Telstra in the Courier Mail

I have an opinion piece in the Courier Mail today on Telstra’s exclusion from the NBN process and what it means. I argue that Telstra are currently a part of any broadband policy and that is the problem. I identify shareholders — in particular, the Government as the largest shareholder — as the only people who have the power to do anything about it. Given the likely impact on their returns, they now have the incentive too.

Hanging up on Telstra

Joshua Gans, Courier Mail, 17th December, 2008.

CANBERRA’S large shareholding in Telstra is restricting its ability to move forward on broadband growth. The Government needs to take new line on technology

Telstra is apparently out of the running to build a National Broadband Network, but it is far from being out of the game. What everyone knows is that, regardless of what the Federal Government or anyone decides, Telstra is always going to have some key role in broadband.

Indeed, the expectation is, should anyone other than Telstra get the nod to build the fibre-to-the-node network, they will require access to Telstra’s copper network. That will not come easy and will likely involve years of litigation and regulatory fights.

Should those outcomes not be in Telstra’s favour, during the interim Telstra is free to start rolling out its own network. To be sure, that is not a bad thing and something that should have been done years ago. But the end result is that, when the Government’s preferred option gets going, in many of the most lucrative areas they will face steep competition.

In the meantime, the outcome of broadband policy is a guessing game.

The power to make sense of all this lies with one group in the economy: Telstra’s shareholders. On Monday’s announcement that Telstra’s bid was rejected, its share price plummeted.

Obviously, the market was surprised and thought this was bad news for the telecommunication company. But this group has the ability to steer that company on a different course.

Years of regulatory fights, intense infrastructure-based competition and continued uncertainty will not do them any good. What is more, 17 per cent of those shares are held by one big player: the Federal Government.

The continued dominance of Telstra is no longer a route to continued high profits because broadband policy is being subverted by the distortions it brings.

As its largest shareholder, the Government has a duty to make things right. It cannot do that using broadband policy alone that treats Telstra as an independent player. Instead, it has to recognise the power that comes from its ownership stake and sell a broadband vision to other shareholders. Put simply, the Government needs to put the telecommunications future above the money it receives.

Apart from that, the Government needs to move to an independent posture. It should sell much of its remaining stake and then consider how to use the infrastructure fund to do something significant in broadband. The current Government proposal is a halfway house. It is stuck in the middle of the OECD and offers no path to bring Australia to the forefront.

However, with the global financial crisis, an opportunity to change course has opened up. The Government could think big and put in place policies to get broadband infrastructure at world-beating speeds to Australian households and businesses. This would require a more extensive network and international capacity expansion. But we could do this at a time when government funds are cheap (we need the fiscal stimulus) and costs are lower (labour in the coming recession and optic fibre prices going down). A big-bang, world-leading network would remove Telstra from the party. Our telecommunications industry would be free of its potential veto.

The only thing standing in our way is the Government’s conflicted stance being a shareholder. It should either use that power to influence Telstra from the inside or lose it and get ready to change things from the outside. Halfway houses do not work at any level in broadband policy.

Joshua Gans is an economics professor at Melbourne Business School.

He writes on these issues at economics.com.au.