstra's competitors have majority share. It is a market that is experiencing phenomenal growth as more and more users choose wireless broadband over fixed-line services because of their portability.

If Telstra is barred from bidding in future spectrum auctions, this would almost certainly reduce the return to taxpayers, as a result of reduced competitive tension.

Former Australian Competition & Consumer Commission chair Allan Fels pointed out that if the government was fully covered by the Trade Practices Act, its spectrum threat would likely amount to an abuse of market power.

The government's role as spectrum regulator, weighed against its plans to build and own a new national broadband network, also demonstrates how hopelessly conflicted it is. Make no mistake, this government wants Telstra weakened to create a new government-owned monopoly, despite Kevin Rudd's absurd claims that the NBN was in fact about "breaking the power of monopoly".

Fels also warned that by weakening Telstra the government was "playing with fire" and risked snuffing out competition with the NBN, which would not be in the best interests of consumers. But that is, of course, precisely what Labor wants.

Conroy says don't worry, this will be a monopoly with regulated pricing. But as a wholesale-only provider, if prices are regulated too low, there is no way the NBN Company will be commercially viable as the government has promised, particularly considering the mountain of debt that will be required to build the network.

In this event, as many leading analysts have predicted, the government, and ultimately taxpayers, will be forced to subsidise this network on an ongoing basis, perhaps to the tune of $1bn a year. The government's naked attempts to prop up the NBN at the expense of Telstra shareholders also has a potentially darker element.

When asked how the government could win a stoush with Telstra, a senior Labor minister reportedly said "the dead hand of socialism is always open to us ... the parliament can do anything".

This will no doubt send shockwaves through the Australian business community. If the government is prepared to do this to one of our top 10 publicly listed companies, you could reasonably ask who's next? It should also be noted that the OECD working group, whose broadband statistics Conroy loves to cite to push the case for reform, has concluded there is very little evidence that the benefits of structural separation exceed the costs.

Conroy himself has conceded the break-up of Telstra is not without cost, yet he has not undertaken any analysis of what these might be to either the company, its shareholders or telecommunications consumers.

Nor will he subject the NBN proposal to a thorough cost-benefits analysis, even though the Productivity Commission says this should occur. Defending this decision at the weekend, Lindsay Tanner said a cost-benefit analysis was a waste of time because there are too many "unknowables" and things that are "inherently unpredictable".

Comments such as these by our Finance Minister do very little to instil confidence in Labor's ability to deliver an outcome that is truly in the national interest and in the best interests of consumers.

Senator Nick Minchin is opposition spokesman for broadband, communications and the digital economy


Original article available at:
http://www.theaustralian.com.au/business/in-depth/political-necessity-driving-break-up/story-e6frgaif-1225778362554