Mr Rod Sims, the chair of the ACCC has come out swinging and blasted Australia’s track record of privatising government assets. At a speech at the Melbourne Economic Forum he said that the ACCC is almost at the point of opposing future privatisations of government businesses (see report in Sydney Morning Herald here). He is quoted as saying, “I think a sharp uppercut is necessary and that’s why I’m saying: stop the privatisation”.
While he was directly referring to recent privatisations of Australian ports and the sweat-heart terms governments are providing to juice up the price by restricting competition, his comments are also important for Australia’s telecommunications market.
The privatisation of Telstra during the late 1990s and early 2000s was a clear example of government looking to maximise the proceeds of the sale rather than ensure robust competition after privatisation. By the early 2000s it was clear that Foxtel had won the “Pay TV” wars against Optus and would become the dominant cable TV provider in Australia. Telstra, as a 50% owner of Foxtel and 100% of owner of the underlying cable TV network, was able to defend itself against competition from the cable broadband threat that was emerging globally.
The ACCC, to its credit, highlighted this issue to government before the final and largest selldown of 51% of Telstra in the 2006 “T3” tranche. Previous chairs of the ACCC, Allan Fels and Graeme Samuel, recommended that Telstra should divest its interest in Foxtel in the early 2000s but to no avail. Presumably the government had it eyes on the price it could achieve by selling a strong monopoly network rather than having this weakened by divesting or breaking up Telstra’s network assets.
As a result Australia was to spend the next 10 to 15 years relying predominantly on ADSL for its broadband infrastructure. Less than 20% of broadband services would be delivered over Optus or Telstra cable TV infrastructure. Minimal new cable broadband infrastructure was deployed during this period. While the rest of the world saw broadband infrastructure upgrades with the rollout of FTTN and FTTP by telcos to defend against the entry of cable TV providers with DOCSIS technology, Australia’s network remained in stasis as Telstra and the government argued over subsidies and models for modernising the network.
The end result is a government owned company, NBN Co, building a new network at the cost of approximately $A50 billion and Telstra being paid approximately $A100 billion over 30+ years to lease infrastructure and give up its monopoly of the network. To put this in perspective the proceeds from the three Telstra privatisation tranches was approximately $55 billion. Any price premium achieved in the original privatisation has now well and truly been eaten up in commitments made for the NBN.
What originally started as a way of maximising the proceeds of Telstra’s privatisation for Australian taxpayers has turned into a nightmare of ever increasing costs to build and compensate Telstra to modernise Australia’s vital broadband infrastructure.
But as Rod Sims calls out we don’t seem to have learnt from our dreadful experience of telecommunications privatisation in Australia.
There is no economic “magic pudding” – if taxpayers receive a higher price for selling off monopolies then the extra proceeds are likely to be lost in either higher consumer prices or taxpayers being asked to bankroll future infrastructure upgrades .
The privatisation of NBN Co is likely to come up over the next few years as the network rollout speeds up and government looks to recover its investment.
Hopefully policy makers and government advisers will think twice before taking the extra money (and associated fees) for an NBN sale that entrenches a private telco monopoly able to set high prices to offset a high purchase price and with no incentive to invest. By now we should realise that this is a short term illusion. Much better that we have policies that create a competitive landscape that drives efficiency and investment by breaking up NBN Co.
If not, then Australia is likely to continue to be a significant laggard in broadband for the remainder of this digital 21st century.