At the ACCC Regulatory Conference, I commented on a paper by Jerry Hausman (MIT) who talked about US experience in regulating telecommunications and saw that experience as largely negative. He also argued that it was now unnecessary given competition from cable. So he asked “why not force Telstra to spin off its share in Foxtel and its cable network?” 

My answer: because the powers that be are “morons.” (I guess that is a theme for the day for me) There is no other explanation left. As I have said many times before, structural change is the obvious thing to do in for telecommunications in Australia. It is a no-brainer. Of course, it must require a little bit of a brain otherwise we would have done it.

I suggested that if we are stuck with the situation we have then regulation will continue. Today, the Australian Financial Review reported accurately that I would say just that. What they did not report is that I believe that we must change the form of regulation and seriously think about frontloading or backloading Telstra’s returns to either encourage it or new entrants to invest. This is opposed to the current plan of just setting a price and having the same old regulation forever.

Of course, this provoked a response from the Telstra guy in the audience who claimed it was all the regulator’s fault. I responded that that could not be right. Telstra have been always able to put in an undertaking to the ACCC that gave it investment incentives without simply just arguing for high prices forevermore. But it has never done so. That leaves the big question: do they really want investment incentives or should we give up on them and focus on giving those incentives to entrants instead?

2 Responses to Why not do the bleeding obvious?

  1. Uncle Milton says:

    ‘ because the powers that be are “morons.” (I guess that is a theme for the day for me) There is no other explanation left. ‘

    There is another explanation, The powers that be (the government) have a 50% shareholding in Telstra, and thus a 50% share of Telstra’s monopoly rents.

  2. […] Jerry Hausman (MIT) and I have been on either side of some key debates in telecommunications regulation in Australia (most notably, over mobile termination). However, in today’s Australian Financial Review, we bury the hatchet; squarely in Telstra. (Click here for the article). Building upon our discussion at a recent ACCC conference, we call on the government to consider splitting Australia’s two fixed line networks — copper and cable — into separate owners: one Telstra and the other someone else. T3 is the time to consider this because the government can compensate current shareholders if it wants to. Moreover, in so doing, some of the more vocal regulatory issues (such as fibre to the node) will have a competitive solution; effectively ending that on-going debate. […]

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