Australian Govt. Impedes Internet Growth in Private Sector

What does arguably the biggest bluff in history deserve?  There can only be one answer, it deserves to be called.

That was our reaction when we saw the following story on the News Limited website yesterday, "Telstra threatens to quit bush."  It hardly needs elaborating on what our opinion is of this is, but we'll offer something up for your consumption anyway.

According to the story, "Telstra has launched a new assault against the Howard Government, fearing its rival Optus is about to get the lion's share of a $600 million taxpayer subsidy to deliver broadband in the bush."

As we read through the story we found it difficult to contain our laughter.  Grown men, a multi-billion dollar company threatening to take its stuff and go home.  Telstra (ASX: TLS) does have one valid point though, why should it be compelled to provide a service anywhere, whether it is in regional Australia or metropolitan Australia?  It is a private company, if it is so desperate to get rid of particular customers then let it, we are sure that Optus or some other telecommunications company will pick up the slack.

First of all though, we don't think Telstra is serious about 'quitting' the bush.  Even though the majority of the Australian population lives in metropolitan areas, mainly Sydney, Melbourne and Brisbane, there are still several million households outside of these areas.  It would not do Telstra's image or customer relations any good if they hotfooted it out of Gippsland in Victoria for instance.

The proverbial bush telegraph would swing into action and before Telstra knew it they would be losing customers, revenue and profits from other regional areas in Victoria and nationwide.

By the same token, what is the government doing spending $600 million of taxpayers money on a broadband internet connection.  If it wanted to do that why didn't it just keep Telstra as a state-run company and get Telstra to do it.  Again, we fail to see the point of either creating a Telstra MkII or public money being used to fill the pockets of private companies and their shareholders.

What if we as taxpayers don't want to invest in a $600 million broadband network?  If we did want to invest we could do so by going to our stock broker and buying shares in Singtel or Telstra or Powertel.

This is just another example of government impeding innovation in the private sector.  When the government can stroll in with $600 million, what chance does it give for a private company to compete with that?  It doesn't, so what does it do?  It tries its hardest to get into bed with the government, spend the government's (taxpayers) money with little downside risk.

The result of that is just the same as if we were given money.  Would we value it as much as money we have earned, or would we be a little more careless with it?  Would we buy the $10 bottle of wine, or would we 'treat' ourselves to the $20 bottle?  It is exactly the same with government subsidies.

It would have been better for everyone if the government had announced so the whole world could hear that "it will not subsidise ANY broadband internet connections ANYWHERE."

It may have taken the private sector a while to realise that the government really meant it and that they weren't bluffing, but eventually they would have got the message.  Then Messrs. Murdoch and Packer could have stopped their grumbling and financed a network themselves.

The rest of the private sector would have been spurred into action to come up with a solution that could have been rolled out not just in regional areas but nationally.  We are sure there are plenty of smart technology people out there that could have put something together for themselves, or in partnership with a bigger company.

Just look at the capital markets.  No one could seriously tell us that a new company managed by a few ex-executives from Telstra or Optus or Ericsson or Nortel wouldn't be able to raise $600 million in this buoyant market whether it was from debt, a public listing, private equity, infrastructure funds, or a combination of all of them.

And maybe that would have happened.  Yet, the 'ninny' state insists that government knows best and big corporations know that they would rather receive some lovely taxpayer dollars than face competition from some upstarts.

Kris Sayce
for The Daily Reckoning Australia

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