Successful telco regulation means a light touch



opinion/analysis The demand this week by academic Michael de Percy for Australia’s politicians to cease their chaotic struggle over the nation’s telecommunications sector and let it get on with its own business shouldn’t be seen as controversial. The best regulation in any sector takes a ‘light touch’ approach and this troubled industry is no exception to that rule.

Late last week, as most of us were settling into long Friday afternoon lunches, University of Canberra academic Michael de Percy published what should not have been a controversial analysis of the impact of politics on Australia’s telecommunications industry.

His argument was a little muddled, and he used historic examples which most of us had never heard of, but de Percy’s central point represented extremely mainstream (almost boring) theory about how modern day government should work. “Let the market work where it works, let government step in where it doesn’t,” he wrote, adding that the incessant politicking around the sector over the past several decades had hamstrung its development.

In the telecommunications industry, this approach translates to applying a paradigm which has applied in Australia for most of the past century: Leave telcos alone as much as possible in metropolitan areas, where they will be incentivised to invest in competitive infrastructure in order to chase profits, while subsidising less profitable regional areas in order to ensure basic services are delivered.

There are countless examples of where this paradigm has been applied by successive governments — both Coalition and Labor — to Australia’s telecommunications industry. There is the Universal Service Obligation, where Telstra receives payments to maintain a basic level of services to rural areas. There is the efforts by NBN Co to build costly backhaul infrastructure to rural areas to level the playing field and allow telcos other than Telstra to invest. The Tasmanian Government did the same across Bass Strait. And, more recently, there is the Coalition’s $100 million pledge during the recent Federal Election to fix mobile blackspots, which is also aimed at the bush.

This approach has also been taken up overseas. In the UK, for example, the British Government has left incumbent telco BT up to its own devices when it comes to its Fibre to the Node network rollout in metro areas, but is helping to co-fund the extension of that project to regional zones. In virtually every country we see a similar phenomenon.

Yet when de Percy’s article was published on Delimiter, it caused outrage amongst readers.

“This diatribe is naive in the extreme. Perhaps people without any clue should refrain from public comment,” wrote one commenter. “While Michael rails against the poor quality of the public discourse due to politicking, he perpetuates that poor quality of public discourse via his ignorance.”

“Braindead analysis combined with historical revisionism,” wrote another. “The NBN was created to deal with the problem of regulating the natural monopoly of the last mile and the demonstrable lack of private sector development compared with mobile. It staggers me that he somehow skips all the drama of the Sol years; that actually provided the impetus for the NBN.”

The problem many commenters appeared to have with de Percy’s argument is that they disagreed with its fundamental premise: That in most cases, the private sector is best positioned to provide telecommunications services to most Australians. Nobody has any problem with the idea that telecommunications services to the bush should be subsidised. But it’s the notion of letting commercial telcos be responsible for our cities which appears to be controversial.

There are solid reasons for this suspicion.

One example brought up by several commentators was the rollout of HFC cable networks in Australia in the late 1990’s and early 2000’s. This rollout was largely initiated by Optus, which had sought to deploy competing infrastructure that would allow it to compete on an infrastructure basis with Telstra’s copper network, both in the provision of pay TV services as well as telephone services and broadband.

Optus’ rollout was curtailed because Telstra duplicated it wholesale, famously directing its rollout trucks down precisely the same streets as its rival and causing massive profitability problems for the nascent infrastructure.

Commenters made the point — and I would strongly agree — that infrastructure-based competition created by the private sector failed Australia at this point. And many fear that precisely the same situation will shortly occur with respect to the Fibre to the Basement rollouts that are currently being discussed by half a dozen major Australian telcos. Surely it was an obvious case of history repeating when Telstra announced its FTTB intentions shortly after TPG outed its own plans. If four separate FTTB rollouts touch the same apartment building … one suspects none will make much money.

But what most commentators seem to have completely missed in the discussion is de Percy’s more complex point: That radical, heavy-handed government intervention is still not the right way to solve the telecommunications industry’s woes. A more nuanced approach is needed.

If we examine the HFC cable wars in further detail, it becomes apparent that the central cause behind the overbuild disaster was that the (Howard) Government of the day failed to take the necessary finely tuned middle path to regulation in the sector.

Let’s bear in mind, for a second, what we were seeing at the time. In 1997, Telstra was in the throes of the first tranche of its privatisation. The Howard administration obviously wanted to get the best price for its asset. And so it would have seemed logical to let the telco go ahead with its HFC cable rollout in order to display future growth opportunities.

In hindsight, the better long-term structural approach would have been to restrain Telstra from deploying its HFC cable network (a simple matter, given the Government still majority-owned Telstra at the time) and let Optus fully build out its own HFC infrastructure. This would have created, as we clearly see in other countries such as the US and UK, a situation where new HFC cable operators (Virgin in the UK, for example) can compete directly on an infrastructure basis with incumbent telcos and their copper networks. Telstra’s power would have been weakened and a viable competitor set up, which is precisely what the newly deregulated sector desperately needed.

The Howard Cabinet’s failure to take this relatively simple administrative step in correctly structuring the telco sector cost Australians dearly in the long-term and discouraged further investment by large multinationals such as SingTel. Optus still considers its HFC cable network largely a pointless asset which it is shackled to but can’t really invest in. And Telstra still owns most of the market.

Labor too, failed in almost precisely the same way a decade later. It’s true that it would have required significant legal and financial efforts to structurally separate Telstra’s wholesale operations from its retail operations (especially given the Constitution’s rules on compulsory acquisitions, which many have speculated would apply in this case), as other countries such as the UK and New Zealand have done with their incumbent telcos.

However, history shows that such an effort — even in the context of the hostile Trujillo leadership at Telstra from 2005 through 2009 — would have been significantly easier in practice than setting up the National Broadband Network policy and attempting to completely overbuild Telstra’s copper network (a problematic exercise which has substantially largely failed).

If Telstra had been restrained from building its own HFC cable network back in 1997, infrastructure-based competition between the telco and Optus would have flourished, and both would have competitively invested in their networks, to the benefit of consumers. If Telstra had been structurally separated into retail and wholesale arms, that wholesale arm would definitely have invested in upgrading the copper network, likely to FTTN initially. Telstra’s had that plan in its pocket for at least a decade. And in both cases, government subsidy could have plugged the gaps in the bush.

