Henry Ergas, the NBN, structural separation and the joys of bashing Telstra

(Above: ah the good old days. A cartoon from Mikko on Telstra's Now We Are Talking website, celebrating the departure of AAPT, Soul and TransACT from the Terria broadband consortium back in October 2008. As for Now We Are Talking? No, we are not.)

Does anyone still pay any attention to the unfortunate Henry Ergas, sometime advisor to the behemoth Telstra?

The Australian still regularly features his columns, as he valiantly fights to hold back the tide long after the world's moved on, and so it is with Legislated blackmail for NBN monopoly.

How's this for starting with an own goal?

In recent weeks, I have been repeatedly attacked by government ministers, notably Communications Minister Stephen Conroy. The crime cited is to be chairman of a company that is in administration. That administration is entirely voluntary and was forced neither by creditors nor by customers.

To the best of my knowledge, being in voluntary administration is no offence; rather, it is a fate that, unfortunately, afflicts thousands of small firms every year.

Does it entail a penalty of civil exclusion? If so, the government should explain why Rod Eddington, of Ansett and Allco fame - corporate collapses that, quite unlike ours, inflicted huge losses on employees, taxpayers and shareholders - is its trusted infrastructure supremo.

Ouch and ouch. If he'd only just played the hurt victim of unwarranted slagging off, he might have had a point. But no, he had to go and slag off Rod Eggington as well, proving that in manners and style he's more than a match for bovver boy Conroy.

Now it so happens that Stephen Conroy is not a favorite at this site. His plan to impose censorship on the interweb at the highest level is a grand and foolish folly.

But at least he got one thing right, and that's the requirement of structural separation of Telstra from its pipes, a decision that's been ducked and weaved around by various governments of various hues for years.

Ergas meanwhile is still peddling a cost-benefit test about the National Broadband Network, which is largely irrelevant until the actual costs of building the NBN can be discovered. And of course that involves access to Telstra's pipes and ducts, and the role that might be played by the dual cabling festooning the cityscape in various parts of the country.

The metaphor about Telstra grimly holding on to its advantage and acting like the bully it's been has usually revolved around it being an eight hundred pound gorilla, but what's made it a gorilla is its gate-keeping status in control of the pipes. And Conroy has resorted to a Telstra tactic - government control of spectrum allocation - to blackmail the company in the same way Telstra has been an unremitting bully to anyone seeking reasonable access to its pipes. Or seeking to set up alternative broadband structures.

Well two cheers for Conroy, and naturally Ergas is full of shrieks and howls and lamentations, thereby showing how blurred and blurry eyed 'independent' views can become when mingled with an 'objective assessment' of how right it is for Telstra to keep on being eight hundred pound gorilla in the room:

His opening gambit is to punish Telstra for the success of its 3G network by threatening to refuse the spectrum it needs to grow. This will certainly help Telstra's rivals. But how can nobbling Australia's most advanced source of wireless competition possibly benefit consumers?

Additionally, Telstra will be "encouraged" to divest its fixed network traffic and related assets, most likely to the NBN company. Yet international experience shows that those assets - the existing copper network and the hybrid fibre coax used for broadband and pay TV - can be highly effective competitors to the new network. Forcing those assets to be sold to the NBN company would seem contrary to the interests of consumers and to the Trade Practices Act.

How interesting that a concern for the interest of consumers should come so late in the national conversation, especially from a Telstra man, though Ergas hastens to assure us that these are all his personal views.

Well if you want a more independent look at what Telstra has been doing for consumers, go have a read of Rodney Tiffen's Telstra's monoply meant mediocrity for consumers.

I particularly liked his summary of the disasterous deluded two cable folly:

Under the Keating government we had the unedifying spectacle of Telstra and Optus both frenetically laying out cable (then both just as suddenly stopping), and their decision about where to put cable was overwhelmingly determined by where their competitor was doing it. The result was that less than a quarter of Australian homes had access to cable, but of these about 80 per cent had access to two cables. In other words, for about the same investment, a publicly directed policy could have ensured that almost twice as many homes received access to cable as did under ''market forces''.

