commentary The upcoming report from the Senate Select Committee on the National Broadband Network should provide further fascinating insights into our conflict-ridden policy regime and the related bind Senator Conroy now finds himself in.
Economic consultant Mark Christensen (Credit: in tempore Advisory)
As pointed out by former Minister Nick Minchin, the Federal Government's current tender process is not about building a shiny, new, stand-alone NBN. Rather, it's a massive upgrade of Telstra's existing terrestrial network.
The Federal Government's current tender process is not about building a shiny, new, stand-alone NBN. Rather, it's a massive upgrade of Telstra's existing terrestrial network.
Sol Trujillo came to Minchin with an ambitious fibre to the node proposal in August 2005. The offer was rejected by the Howard Government because Telstra wanted commercial access, not terms set by the regulator, and there was the political liability of dealing exclusively with an aggressive organisation perceived to still be a monopoly.
Telstra's idea was then appropriated by the Labor party, re-badged and spruiked by Kevin Rudd during the 2007 election. The sketchy policy detail conveniently failed to mention that an NBN roll out by someone other than Telstra would be seriously dependent on Telstra's co-operation.
It's now come to light that a third party undertaking an effective upgrade of Telstra's existing network would incur additional operational, financial and regulatory risks. And this is not about anti-competitive behaviour.
The economics of physical infrastructure means it's efficient to have a single network controlled by a single operator. This difficult truth has been passed over by policy-makers since the early days of national competition policy. The denial has been helped along by the fact that most of the costs imposed by legislated open access are to do with personal interfaces. Being soft and difficult to measure, these costs have been consistently dismissed as a blatant try-on by incumbents.
Rio Tinto, for example, unsuccessfully argued in its Pilbara access case that the downsides of enforced infrastructure sharing are "inestimable and unforeseen" because "two or more operators have communication breakdowns, apply different maintenance, training and safety standards or are driven by self-interest rather than the interests of maximising capacity as a whole".
The NBN process will continue to falter while ever the profound gap between reality and our competition-centric policy settings remains unacknowledged. A party other than Telstra building the NBN is problematic for the simple reason that Telstra is best placed to upgrade its own network. This has nothing to do with who is CEO, Telstra's potential to be litigious or what the regulatory regime looks like going forward. It's common-sense economics.
Frustrated and confused, the Federal Government now risks adopting a form of industry policy that institutionalises competition but disadvantages the public.
At the Sydney hearings, Optus suggested the benefits of the NBN could only be realised if "the government locks in the necessary market and industry structure". This is indicative of the perverse thinking that is presently driving policy in this country.
Telstra is the best bet for the NBN but because it is seen to have market power Australia should blindly commit to a second-best alternative that requires protection from overbuild, a greater subsidy and the next few years to work through the resulting operational and legal intricacies.
Structural separation of Telstra also remains topical. But typical of the lack of quality debate more widely, it's unlikely the Senate report will delve into whether or not stakeholder claims are tainted by a narrow, self-serving viewpoint.
Of course, Telstra's competitors argue for separation. They'd rather government-sponsored competition, than try to compete against the efficiency of a vertically-integrated company.
Of course, the ACCC is pro-separation. It is culturally attached to the pre-reform, cynical assumption that any network owner wanting to also be into retail must be intent on screwing its customers.
Australia needs to step back and ask some challenging questions about the efficacy of its policy framework, especially as it relates to infrastructure. This is going to take time. In the interim, Senator Conroy needs an NBN solution.
The government has a big stick but is seemingly afraid to wield it. Put aside the philosophical and empirical arguments about vertical separation of Telstra. Use it instead as leverage to ensure Telstra delivers the right NBN outcome for the community.
Conroy should end this futile tender process. Call McGauchie and his executives in and read them the riot act. Appoint someone with appropriate credentials and resources — not some panel — to then negotiate a commercial deal on behalf of taxpayers.
If Telstra games the process, ram your already-prepared legislation through parliament to split out its network and hand it over to Optus or whoever to get on with the job.
Mark Christensen is an economic consultant and director of in tempore Advisory. He has a background in competition policy, infrastructure and stakeholder relations and believes modern life could do with a bit more hardcore philosophy.
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Someone with a brain speaking fact and truth. Hope Rudd and Conroy are listening.
How any Australian Government could consider wrecking an Australian company to advantage foreigners is beyond me.
Hopefully Senator Joyce will have success with his campaign to keep some Australian ownership held in trust for our children.