What we can clearly see here is that it’s not de Percy’s underlying theory that is wrong, but its implementation by clueless politicians. For the past 20 years, successive Australian Governments have failed to set the correct underlying regulatory framework for the nation’s telecommunications sector to invest in upgrading its infrastructure.

There’s plenty of evidence to support this case, by the way — it’s not just theory, unlike many of the counter-arguments. In countries like the US, the UK and New Zealand, where better regulatory environments exist, the private sector is ploughing billions into better broadband infrastructure. BT Infinity, Google Fiber, New Zealand’s Ultra-Fast Broadband initiative (which is a private/public partnership deal) and more. You can even look at Australia’s mobile sector for another example, where Telstra, Optus and Vodafone are continually ploughing billions into their networks, because the regulatory controls are set up well.

We’re just not seeing that kind of investment from the private sector in Australia in fixed-line, because the regulatory controls are not right. It’s that simple. Hell, even when companies do want to invest under the current laws, the Government often pulls the regulatory rug out from under their feet.

What these facts inevitably lead us to is the conclusion that de Percy is right: Australia’s politicians need to stop treating Australia’s telecommunications sector like a political plaything and return to the sensible middle path: Setting stable underlying regulation for the sector and subsidising infrastructure in the unsustainable regional areas. Again, this is incredibly non-controversial.

What would that look like in practice? Well, that’s a subject for another article, possibly later this week. But I will note that the central problem, as it has always been, is Telstra’s structural control of the industry. Telstra must, it must be structurally separated or substantially restrained for Australia’s telecommunications industry to develop further. That is the problem Labor’s heavy handed NBN policy attempted to solve; it’s the problem the competition regulator, the ACCC, is continually grappling with, and it’s the issue at the heart of all decisions currently being made by Communications Minister Malcolm Turnbull.

And just one final note for those who will doubtless attack me in this article for what many will see as an abandonment of the NBN policy.

As a side note, yes, I agree that Labor’s National Broadband Network policy was a highly attractive one on paper. Delivering universal fibre around Australia was a visionary ideal. I completely support that outcome. However, in practice this was always going to be a big ask, especially for a new Government startup like NBN Co, and history has shown it was probably the wrong approach.

At this stage, I definitely continue to support a return to that policy as one sensible option for the future of Australian telecommunications (as Turnbull has noted, we are quite a ways down that path), but I would also suggest that that policy can no longer be delivered unless the Government gets Telstra heavily involved in the construction aspect as a critical first step. Even the father of the NBN policy, former Communications Minister Stephen Conroy, has acknowledged that the NBN construction model as it stands is non-functional and must be drastically modified if it is to go ahead. FTTP was the right technology choice, but Labor chose to deploy it in the wrong way.

I hope this article makes sense in the context of de Percy’s argument. I would encourage readers, if they wish to debate the issues, to consider what choices they would have made differently at the various crux points Australian politicians found themselves in over the past two decades. My view is clear: Most of the choices made were the wrong ones. I hope to outline later this week what I think good choices would be from here on in.

Photo credit: nate steiner via photopin cc


  1. Let’s not forget that we’ve ploughed a lot of money into this thing.

    I don’t believe that construction model was wrong. I believe that the contractors shouldn’t have bid on things that were incorrectly costed. There obviously wasn’t enough small print to keep them on track.

    We’re in this situation now where the parties flip-flop and companies are cherry-picking high profit areas. Which is great…unless you live in suburbia or the country.

    Even the Queensland government say that privatising our electricity was the wrong thing to do. We just pay higher prices for basic utilities while supposedly pouring money into “more important infrastructure” is the line that we’re fed. I don’t see anyone lining up to join my house up to faster internet in the next 5 years.

  2. There is only one way Telecommunications infrastructure can be delivered and it’s the old proven model deployed for over a century in every country on the planet. That’s a single monopoly either government owned or regulated, it’s relatively expensive/inefficient for what it is. None of the so called new models are working anywhere with any success and have not proven significantly cheaper. The competing Foxtel and Optus cable model failed.
    There can be no competition in fibre because the one system can carry relatively limitless capacity so there is no point in building competing infrastructure at huge cost for no addition to capacity it’s a zero sum game of customers. This situation has always applied in telecommunications infrastructure as it did through the original 600 pair cables through the streets which 50 years ago had “limitless capacity”.
    The reality is the existing copper system is nearing the end of it’s life and a next generation system need to be installed at high cost.
    The strategies to avoid the “High Cost” will be proven ineffective and may eventually cost more as additional sunk infrastructure will be built that will have to be replaced in the near term, the avoiders of “High Cost” are just kicking the can down the road, in the telecommunications industry the can just can’t be kicked much further, demand pressure will force change much faster than politicians think.

    • “There is only one way Telecommunications infrastructure can be delivered”

      hey mate,

      I don’t think Delimiter is going to be the right site for you if you are going to take this absurd line. I will be closely monitoring any further comments you post and may place you on a pre-moderate list if you choose to pursue this line further. It’s patently incorrect as I demonstrated in my article.



  3. This is a good article.

    The problem with the article by Michael was that it was horribly written, full of gaping logical fallacies, and it also lead away from the idea of sensible government intervention (and non intervention) by introducing nonsense and hyperbole.

    Although it tried to present itself as an appeal to sense, it was anything but, and the logical fallacies (if actually believed) could in no way lead to a sensible discussion.

    It was a one-sided, diabolically bad caricature of an argument.

    It was derided, not because people don’t want to discuss these things, but because it was an awfully written piece of trash, with literally dozens of logical fallacies. People do want to discuss these things, and they want to do it intelligently. Ignore that fact and you will be reminded of it very quickly.

    If the topic is something that you think is worth discussing Renai, you will probably find that there are a lot of your readers who agree with you 100%. I’m one of them.
    If you put up an awful article though, which only has a pretense of entering this kind of discussion sensibly, then you will get a resulting backlash.

