Talking about a new $3 billion fibre to the node telecommunications network, Communications Minister Helen Coonan said: "I gather that the ball is very much in Telstra's court and I urge them to get on to it".
Coonan seems unable to understand issues of business risk and the need to make profits.
Telstra's proposal to replace its copper wire network is severely testing the merits of Australian Competition and Consumer Commission chairman Graeme Samuel's regulatory model.
This involves building a network and letting the ACCC set the rate of return on the investment. From Telstra's perspective, it would be handing its shareholders' funds to a body which it believes has created new rivals by giving its competitors a leg up.
It may be, as Samuel says, that the ACCC is "bound by law to administer regulations in a manner that allows Telstra a reasonable return". But there are many different means of setting such a return.
Often the formula entails a rate of one or two percentage points above the long-term government bond rate. This would not provide sufficient comfort for any telecommunications business contemplating building a fibre to the node network. Such a facility presents too great a risk of being technologically superseded within a couple of years by microwave transmissions or telecommunications using gas and electricity lines.
The ACCC sets an upper limit only on charges and conditions -- it has no power to force the use of the system and telecom businesses will cease using a network as soon as a better system turns up.
Samuel claims to represent the 20 million Australians using Telstra lines. As their representative he wants to force a business to invest for the good of the nation, not the good of the company. That is not the way free enterprise works.
And his approach is certainly not in the real interests of users, who are best served by the fast network that Telstra wishes to build.
Having built it, Telstra has to be the judge of how to market it since, like the ACCC, it has no power to force consumers to use it. This illustrates the deficiencies in the ACCC's competition textbook.
Requiring access to gas, electricity and telecom lines built under government protection is quite appropriate. Requiring access to innovations that have enjoyed no such privilege is a different matter.
Such a formula would compel Microsoft to allow all to use its Windows source code at a price deemed fair by a regulator. Or it would set price and access arrangements for Apple's iTunes.
That sort of regulatory regime would very quickly kill off the great breakthroughs that innovations have brought. This is because those pioneering the breakthroughs do not want a "fair" return; they want as high a return as possible.
The bounds of their pricing are set by the willingness of consumers to pay and by the knowledge that high returns will attract competitors and the returns would then be reduced.
The current regulatory model was designed to force the sharing of networks that have been built. In trying to apply this to those that have not been built it guarantees they will remain on the drawing board.
The impasse means Australia is falling behind the world in broadband. And unless the impasse is broken, the copper wire system will degrade, putting reliability at risk.
The ACCC is conscious that a new network could leave Telstra's competitors with stranded investments in the form of their add-ons to Telstra's copper wire. The ACCC has itself fostered such investments with generous access prices to the Telstra network.
The ACCC, in requiring that it be given marketing control over a new service, is seeking to safeguard competition. But the competition it is preserving is within a delivery mode that is rapidly becoming archaic.
The highly respected economist Joseph Schumpeter discussed "the howling gales of creative destruction", competition for the whole industry, which he considered to be so much more important than competition within the existing framework as to render the benefits of the latter trivial.
All great technological advances have displaced previous providers. Whether this was in steel replacing cast-iron railway lines, fuel injection displacing spark plugs or telegraphy replacing the pony express, there were losers. The newcomers often became monopolies, at least temporarily, and doubtless sought to profit from this.
The ACCC wants to prevent innovators achieving market dominance. Forcing firms to provide competitors with access to their facilities under terms they would not willingly choose might have policy pluses where the industry is technologically mature; but it undermines productivity in technologically dynamic industries.
In order to preserve traditional competition, Samuel is acting like the potentate of a desert kingdom in refusing to permit the introduction of motorised vehicles. The rivalry of different camel breeders might bring the development of a highly competitive camel supply industry, but it would not be efficient.
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