17 Jan 2007

A Lose-Lose Situation

By Paul Budde
If the Federal Government gives Telstra the job of delivering ADSL to remote locations, it will only serve to increase the telco's monopoly and further strangle opportunity for competition and innovation, writes Paul Budde

Telstra has requested $600 million under the Federal Government's Broadband Connect scheme to bring ADSL to remote locations such as the Tiwi Islands and Groote Eylandt. The telco says the money will be spent on an upgrade of infrastructure to provide broadband to 250,000 homes, and claims it is the largest fixed broadband deployment in Australia's history.

It sounds impressive.

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But as I have argued previously in New Matilda, Telstra are masters at messing up national telecoms policies and frustrating broadband competition, and unfortunately this latest proposal is no different.

Telstra would obviously be the ideal infrastructure supplier of broadband networks to regional and rural Australia, because they own most of the existing infrastructure. Throughout the industry debates on regional telecommunication and the Broadband Connect scheme, I have continually argued that the best solution would be for Telstra to take this project on board. As facilitator of the Wholesale Industry Group, an initiative established to discuss the Broadband Connect initiative within the industry and with the Government, I have gone out of my way to encourage Telstra to come to the table to no avail

The dilemma is that Telstra knows it is in an ideal position to go it alone, and they are holding the country ransom. Over the past 10 years the Government has let Telstra obtain a monopoly that is unsurpassed in the western world. It is clear that from a regulatory point of view the company has become uncontrollable. They dominate both the telecoms and pay TV market in Australia and use this position to their advantage.

Because of the extremely weak regulations that exist in this country ¾ despite Telstra's protestations to the contrary ¾ they continue to be able to get away with this behaviour.

Furthermore, the Government still allows Telstra to operate under a self-regulatory regime, which does not allow the Australian Competition and Consumer Commission to address the structural industry issues that are creating this uncontrollable situation.

So, while from an infrastructure point of view Telstra would be the ideal company to roll out the national broadband infrastructure, unless there are structural changes to the telco first, this would be against the national interest. It would only serve to increase their monopoly and further strangle opportunity for competition and innovation, not just in telecoms, but also in the emerging digital media market.

Thanks to emo

The situation cries out for a structural separation of Telstra, in line with developments in Europe and New Zealand. Here the regulatory debate has moved on to how to split the incumbent's infrastructure from the retail operations of the national operator. The retail organisation and all other retail competitors then get equal access to the infrastructure. Interestingly the financial market is also warming up to this development, with companies such as Babcock and Brown, Macquarie Bank and other private equity companies looking at expanding their operations.

Instead, the Australian Government is now in a lose-lose situation ¾ of their own making. If it gives the money to Telstra it will kill any possibility of competition in regional Australia. During the scheme's development, the telecommunications industry asked the Government to specify that Broadband Connect funding be subject to an open network policy whereby ISPs, telcos and content and service providers all get commercial access to the infrastructure. After initially agreeing to the proposal, the Government back-peddled. If Telstra receives the Government funding it has asked for, it has no obligation to provide open access to the network

However, if the Government does not give the money to Telstra, it will take a lot longer for customers in regional and rural Australia to get a decent broadband connection.

Unfortunately most customers in regional and rural Australia couldn't give a damn who delivers them broadband ¾ as long as somebody does. When it comes to the crunch, most of us aren't all that interested in issues such as monopoly, competition and innovation ¾ and this suits our short-sighted politicians, who certainly don't want to look any further than the next election.

But if we want real access in the future, we need to ask the tough questions now. Structural separation is one of them. Another is why Telstra needs $600 million, on top of their own funding, to provide a service that could be delivered using a technology called extended DSL for around $100 million, especially when, as they have pointed out themselves, most of the infrastructure is already there.

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