The case for re-nationalising Telstra

Tristan Ewins a Victorian teacher argues the case for the re-socialisation of Telstra. The original article was published as "National broadband: what kind of monopoly?" together with a forum discussion on Online Opinion.

National broadband: what kind of monopoly?

by Tristan Ewins, 13 Jan 2009

Contents: "The logic of privatisation - Australian telecommunications", "'Competition' no value for consumers", "Options for the 'National Broadband Network'", "Re-socialising Telstra ...".

Even now it does not seem so long ago that a genuine "mixed" economic model prevailed across nations the world wide.

In the wake of Depression and World War II, the challenge posed by communism - and emboldened social democratic and labour movements - framed the parameters of a virtual consensus.

On the one hand, policies of Keynesian, state-guided demand management, and full employment were combined with strategic public ownership. Areas were broadly accepted as being the realm of "natural public monopoly": especially infrastructure and utilities. This included transport services and infrastructure, welfare services, power, water and communications.

"Natural public monopoly", here, provided for nation-building and the minimisation of underlying cost-structures. Progress was also achieved elsewhere: progressive tax transfer and welfare systems, free public education, socialised health care, and so on. Strong investment in public infrastructure, goods and services also complemented attempts to preserve a "full employment economy".

Additionally: in Australia, there was the Commonwealth Bank and numerous state banks; and there were also state-owned insurance providers, state lotteries, public broadcasters, public housing and the like.

Importantly, it was recognised that provision for human need cannot be reduced to the working of "free markets". The poor and the marginalised, and minorities, in particular, do not commonly wield significant "market power" as consumers.

The benefits of the "mixed economy" model were many.

Public enterprises provided dividends that could then be redirected into vital services. Cross-subsidisation helped ensure that essential services such as water and power were available on the basis of need. Public housing was provided for many who would otherwise go homeless.

Government ensured support for pure and applied scientific research - while there remained a role for public and home-grown defence industries - which some might have identified as being a matter of "national security".

In banking, insurance, and elsewhere - strategic intervention actually complemented competitive forces in markets which otherwise might have been characterised by oligopoly and collusion.

Communications infrastructure - the focus of this essay - was provided as a matter of natural monopoly - reducing potential cost structures, and venturing into rural Australia: where "free markets" would refuse to go.

And despite claims that the private sector was being "crowded out", public ownership - considered broadly - was strategic. Despite hysteric cries from the neo-liberal Right, there always remained a deep, pivotal, and ongoing role for responsive and competitive markets.

For most on the social democratic Left, this was never in question. Indeed, there was a productive tension between the socialist aim of eliminating exploitation, and the liberal preference that ordinary people be free to invest their wealth as a matter of personal choice. However, in the wake of the second oil shock and stagflation, the old consensus was all but wiped away by a new one: neo-liberalism.

The proponents of the new orthodoxy waged war on the mixed economy model, as well as upon the role, influence, and perceived legitimacy of organised labour.

In Australia, labour and financial markets were deregulated. State-owned banking interests and insurance agencies were privatised. Gas, water, and electricity - were all privatised - or otherwise corporatised - in anticipation of privatisation at a later date.

In many areas there dawned an ideological fetish with privatisation and markets that defied sense. Competition in energy and water, in particular, was "anti-intuitive" for consumers; and is, in many ways, unworkable without great waste.

Other social objectives such as full-employment - were also abandoned by many so as to provide "anti-inflationary discipline" in labour markets; but it is beyond the purpose of this paper to analyse such ramifications in depth.

#logic" id="logic">The logic of privatisation - Australian telecommunications

Of particular interest for this paper is that communications services and infrastructure were gradually privatised. Over time, this process unfolded only with the rise of private oligopoly and wasteful cost structures because of duplication. Notable here was Telstra's continued monopoly interest of the copper-wire network, and the sheer waste of competing mobile phone networks owned by Telstra and Optus.