    So that is why i think this new article is good. Let’s forget that Michael’s god-awful diatribe was ever printed on your site, let’s start with a clear slate and let’s have much better conversations (without ideological nonsense) about where and when government intervention is good and where is should be avoided.

    Broadly speaking, you will probably find wide agreement to the basic premise of leveraging private efforts in the right places and right times. So perhaps we can see more articles of various sorts along this kind of theme? Some at the higher macro-policy level, some at the street and cabinet level, some at the pie-in-the-sky level… that would be great.

    • +1. Well said. There are serious issues surrounding TPG and other private enterprise muscling in on the NBN build. Maybe there’s a path that works, but I haven’t seen the case for it argued coherently yet.

  4. The whole argument misses the point. That heavy-handed regulation isn’t the problem or cause. It never was.

    To suggest a ‘light touch’ requires an environment must exist, that currently does not. And won’t any time soon. It’s an awkward solution to the problem of vertically integrated entities that operate in a monopolistic fashion. Regulation isn’t used because it’s a great idea; it’s used as a blunt weapon to force compliance.

    Sometimes it works. Sometimes it doesn’t. Like any blunt force effort.

    There is simply no other way to constrain behaviour within an entity that is guided by commercial profit, above all else, and where it has both wholesale and commercial interests that create a conflict of interest.

    Had Telstra been truly separated, in much the same manner as has occurred in NZ, then any wholesale venture is purely interested in remaining profitable and it will do that best by appealing to the widest retail sector possible; as apposed to just being used to squeeze competition.

    NBNco was and is constrained by legislation and the ACCC. Some regulation is required to ensure NBNco’s drive to remain profitable doesn’t conflict with it’s role as a wholesaler.

    Now we have a resurgence in a drive to deploy, the market will fracture. How that is reflected in regulation in the past, hasn’t been great. I don’t see that improving without solid direction replacing blunt force regulation.

    Something currently, and pretty obviously at this point, missing in the current CBN policies. There is a lot of confusion and a lack of clear policy. Turnbull is all but silent on the matter of competition.

    I can’t imagine how unstable that makes the market right now..

    • “Had Telstra been truly separated, in much the same manner as has occurred in NZ, then any wholesale venture is purely interested in remaining profitable and it will do that best by appealing to the widest retail sector possible; as apposed to just being used to squeeze competition.”

      Unfortunately the wholesale venture, by virtue of being a virtual monopoly, would also act successfully and tyranically to squash any infrastructure competition – unless it is forced not to (by regulation).

      So what sort of competition do we want in the infrastructure area? How can it be encouraged to flourish in a healthy way? We have the natural private enterprise necessity to bury the competition in an unmarked grave – and only the blunt instrument of regulation to allow competitors to compete in a way which advances the economy and benefits everyone.

      Yes, Telstra should have been structurally separated. But the wholesale monopoly of Telstra would still have been a monster that needed the blunt instrument to be applied.

      • “Unfortunately the wholesale venture, by virtue of being a virtual monopoly, would also act successfully and tyrannically to squash any infrastructure competition”

        If Telstra had been split, the need for infrastructure-based competition would have been greatly reduced, because Telstra Wholesale would be directly incentivised to actively work for its customers’ (retail ISPS) success.

        • Exactly.

          We are here, precisely because successive Governments failed to place value on Telstra as a retail and wholesale entity, above simply being a very fast way to make a buck through sell-off.

          Telstra has simply used wholesale as a competitive mallet. Remove the mallet and Telstra has to find another option. It’s already transitioning. It would have continued on under an NBNco world, and continued to drive it’s retail operations.

          The difference between a retail driven wholesale supplier, and a separated wholesale provider, shouldn’t be lost. Wholesale, again, like regulation, has never been the problem; it’s just been used as blunt force against the entire market.

          It’s been the direction and choices taken by the parent that’s been an almost univeral the driving factor.

        • “If Telstra had been split, the need for infrastructure-based competition would have been greatly reduced, because Telstra Wholesale would be directly incentivised to actively work for its customers’ (retail ISPS) success.”

          I think it is dangerous to rely on that when it comes to a monopoly wholesale provider. Their incentive is indeed tied to the success of the retailers, but it isn’t the exact relationship that I’m reading from your post.
          Their actual, direct incentive is their bottom line. If that means that they jack up their prices and a lot of their retail partners fail then that is fine for them – so long as the bottom line is better at the end of the day. If that means that they gouge the market, then they will gouge it horribly, so long as the bottom line is better at the end of the day.
          Even if their practices run every single retailer out of business except for one, then this is acceptable – so long as it means the best possible bottom line for them.

          This kind of activity is great for the shareholders, but bad for the economy, bad for businesses, stifling for innovation and progress.

          What stops this kind of thing? Competition or regulation. The problem there is that you need regulation to stop competition from being squashed, so you get regulation whichever way you look at it.

          Structural separation is long overdue for Telstra, and it solves some obvious, major anti-competitive issues, but there are some other minor issues to consider as a result.

  5. As with most things in Engineering, there is never one “correct” answer, but usually many. In this case I don’t think there is even a single “near correct” answer, only differing levels of imperfect answers.

    We’ve been having similar discussions for how long now? 2005 – 2014? How about we just agree to settle on a compromise somewhere and be done with it? Lets stop with the circular philosophical arguments we’ve been having for the last 9 years and lets just FIX the problem. No more band-aids or unworkable/impractical solutions

    (Remember when it was seriously proposed that there could be infrastructure competition in street-based FTTN? Ha. Like that would ever work on lines over a few 100m)

    • Easier said than done. NBN may have been derailed by some pretty shocking partisan politicking, but was none-the-less an attempt to resolve (at least in part) regulation and competition.

      The door was still left open to direct competition, just under a certain set of circumstances. Over time, the regulation could have been relaxed further; creating this more ‘light touch’ environment people seem to be keen on.

      But – due to Turnbull basically absolving responsibility and leaving the market to sort it out, Infrastructure owners now sense blood-in-the-water. Turnbull isn’t being assertive. He’s not responding with leadership and clear direction on the NBN, or even his own watered-down offering.

      So we’ll see a return to direct competition. Why? Because demand exists and NBNco won’t be funded to meet it. Alternative? Deploy, or die from a thousand cuts as an RSP.

