Telstra Sale Intentionally Botched

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Sometimes your correspondent is guilty of digressing from the point of what we are supposed to be providing, ie. Australian market commentary.  However, we did get a rather good question from Daily Reckoning sufferer Nancy Peters, following on from our musings on prospective plans for a state subsidised broadband internet network.

Although the question is good, it does take us away from looking at markets; however, if you will bear with us, we’ll take just a couple of sentences to respond.

Nancy asks: “What if libraries were only being thought of now… Would you suggest they should not be funded through taxes?”

See, we told you it was a good question.  Our response to this would be, perhaps the private sector could offer an alternative to libraries.  Perhaps it could offer a service that was superior to the current public library system.  To take the internet as an example, although its genesis was within government organisations, it has been exploited to the fullest by the private sector and individuals.  It is for this reason that it is so successful.

In comparison, how successful are public libraries?  Secondly, how useful are public libraries?  Is the cost of operating a library (land, building, staff, maintenance, books, etc) commensurate with the benefit it produces?  Would the retail price of books be cheaper if publishers could rely on selling more copies rather than people reading them in libraries?

Anyway, for fear of opening a Pandora’s box of worms, we’ll finish by saying that on the subject of government subsidised internet access, the main problem has been the actions of a government monopoly (Telstra) being able to control access to infrastructure in the absence of competition.  By creating a Telstra MkII it will merely have the opposite effect to that which has been claimed.

The fact is that the sell-off of Telstra was a botched job from the start.  And it was intentionally botched in order to achieve a short term windfall for the government (not taxpayers) by ensuring that the business was sold in a complete and near-monopolistic state.

If the government was serious about privatisation, competition and the improvement of telecommunications services, it would have broken Telstra into several parts to be sold in a trade sale or for privatisation purposes.

It would not have been difficult, and would have created a genuine marketplace for competition.  It would invariably have led to consolidation in later years as different parts of the business were acquired or made acquisitions themselves.

For instance, the easiest parts of the deal would have been to split Telstra Bigpond and Telstra Mobile into separate businesses.  They could have fought for themselves or they could have been bought out by other businesses.  For fear of sounding contradictory, perhaps a media company such as Fairfax or News Corporation may have been interested in the Bigpond business for instance.

What about the fixed line business?  Again, it would not have been difficult for a similar utility organisation such as electricity firms to become involved in telecommunications.  This happened to some extent with the Powertel venture during the dot-com boom/bust.  The main reason that it wasn’t successful initially was due to the overinvestment in fibre optic cabling.  They appear to have learned their lesson.

Then there is the data side of the business.  There are a multitude of small, medium and large data vendors in the Australian market.  Why couldn’t they have bought the technology leading from individual exchanges?  Why couldn’t each exchange have been sold either individually or as a package deal?

Would any of these scenarios have been any worse than a Telstra monopoly?  Would any of these scenarios be any worse than a government subsidised Telstra MkII?  We would be prepared to bet that rather than crowding out private enterprise and genuine competition, these scenarios would have improved competition, service and provided a better deal for the consumer.

Unfortunately, it’s all academic.  The proverbial scrambled egg cannot be unscrambled now.

Kris Sayce
The Daily Reckoning Australia

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.
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