While there was an explosion of new communications technology in Australia around the time the sector was opened to "competition", this was not merely the result of market forces. The same services that have arisen since the advent and spread of mobile phone telephony and internet technology would arguably have proliferated anyway had a public monopoly of infrastructure remained. Indeed, it is certain that more efficient cost structures would have resulted in cheaper services for consumers.

#competition" id="competition">"Competition" no value for consumers

Writing in 2005 in the wake of the agenda of privatisation and competition, veteran journalist and economist Ken Davidson noted that:

Since the [1990s] ... [when] Telstra was a regulated monopoly ... OECD figures show that the cost of a representative basket of services ... increased relative to the average by 15 per cent - equal to about an extra $140 a year on the average household telephone bill.

Davidson described this as an "effective tax households pay annually to subsidise the Government's competition fetish". Furthermore, Davidson noted how, in the name of competition, Telstra has been forced "to pay a higher wholesale price for access to its own network than its competitors do". He cites the example of Optus, which "paid $800 million to get a cross-subsidy from access to the network worth about $2 billion".

Such arrangements provide a massive subsidy to "rent-seeking" retail communications enterprises, which has come directly at the cost of consumers and citizens. While regulators have attempted to combat the tendency towards monopoly in the sector, Telstra has been prevented from delivering the full benefit from its economies of scale.

It seems, thus, that consumers lose either way: facing the risk of exploitation by a private communications monopoly, or otherwise suffering the costs of maintaining artificial "competition".

As a fully public concern, monopoly did not necessarily pose a problem. Before corporatisation, privatisation, competition - Telstra (formerly Telecom) - was accountable to government, and hence to citizens. It could be bound to a public charter, and could provide benfits from its economies of scale without any cause to exploit consumers or workers.

The debacle of telecommunications in Australia shows that whatever legitimate role there is for innovative and responsive markets - there are places private markets will not, and sometimes should not go.

#options" id="options">Options for the "National Broadband Network"

Now, though - with Rudd Labor's promise to invest in a National Broadband Network - we have the opportunity to break with flawed assumptions, and to establish a natural public monopoly in the new fibre optic broadband infrastructure.

Such a massive undertaking could also be a central force driving employment in difficult times.

Before the 2007 Federal Election, Rudd Labor had promised to provide what it estimated as around half the necessary funding for a new "fibre to the node" network: roughly $4.7 billion. The cost of providing a National Broadband Network to all Australians, however, may have been underestimated.

Telstra spokespeople themselves have insisted that the government must "[increase] the size of the tender from $4.7 billion to about $15 billion" to provide full coverage to 98 per cent of the Australian population.

Should further funds be committed, this might also imply the alternative option of full "fibre to home coverage"- as opposed to "fibre to the node". Such technology would most likely have greater longevity, greater speed, and would place Australia at the forefront of the ongoing global communications revolution.

As Monash University senior lecturer Nicholas Beaumont suggested: "[with] faster speeds ... I believe it would be [a] huge driver of innovation." He continues, arguing that the formidable investment can be justified: "when people have built other infrastructure like railways, people were aghast at the sums involved but they drove our productivity into the future." The flexibility of "wide area wireless" technology should also receive consideration as demand for internet use "on the go" becomes greater. Increasingly, there is likely to be demand for the convenience of wireless, and the higher speed of fibre-optic broadband.

Seeing as so many consumers will likely want "the best of both worlds", there is strong cause for both such networks to complement each other in the form of one nation-wide authority.

In building the National Broadband Network, such implications must be given due consideration. Rudd Labor needs now to "get the policy settings right", to provide maximum speed, quality, and flexibility to all Australians - and affordability as well.

And, whereas it is essential that communications policy not discriminate against rural communities, the spectre of public investment on such scale raises the question: why not simply establish the new network as a fully public concern?

A natural public monopoly - bridging wireless and fibre-optic networks - with cross-subsidies for low-income consumers would provide flexibility, speed, breadth of access, and affordability. Even regardless of the prospect of wasteful infrastructure duplication -surely a private monopoly - or even a part-private monopoly - should not be acceptable given the danger of such market power being abused.