      Telstra and Optus are already circling; TPG is in the pool and others will join in. Regulation will turn into a massive cluster-f!ck, as the ACCC has basically stated it won’t get involved.

      Meanwhile, a non-trivial percentage of the community is bent over, again.

  6. Another great article Ramai.

    I do think though that the central premis:
    > The best regulation in any sector takes a ‘light touch’ approach and this troubled industry is no exception to that rule.
    is largely wrong. We’ve had 20+ years of ‘light’ regulation (and by international standards the ACCC can be anything but light) in telecommunications and the result has been – with very very few exceptions – continued chronic under-investment in the sector.

    > the central problem, as it has always been, is Telstra’s structural control of the industry.
    I don’t think it’s fair to single out Telstra specifically with this statement. An environment where any one player can effectively control/dictate what products consumers can or can’t purchased is unhealthy. It should be obvious by now that substituting NBNCo for Telstra doesn’t change this dynamic.

    Never the less, our telecommunications sector needs more than just price capping to deal with monopolies. Like every other jurisdiction on earth has found, it needs other froms of intervention as well.

  7. > His argument was a little muddled, and he used historic examples which most of us had never heard of,

    If you don’t learn from History, you are doomed to endlessly repeat it.

    Renai seems unaware that these issues were endlessly debated long before Delimiter or the Web existed. Some of us lived through these times and watched despairingly as big business and corrupt politicians fudged and distorted the rules to allow their mates to prosper. Bit by bit the Public Utilities were chipped away, demonised and their profit centers stolen. Look to the long and sad history of the Post Office, or the Railways, or even Telecom Australia.

    The concept of Public Service is now so demonised by the MSM that any mention of “cooperative ventures” leads to howls of “Communism”. One of the reasons that the NBN stalled was because even a Labor Government couldn’t entertain the thought of hiring their own field staff. These days everything must be outsourced.

    And now Renai is proposing that the Politicians “tread lightly” regarding regulations for public utilities. This sickens me as it is exactly what big business has always wanted.

    I would challenge Renai and this column to debate (and propose) a functional set of rules which would allow Private Industry to provide our Infrastructure. Needless to say, it would require a long list of of conditions, ranging from equal access, through to staff training and decent employment conditions.

    But there’s a problem: By definition such legislation would need to be very specific and quiet handed with severe penalties available. It certainly would not “tread lightly”. And of course big business would fight against it every inch of the way.

    • hey mate,

      you’re not debating the issues here, and appear to take umbrage at the whole concept of privatisation. I’m sorry, but that horse bolted 15 years ago. Privatisation is now mainstream. Telstra was partially privatised 17 years ago. I’m planning to examine any future comments you make and may place you on the pre-moderate list unless I can see you’re engaging with the mainstream thought on these issues and not on historic edge cases.

      I’m sorry … but as I mentioned, that horse really has bolted. Telstra was partially privatised 17 years ago.


      • I gave some background, then proposed that we develop a list of rules to allow private competition to function productively.

        Surely that directly addresses the topic?

      • Renai,

        you are getting very liberal with your “I’m going to put you on a pre-moderation list’ warnings. Historically, when you have been fighting so much with your audience, it has been because you haven’t been listening to them.

        The issue of public verses private ownership of the comms infrastructure is not ancient history as you say. It actually died last September, but would be immediately resurrected in the unlikely event of a double-dissolution. It is simmering under the surface constantly (albeit it needs to be acknowledged how much private involvement there was with the FTTP NBN model). Attacking people who still want to thrash it out, because you are resigned to the understanding that the fight has been resolved, is not fair.

        I know you want to focus on the post-FTTP-NBN reality, and I agree that we should look pragmatically to deal with how the cards have fallen.

        But lashing out as you have been is unseemly.

        • I’m being heavy handed here because, as quite a few commenters agreed, the debate on the previous article on this topic (de Percy’s piece) descended into a farce.

          In the two warnings I’ve given in the comments on this article, both commenters had straight away taken extremist points of view that were very much outside the constraints of the current debate. One said:

          “There is only one way Telecommunications infrastructure can be delivered”

          And the other challenged the whole basis of privatisation.

          Now, I’m sorry, but there are multiple ways that telecommunications infrastructure can be delivered — the successful deployment of many private sector telco networks in Australia starkly demonstrates that. If you doubt that statement … I encourage you to look into the history of companies such as PIPE Networks and Uecomm.

          And privatisation as a concept is just not up for debate here … that horse has bolted. It is very well-established economic theory that previous government monopolies or even non-monopolies can successfully be privatised to make them more efficient. That is very much mainstream, accepted policy on both sides of the political fence.

          Am I being heavy handed in keeping the debate within rational, evidence-based bounds? No. I am actively weeding people out who have extreme views far outside mainstream economic theory, and who have fixed viewpoints that will lead the debate being pointless.

          My intent in doing so is to encourage Delimiter’s very high-end audience (including, I must note, representatives from every political office, company or government agency concerned with telco regulation in this country) to enjoy a serious debate about these very serious matters.

          So help me, I will bring out the banhammer if I have to. Because I have personally been debating these issues in this industry for a decade now. And I am tired of playing with children.

          • Sorry to be disagreeable but your thesis that:

            “It is very well-established economic theory that previous government monopolies or even non-monopolies can successfully be privatised to make them more efficient”

            doesn’t really seem to gel with recent experience in Australia. There are untold examples of key infrastructure being privatised and subsequently becoming rapidly degraded in quality and affordability.

            I understand you are a free-market libertarian, but there is plenty of evidence out there that this isn’t always the case.
            The key point is the word “CAN”. This part usually doesn’t work too well in practice and using recent history of privatisation and PPP ventures in Australia, I would say that the option of privatisation SHOULD be up for discussion…it’s not the silver bullet it appears to be.

          • I agree there are outlying cases where privatisation has gone badly, but as an overall trend it’s pretty much undisputed.

            And I’m not a free market libertarian. Economically, I am extremely mainstream — I believe most things should be left to the free market, while many core services in the public interest (education, healthcare, most public transport) should be maintained in government hands, and a strong social welfare safety net should underpin it all.

