*Now* they’re talking about hiving off Telstra infrastructure?

Alan Kohler in The Drum writes, as a sort of afterthought to his main argument in Politics the winner in Rudd’s big new Telstra deal, the following:

So Telstra gets to announce a number that’s closer to what it wanted ($12 billion) than what the Government and the NBN Co wanted to pay ($8 billion) and David Thodey and his team can now get on with transforming the company into a structurally separated service company.
As for the rent to be paid for access to ducts, pits, conduits and space in the exchanges – there is an easy way to find out whether it’s really worth $5 billion: simply float the infrastructure as an IPO with an annuity income stream from the NBN.

The old Telecom Australia should never have been privatised as an integrated entity in the first place. There was an argument (although I’m not much of a fan of economic “rationalist” competition arguments) for selling off the consumer service (telephone) arm to ensure that Telstra (as Telecom Australia became) didn’t have an unfair competitive advantage in pricing to end-users. But why on earth did we ever need to privatise the infrastructure (exchanges and networks) that is rented out to all the telecoms competing out there, just gifting that immense ongoing revenue stream to the private sector so that they could then hold the government to ransom over it?

The reason that the Rudd government’s deal with Telstra on the NBN was so expensive was because the previous Howard government privatised our public infrastructure in a way that never made any sense. The old Telecom was self-funding, and reinvested its surplus into a network that was the envy of the world, but many taxpayers complained about Telstra making any surpluses at all, because they figured it meant that they were paying too much. That was one of the many justifications for the privatisation (the others were mainly ideological economic rationalism).

I can, just, see that arguments for privatising the service delivery arms of various public utilities might possibly have had some theoretical merit, on the idea that competition benefits consumers. My understanding of what has happened in practice, where public utilities have been privatised in toto, is that consumers of most privatised public utilities now have a more expensive service that isn’t as reliable, because the infrastructure maintenance budget in the new corporate entities is always lower than it was as a public utility.

I have never understood what benefit the public is meant to receive from privatising the public infrastructure that many competitors have to rent in order to deliver their services. That was our public revenue stream that funded the maintenance and upgrading of those infrastructure items that we all rely upon, with little net imposition on the tax purse, and now too much of it is in corporate hands that are letting it degrade, presumably because they figure that if it gets too bad the government will be forced to bail them out.

This is one of the things I liked right from the start about the National Broadband Network proposed by the Rudd government – it places the core infrastructure development back in public hands, where corporations have to rent it from us instead of holding it over our heads.

Categories: economics, technology

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3 replies

  1. My query with regard to any “privatisation” of public assets is how the heck anyone is able to make the realistic argument that the private sector is necessarily “better” at everything. Particularly when the bits of the public sector which are getting sold off are the ones (like Telstra, the Commonwealth Bank, TAA etc) which actually support themselves, or are turning a profit, and thus not actually a burden on the taxpayers. I’ll believe the private sector is the best answer for everything when I actually see a private sector firm offering to take over the business of one of the less profitable government departments or agencies (something like Centrelink or the Native Title Tribunal) – and that’s likely to happen some time around the twenty-seventh of never.
    As it stands, my rather cynical theory involves an economic theory sector which is strongly upper-middle class at best, and therefore rather ideologically attached to the notion of money belonging to the right people (i.e. the current capital-owning and profit-making class). Having government entities making profits means the money could go to just about anyone… and who knows what they’d do with it! Probably spend it all on thoughtless things like food, drink, rent, clothes and the like, rather than sensible investments or proper entertainment like the opera. No, much better to keep the money where it belongs, and the assets where they belong – in the hands of the better classes, who know how to appreciate such things.

  2. I agree about the points about the core infrastructure being primarily publicly owned, but as far as the retail parts go, just imagine for a second that a publicly owned Telstra was the only ADSL & fibre ISP. Being the only provider how flexible do you think their plans would be? Would they be charging for both up and down bandwidth? How much would they care about people who want to run webservers at home or would they be blocking webserver/mail ports for user’s safety, and would they support people running anything but windows/mac machines?
    Would we already have Labor’s internet filter? (Conroy just tells his department running the government controlled ISP to do it).

    • Fair point – the ISP retail sector should be treated exactly like the telephone retail sector (both landlines and mobile networks) – that’s the picture I had in my head anyway, I just didn’t include it on the page (which was a huge oversight, since it’s the NBN we’re talking about specifically).
      Retail corporations rent the infrastructure and compete on pricing alone, while their rental payments cover the costs of maintenance and development of the infrastructure.

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