#resocialising" id="resocialising">Re-socialising Telstra ...

While any new public network might depend partly upon access to existing Telstra infrastructure, Labor Communications Minister, Stephen Conroy supposes Telstra could be bypassed in any tendering process.

The need for such new infrastructure would not have posed a problem had Telstra remained a fully public concern. The only question, then, would indisputably have been the public interest. Now over a million Telstra shareholders could stand to lose. But, private investment typically involves risk: and the public interest, considered more broadly, must prevail.

Importantly though, there is an alternative: a re-socialised Telstra.

Such an organisation could capitalise on the company's deep pool of talent and equipment, overseeing a generational shift to state-of-the-art communications infrastructure. Two options include the following:

• structural separation: with a public monopoly of infrastructure; or
• full re-socialisation including retail arms of the enterprise.

The first option may seem attractive to some as it represents a rearguard compromise with the dominant neo-liberal ideology. Hence there is likely to be less immediate resistance. Such compromise could be seen as a necessary stage en route to a regroupment - and ultimately establishing a new dominant paradigm of the "mixed democratic economy". Importantly, such moves could also garner broader support as there is still some residual popular preference for the concept of "natural monopoly" in the case of such infrastructure.

The second option, however, represents a more immediate shift towards such a paradigm: reclaiming a role for strategic and competitive Government Business Enterprise, as well as socialised infrastructure.

Apart from a prevalent ideological opposition to the mixed economy - and even to public ownership "in principle" - arguments for re-socialisation are strong. (Although Optus' mobile network cannot but remain private as duplication here is entrenched beyond remedy).

A re-socialised Telstra with a new natural public monopoly in fibre-optic cable communications infrastructure - and wireless infrastructure - could potentially provide cheaper and higher quality service. Partly, this could be the consequence of rigorous scrutiny from consumers and government: and partly following more efficient cost-structures. A public Telstra, under such circumstances, would have no cause to abuse its market power.

Following re-socialisation, subsidy for "rent-seekers" could be wound back - with the public carrier once again being released to provide the full benefit of its economies of scale. Again - the consequence could be cheaper service for consumers.

And importantly: many consumers are conservative in preferring the Telstra "brand"  and hence there is strong demand for ongoing Telstra involvement in concerns such as Big Pond. Government should be sensitive to popular sentiment in this regard.

Finally, we are on the verge of a new digital entertainment and communications revolution. Old communications and entertainment paradigms are likely to decline with the fusing of digital television with internet services and content. The new paradigm looks set to be interactive, participatory, open, and consumer driven. Imaginably, consumers will be able to shift seamlessly from "pay for content" services, to free-to-air content - if necessary sponsored through pinpoint advertising - adapted to consumer profiles, or where such information is unavailable, adapted to suit the content.

Of course there is need for the involvement of public enterprise, here, alongside co-operative and community enterprise, and private enterprise as well.

Public communications/entertainment enterprises need to be especially bound by a charter. This includes quotas and funding for local content, and content for minorities. It is much easier to bind public concerns to such a charter than it is in the case of private concerns - which pursue profit and share-value-maximisation ahead of provision for an inclusive and diverse tapestry of human need.

Under such circumstances, there is a potentially core role for a public Telstra, along with public and community broadcasters working together: taking the lead in the provision of content.

It is time for Rudd Labor; and for Communications Minister, Stephen Conroy in particular; to divest themselves of neo-liberal shibboleths - and reconsider the meaning of social democracy, and the democratic mixed economy - for the "new frontier" of telecommunications.

See also: "Open letter commending Senator Scott Ludlam's stance on behalf of telecommunications users" of 20 Dec 08, "Keep broadband in public hands - Australian Greens" of 14 Dec 08, NSW Electricity Privatisation, Citizens Against Selling Telstra.