            This is how almost every country in the world works — because it’s the best system we’ve found so far.

          • I’m a bit confused…you say that you believe many core services should be in government hands. Don’t you believe that national communications infrastructure should be classed as “core”.
            Isn’t it pretty much the nervous system of the country?
            Anything that fundamental to the technological progress of our nation can’t afford to be left to “the market”…it needs to be designed to be as standard and future-proof as possible and we can’t rely on a private organisation to be that altruistic…witness the history of cherry-picking and abandonment of regional customers to date.

          • No, I don’t believe the Federal Government needs to own national telecommunications infrastructure. The US, UK, NZ, Canadian, German, French (pretty much every first-world country) Governments don’t own their countries’ incumbent telcos, and things seem to be going pretty well in those countries.

            Global experience consistently shows that if you structure your telecommunications market well, the private sector will invest in better telco services. The Government doesn’t own any of the 4G networks in Australia, yet we have some of the best mobile services in the world.

            Moral of the story? Governments don’t need to own telcos. But Governments do need to regulate them.

            Happy to hear about examples of countries where things work differently.

          • But, all of those, with the exception of the USA (which has problems all of it’s own), were state owned infrastructure. It was the government agencies that paid for and laid out the original networks, and those agencies were then privatised. In essence, (again excluding the US), there is still an incumbent national infrastructure owner albeit now privately owned.

            The trouble I see raising it’s head for the future IS infrastructure competition. If we take a light handed regulation approach, we may well end up with the dog’s breakfast that exists in the US, with what amounts to numerous monopolistic “islands” in a sea of underserviced less profitable areas. Don’t get me wrong, private enterprise is fantastic at identifying profitable areas to invest in, but usually once one company has met the customer’s requirements in an area, no other company would invest in that area. Then how does that company maximise it’s return from that investment? Certainly not through cheaper prices for the customers so served, what incentive is there for a customer to choose another network- selling their home? That is what I fear from the path you seem to be promulgating.

          • “It was the government agencies that paid for and laid out the original networks, and those agencies were then privatised.”

            It’s not really quite that simple.

            To illustrate why, let’s look at Australia. Sure, we have an incumbent national telco which owns most of the infrastructure. But we also have non-incumbent telcos which were never owned by the Government yet deployed their own substantial infrastructure as well, some of which is quite major and widespread. Some local examples:

            -Optus (HFC, backhaul fibre, 3G/4G mobile)
            -AAPT (backhaul fibre)
            -PIPE Networks (backhaul fibre)
            -Uecomm (metro fibre)
            -Vodafone (3G/4G mobile)
            -Opticomm (greenfields FTTP and, I believe, HFC)
            -Big Air (fixed wireless)
            -TransACT + Neighbourhood Cable (FTTN). Actually this was a major one.
            -Amcom (metro fibre)

            And the list goes on. These are some of the major ones … but there are many others. And the same can be said for every country on that list.

            When people discuss issues such as the NBN, they tend to think about only the national incumbent. But the truth is that every country has a plethora of smaller carriers that, since deregulation, have been active in deploying their own infrastructure.

            What we’ve seen overseas, extremely consistently, is that the key to allowing those smaller carriers to compete effectively is to restrain the incumbent (which has largely been happening in Australia through the ACCC, allowing the ADSL2+ rollouts to go ahead), and ideally, to separate the incumbent’s wholesale and retail operations, which has allowed situations such as in the UK, where BT’s wholesale-only Openreach network is deploying FTTN on fairly similar wholesale terms as the NBN — but on a commercial risk basis and without the Government funding the rollout.

            I am an evidence-based journalist. I watched all the companies I listed above deploy their networks over the past 10 years. And universally, they have constantly complained that the problem in their way to further expansion is Telstra.

            Australians love to take the view that the Government should step in and solve all of our problems. We love big Government. And yet, when you look at how telecommunications is actually delivered today, it’s mainly through the efforts of market competition (ADSL2+ rollouts, Hutchison deploying 3G early, the metro fibre rollouts) that we have the broadband we enjoy today. It’s a truism that vertically integrated telco monopolists do not usually invest in network upgrades — they have no need to.

            What I’m saying here is that we need to look at the whole picture of the telecommunications industry, and stop putting all our consideration into Telstra, Telstra, Telstra. We know from other industries that a fair playing field stimulates competition and that government monopolies tend to stagnate. Telecommunications regulation in Australia should ideally focus on restraining and structurally separating Telstra so that competition and innovation can grow without it being squashed by the ten tonne gorilla :)

          • I have to say I’m enjoying the conversation that is unfolding and despite various threats and obstinate positions this level of conversation is stimulating and engaging.


            Taking a step back, consider the situation of compliance standards and for the sake of argument, electrical safety standards. The important end result is that electrical equipment is built so that people using it can do so with confidence that it is safe. Manufacturers know what targets they have to meet so that they can plan, develop and sell their product or service. These standards reinforce progress in other areas such as building standards and a result is that nowadays very few houses burn down as a result of electrical failure in comparison to say 20-30 years ago. In addition there have been many other benefits in terms of safety and resultant productivity when things work as they are expected to.

            To achieve those things hasn’t required the presence of a government enterprise.

            Now, I’m hoping that it isn’t too much of a stretch to see that ideally we are pursuing a similar situation in telecommunications in Australia. Since Malcolm is turning a somewhat of a mess into an almighty mess it is probable that we are all going to have to pause for a bit and work out what truly is the best pathway forward.

            The original NBN was one pathway and I personally believe given the political constraints and the issue of separating a wholly private company that it was a good compromise solution from which ideas such as wholesale competition could have been expanded on down the track (it already enforced retail competition as a core part of its existence). I don’t believe that today’s government enterprises exist in the ideological framework that many people colour them with; namely socialist institutions that are bloated and inefficient. I think it is telling that the examples people come up with for government inefficiency are typically from decades old communist experiments in borderline 3rd world countries. With an educated and adaptable population, the pressures that drive efficiency in private enterprise filter through government enterprises also.

            In either case the key is getting the regulatory framework right. I believe it is possible to have both retail and wholesale competition (although the last leg aspect of a fixed cable would probably have to be excluded) if you get the regulatory framework just right. If it is not possible or too difficult, I think retail competition should win out over wholesale competition (a la the original NBN concept). The difficulty in establishing a regulatory framework is that you are essentially designing a set of rules for established players and new entrants so that they play nicely. There is no option but to consider past behaviour and Australia has a corporate culture that does not exactly embrace open competition. Luring starry eyed politicians is something that is all too common – only have to go back as far as Sinodinos which happened what all of a few weeks ago?

            Anyway, I hope my thoughts have helped the discussion. I do hope that it is able to continue and not get shut down. I wish the broader media had a bit more Delimiter in them.

          • You do realise your own breed of libertarianism qualifies as an extreme viewpoint, don’t you?

            Ayn Rand was not exactly a centrist.

            also, there are more than two sides to the political fence – ask Scott Ludlam for example! The mainstream parties, like the MSM are the creators of the problem, stop using their corrupted metrics to define the issues.

            Also: “My intent in doing so is to encourage Delimiter’s very high-end audience…” is simply playing to your echo chamber.

            You don’t like dissenting voices and taking your ball and going home is hardly the epitome of informed debate. And you claim “rational, evidence-based” points and mistake your opinions yet again for evidence.

            And your final ad-hominem is just icing on the proverbial cake. Perhaps you should separate editorial duties from your journalistic ones so you don’t keep making these errors.

            I’ll visit again when you address these issues sensibly.

          • “You don’t like dissenting voices”

            Riiight. Not sure how long you’ve been reading Delimiter, but I would beg to differ. In fact, I prefer dissenting voices; I like having my views challenged with evidence because it might help me to get a fuller understanding of any given circumstance.

            As for Ayn Rand, I don’t view Rand’s philosophy as a recipe for societal structure. I view it as a personal empowerment philosophy :D

  8. Renai,

    I would accept your position if only your own points were logical and fair.

    To say that “because the rest of the world is doing it, we have to also” is just ludicrous. Most of us love Australia because we do quite a few things differently. Like Basic Wage, Health Insurance and etc.

    And to insist that we can’t discuss certain things because some heavy hitters from Government or the MSM might be reading it says rather a lot about your editorial stance. Likewise banning any discussion of Privatisation.

    • hey mate,

      the issue we’re discussing here is not whether privatisation is good or bad. We are discussing regulation of assets which were privatised long ago or which always belonged to the private sector. In this sense, the issue of whether privatisation as an economic phenomenon is good or bad is off-topic.

      I mentioned the high-level audience here because I don’t want to have a low-level discussion in this comment thread. I want to have a high-level discussion about regulation of the entire sector.

      If you can accept those two points, perhaps we can move forward with the debate? As I mentioned at the conclusion of the article, I was after the following:

      I would encourage readers, if they wish to debate the issues, to consider what choices they would have made differently at the various crux points Australian politicians found themselves in over the past two decades.



    • ‘To say that “because the rest of the world is doing it, we have to also” is just ludicrous. ‘

      On the other hand, so say that, even though other countries have sucessfully done something, we should still never consider it, is at least equally ludicrous.

      Given that other countries have demonstrated that privatisation can be successful, why should we not at least consider it here?

      ‘And to insist that we can’t discuss certain things because some heavy hitters from Government or the MSM might be reading it says rather a lot about your editorial stance.’

      It seems about as reasonable as banning flat-earthers from a science discussion site; there’s no way to have a meaningful conversation with them, and there’s no useful purpose to be served by the spread of theories known to be baseless.

  9. In my post, I wasn’t championing the cause of government ownership nor debating privatisation, I was merely stating the historical facts on how the vast majority of the world telecommunications services arose.
    The privatisations largely occurred after the infrastructures were built, only the US had a historical model of private ownerships during the build out phase.
    They had the inventor of all the infrastructure as the operational manager of their private company company. Bell’s greatest invention was not the telephone it was the step by step automatic telephone exchange (at a chance meeting between him and Edison he was shown the stock ticker machines that had started Edison’s career and realised a current could trip magnetic switches at a distance) and then developed the automatic telephone exchange along with the panel layouts common to all telephone exchanges.
    What Bell had done was to standardise telephones, cabling and exchange equipment. He had no competitors at the time so there was only one kind of implementation of a telecommunications system worldwide. There were no multi mixed technology dogs breakfast systems installed anywhere in the world. That why Bell’s systems were so successful. His successes were standardisation of technology, equality of service regardless of wealth (before the automated exchange only the rich could afford telephones because of the high labour dependency), a high quality of equipment used in the builds and speedy introduction of the best new technologies.
    That’s what made todays telecommunications systems the success they are.
    The fundamental principles needed for a successful telecommunications systems haven’t changed.
    1) Standardisation of equipment across the whole network, no overbuilds by competing entities (cherry pickers).
    2) Equality of service across the whole network at a price affordable to all.
    3) High quality of equipment
    4) Speedy deployment of the best new technologies.

    It doesn’t matter who builds what as long as the above is achieved, the multi mix of technologies will fail because there will be winners and losers, the wealthy may well be able to buy themselves a better quality of service and those that need quality of service may miss out.
    A competitive rollout is the worst possible scenario as the competitors will run out of money and profits in a zero sum game of customers and after the money has run out and the rollouts stop, what happens then.

    • hey Kevin,

      I’ve addressed quite a bit of what you’re talking about here:

      The reality is that we already have a huge ‘multi-mix’ of technologies — there is no uniform network at the moment. Curious to know what you think about the several dozen competing carriers who already exist in Australia (many of whom I listed), and what their role is to be in the future you envision. Are they merely to pass away? Because the evidence shows most are currently still growing and would grow more if the sector was regulated better, as I described.


  10. Have already read your previous posts as I always do.
    I don’t believe that wireless services are a part of this debate as this market is adequately supplied with a number of competitors and I don’t think any kind of regulation is necessary at all in the wireless market. There are of course some areas that have poor quality services where these Telco’s could lift their game. My wireless services are worse than my DSL which is not that good when outages occur.
    There are a large number of providers in the backhaul market, particularly in the reticulation of ISP’s with exchange DSLAM’s, these “back haulers” are going to have issues with their systems as customers are poached by HFC from the DSLAMS as proposed by Turnbull or the DSLAMS lost in nodeing unless the various ISP’s are allowed to DSLAM the nodes or participate in shared infrastructure in the nodes.
    It would be preferred if NBN co or if Telstra succeeds NBN Co the backhaluers infrastructure was incorporated into the national carrier, there is no need for duplicated backhaul infrastructure either.
    The HFC system is largely obsolete and would require significant funding to move the fibre closer and to service a smaller number of coax ports.
    The FTTH is end game of the telecommunications industry, it might end up a lot cheaper to just go there quickly, there is a lot of revenue to be made migrating both pay and free to air television to fibre and new television providers to be added.
    The regulatory model adopted by New Zealand is the best example, where the government roles were minimised but there are also a lot of the Asian giants where government owned operators were the installers.

  11. I believe the NZ model is the best approach, Labor’s NBN co made a lot of mistakes, firstly in not installing in the dense inner city areas first where the rollout would have been much quicker. All installations on private property should have been the responsibility of the property owner (or their ISP) and the optical cable terminated in the street or the basement(private property owners/ISP’s to install their own cat 5e or cat 6 Ethernet cable it’s easier than Lego, I had no problem wiring my house, I hate wireless).
    The cost of all house installations and terminating equipment could have been defrayed.
    A Telstra installation of fibre would have been done quicker and cheaper they have done it before.

  12. There’s a solid reason not to abandon the NBN now in either the current or Labor form. Direct infrastructure competition with the NBN implies changing the business model to a potentially loss making enterprise or jacking up the wholesale prices to cover the loss of high profit sites. No-one at the last election took these models to the voters, so the time to propose this would be for the next election, when the NBN would be already substantially committed.

    The TPG et al model of wiring up FTTB to apartments is parasitic in that the business case rests largely on the host market leader, the NBN setting the market price (cross-subsidised) for fixed broadband. So for example if the NBN has to set a wholesale price of about $30 for a basic connection to make a 5% profit including unprofitable locations, TPG probably only needs $10 to make the same profit on an FTTB rollout close to their fibre, but there is no incentive for TPG to set a wholesale/retail price lower than the NBN, so no benefit to consumers bar a quicker rollout.

    The obvious solution to the TPG problem is to return to the current ‘lightly regulated’ ADSL model whereby a market regulator approves a wholesale price in metro locations based on some arbitrary imperfect formula (FTTN/FTTB/FTTH) and ensures competitive access to the TPG infrastructure. But this still gets us back to who pays for the NBN cross-subsidisation from the change in rollout mix.

    The Labor and Coalition models politically work because users are paying the cross-subsidisation and it’s easy to understand – your mobile carriers don’t discriminate between city and bush (except perhaps for large business) – it’s one price for all, and doesn’t require additional taxes to work except where promises are made for specific improvements (black spots).

    The NBN is front heavy in investment so any change at this point to the model towards a more ‘lightly regulated’ model is going to cost the taxpayer in the budget. In terms of priorities in public expenditure a majority of voters disapproved of subsidising the car industry, so one has to assume that any substantial subsidy to telecommunications is going to be unpopular or at least way down the list of priorities compared to health, welfare, education etc.

    NBN should purchase any TPG rollout as it has done with other greenfield rollouts (and Transact), and factor any price into the wholesale price of the existing NBN.

  13. There’s nothing wrong with de Percy’s theory except how do you compete with Labors NBN, which I can safely say that the ALP plan (though not the implementation) was one of the most brilliant government communication strategies I have seen to date.
    Labors plan makes the multi-private sectors plan look chaotic, cumbersome, confused and using out dated technology, much like the Coalition MMT plan.
    When someone can come up with a plan that surpasses Labors NBN, I’m all for it but until that time comes everything else looks like a dogs breakfast.

  14. I am quite happy to be corrected and put in my place in regards to what is my simple-minded view below.

    I read the above ‘light touch’ as allowing the private sector to invest and build infrastructure where they see fit. Where the private sector deems an area to not be profitable they are subsidised to build infrastructure in that area.

    With that premise in mind, I do not see how it is good value for the tax-payer.
    In the case of the NBN (the original and best) this subside was internal, the profits from the highly profitable areas subsidised the others.
    In the case of the private sector, the profits are going into the private sector. Because they are purely profit driven there is no desire to self-subsidise the infrastructure in less profitable areas. So for them to build in those areas the tax payer has to make up the difference.

    Now if the NBN never repays it’s investment, the difference between the two lessens. If however the NBN could pay itself off and become profitable then it is to my mind a no-brainer.

    Please tell me where I have got this wrong, I would genuinely like to know.

  15. I agree Telstra should have been split years ago, indeed it should be split now. If all the physical assets-pits, ducts,exchanges are put in a new company – including the NBN contracts, proper operating reserves, and a contract with Telstra to lease the lines, exchange and duct capacity on an an equal basis to other telcos, then the barriers to entry drastically reduce, and the playing field is levelled somewhat. The constant arguments about cross subsidies and wholesale prices, uncompetitive behaviour and access disappear.

    Telstra Shareholders can be given shares in the new company. Investors can rate the new entity as an infrastructure network or physical asset company, not as a messy mixed business.
    Whether the government needs to own it is debateable.
    And it’s by no means a panacea, as we have seen with electricity infrastructure – poles and wires – there is a huge danger of over-investment and inefficiency.

    The problem with light-touch regulation comes with not just having to subsidise the Regional and remote areas, but with the need to mandate responsibilities and obligations – having designated providers of last resort.
    Dealing with problems such as those faced by Julia Keady, where the market competition failed to provide capacity in an area ranked 14th largest urban population centre in Victoria with 16,000 residents, a mere 23km from the nearest large population, and the sole provider has insufficient commercial incentive to provide additional capacity for one more customer.
    Similar issues may arise when customers need a new line that is unprofitable to install – irrespective of geographical location.

    The regulation in place in Australia has failed to mandate minimum standard outcomes for Data, while the increasingly unused telephone is subject to all manner of minimum standards of availability, fault rate monitoring, service restoration times, while increasingly important data services are not.

    The point is for every customer, the ‘market’ is the competition at the door, not down the street or in the suburb. If it’s not at the door, it’s not a market. Cross subsidies could work with a telco industry infrastructure levy and rebate system that re-balances the profits and revenue, but modelling it to incentivise growth of competing networks would be hard.

    The NBN plan did also fix problems of poor standards of varying sorts. The FTTN system, however, could be worse. Apart from the costs to maintain, there can be minimal interest in competition for 60,000 geographically distributed nodes serving a few hundred people, exchange competition stopped at 200-300 exchanges serving 20k people…. and if there was do we need 2x number of cabinets.
    The problem is complex, serious and requires a lot of thought and ability to move quickly as market failure is identified.
    In many ways the NBN plan was a relatively good way to fix the problem, but needed Telstra ducts and exchanges to be split off.

    I hope Dr Vertigan, Prof. Ergas and buddies realise what it’s like to be broadband customer, and don’t suggest people ‘move house’ to get better broadband.

  16. 100% of Australians – city, suburban, townsfolk, farmers – received copper telephone lines in the 20th Century because taxpayers funded the government enterprise to expand the city copper universally after World War II.

    It is true that some infrastructure works well when there is competition, but the equation changes for natural monopolies – we have one water supply pipe, one electricity supply, one gas pipe, one street past our driveway. It is inefficient to build multiples of these in the limited physical space in every street.

    Twenty years ago, a household would typically have had a copper phone line (or two) and a TV antenna for its communications. Then satellite and cable appeared, for a total of four comms sources.

    If the future is now to consolidate household comms into one unlimited-capacity optical fibre, for voice, video, entertainment and data transfer, then how many networks of fibre should be built? One, because universal urban FTTP is a natural monopoly.

    It will never be fully built by commercial operators without subsidy. It is hard to see how multiple fibre-builders could do the job for less than a single one.

    And, because the revenues from a fibre-connected household are so much higher than from copper, it is a good commercial undertaking for government to build the infrastructure and sell wholesale capacity, with the competition at the retail level. The fact that Labor governed at the point when we had tried all the other models and arrived at this one should not be a reason to reject it, because it makes the most sense from a service delivery, wealth generation, and cashflow measure.

    Unless you are Malcolm Turnbull, who merely invests his personal fortune in foreign FTTP but denies it to Australians for partisan reasons.

    • Francis
      “100% of Australians – city, suburban, townsfolk, farmers – received copper telephone lines in the 20th Century because taxpayers funded the government enterprise to expand the city copper universally after World War II.”

      Actually there was minimal early taxpayer funding, in fact the PMG by the 60’s was one of the most profitable enterprises in Aust, just the way the books were handled. Income straight into the black pit of Consolidated Revenue, Operational expenses and Capital expenditure (the building) borrowed from the Government on a Commercial Basis paying interest. A magical Scam that disguised the profitability and gave Governments their slush money. However being Government they paid no rates or local taxes or TAX, even Sales tax. Telecom was organised as a company paying all taxes and rates yet still was one of Australia’s most profitable businesses whilst funding it’s own expansion and rollout as a Public Service Enterprise, No Government subsidies, in fact contributing massively to the public purse.

      So the claims that the taxpayer funded the Australian communications infrastructure is in fact false. The customers did, and also gave Squillions to the government (taxpayer) on top

      • This interpretation is wrong.

        If an entrepreneur puts up a million dollars of their own money, makes a successful business, turns it into a multi-billion dollar enterprise with factories, warehouses, delivery fleet etc – you give the entrepreneur the credit. Not the customers.
        Every cent that the entrepreneur gets from the customers in the way of profit belongs to that entrepreneur. So every cent that is re-invested is the entrepreneur’s money.
        In this example, it is no longer the customer’s money. They didn’t pay for a share in the company, they paid for a product or service.

        Just because the taxpayer made a profit on an investment doesn’t magically mean that the profit is somehow not belonging to the taxpayer, and it doesn’t magically mean that they aren’t paying when they use portions of that profit to re-invest. Every scrap of profit made from that infrastructre was money earned and owned by the taxpayer, and every cent that was re-invested was taxpayer money.

        The only argment you can make is a distinction between ‘consolidated revenue’ and ‘taxpayer money’ but that is not the basis of what you were saying.

        So the national copper infrastructure was absolutely paid for by the taxpayer. Your argument is false.

  17. “In the telecommunications industry, this approach translates to applying a paradigm which has applied in Australia for most of the past century: Leave telcos alone as much as possible in metropolitan areas, where they will be incentivised to invest in competitive infrastructure in order to chase profits, while subsidising less profitable regional areas in order to ensure basic services are delivered. ”

    This paragraph highlights the massive problem the regulatory approach creates for anyone outside profitable metro areas. The get basic services. That’s all they get. There is no incentive for regular and comparative upgrades to compete with metro services. A basic service under any policy so far has been 12mbps guaranteed. That is very different to 100mb or 1gb services that would be available in over served metro areas.

    To look then at the bigger picture, businesses aren’t going to look to decentralise when services are not comparable. We are seeing that in our area right now. We had businesses making enquiries to come to town when we were on the NBN fibre rollout map. Since Turnbull has removed our area (and many others), and changed the language around the work done here to indicate its not actually construction, business enquiries are drying up. FTTN wont cut it, especially when there is no defined upgrade path or timeframe. Its likely FTTN will remain in these areas for a decade or 2 until some politician sees fit to update regulations, to boost the “basic” service. You can apply the same problem to the provision of health care. In the regions in particular, its difficult to attract specialists etc. High speed (not basic) services would help in providing a good alternative to specialists having to physically visit the regions, and would open new service options.

    We have a large digital divide now, and the path we are heading down, where the unprofitable areas are left to the govt is only going to further entrench that. There will be no real benefit to these areas, when compared to metro areas. They will always lag well behind on basic services. The regions deserve far more than the status quo. The regulatory environment we have relied on to date has delivered us to where we are now. We need something better, that will bring ubiquity. At least we need some sort of pegging based on metro equivalence of service, and not on simply provision of a basic service.

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