Tiffen goes through a basket of costs and services using OECD figures to conclude Australian consumers have been ill served at relatively high cost, and then nails a particular grievance nobody much speaks of but which will grow in relevance as higher quality broadband hungry material hits the tubes:

Australian consumers suffered particularly from the stringent caps placed on downloads and the high expense of exceeding the cap. While in nine of the countries no explicit caps were placed on broadband subscriptions, Australia was one of only four countries (with New Zealand, Canada and Belgium) where all survey offers included caps, and among these four was by far the most expensive when the caps were exceeded - an average of 11 cents per megabyte compared with 1 cent for the others.

By the time you get back to Ergas's special pleadings for Telstra and the way the world is at the moment - if you can be bothered - you suddenly feel as if you've done a Homer Simpson and slid into a parallel universe (and boy is it expensive in there):

The government has sought to justify its decisions by vague references to Telstra's vertical integration and alleged high margins. When pressed for substantiation, it relies on an Australian Competition and Consumer Commission report that (despite enormous length) is evidence-free. But even were those claims correct, how would creating a new monopoly network, structurally separated though it might be, make matters any better?

You see? You could actually try the OECD figures if you had any interest in the real world of consumers, as opposed to the 'keep the punters in the pen for regular shearing' world of Telstra. And note the glib "even were those claims correct"?

So then it's time for Ergas to spear the shibboleth snake of structural separation:

Structural separation does not cure the evils of monopoly; if anything, it will merely add further inefficiencies. Grand benefits are promised but in the few instances where separation of telecommunications networks has been tried, they have not materialised. There is, on this, a growing consensus among economists, one short of unanimity but still surprising in its prevalence. For example, leading economist Eli Noam, head of Columbia University's telecommunications institute, wrote recently in the Financial Times that while he had long "strongly supported" separation, examination of its outcomes convinced him that "structural separation may have made sense in theory, but the numbers donot substantiate the benefits in practice".

Note the glib bit about a growing consensus amongst economists, "one short of unanimity". Too right it's short of unanimity, because the free market, competition inclined commentariat - aware of the anti-free market and anti-competitive practices of the 800 lb gorilla - have been howling for structural separation for years, while Ergas and his ilk have had their hands over their ears.

But here's the best bit, as Ergas has been advisor during the recent hay-making years of Telstra and its cowboy CEO, and consumers came dead last. That's right, more crocodile tears about the consumer, and alarums and panics about the NBN:

But even assuming a sweetheart deal between the government, Telstra, Optus and others could be stitched up, why wouldn't such a deal be little more than a smokescreen for eliminating competition? The public has every right to be wary of a new state-sponsored monopolist.

These are issues that require serious debate. Unfortunately, telecommunications policy in this country has long suffered from a culture of personal abuse that is deeply inimical to good policy formation. Far from exacerbating that culture, the government should show leadership and maturity. That it has failed to do so is hardly to its credit. Until it does, Australians will not have the telecommunications infrastructure they need and can legitimately expect.

Well he's right about one thing. So long as Telstra and its advisors are still in a position to call all the shots, Australians certainly won't have the telecommunications infrastructure they need and can expect, and Ergas's latest column shows exactly why that is so.

That's not to say that this latest broadside is going to be the end of the game. As the AFR in its editorial noted yesterday, the current move is more a high-stakes negotiating ploy rather than a long-term industry restructure. But it's a start, and as the AFR also noted, it's long overdue. And it should never have come to this, except for the weak-kneed failure of the Howard government to tackle Telstra the time it floated the business, and sold it off to the punters.

Sure the current behavior of the government is unfair to Telstra shareholders - as one of many I'll be taking a hit - but then those shareholders bought in on the basis that somehow the gorilla would always stay the gorilla. Even deserved to stay the gorilla.

I find myself in the curious business of being a Telstra shareholder who resolutely refuses to use the services offered by the company in which I hold shares. Call it schizophrenia, call it madness, but also call it time for the surreal absurdity of the current telco situation to end.

And happily next week we will be able to return to the pleasant business of bashing the clot eared Senator Conroy around the head on other substantive matters.

Meantime, here's a cartoon currently doing the rounds about the Pirate Bay and its troubles. It doesn't have anything to do with anything, but then anything's more interesting than Henry Ergas lamenting about the largely self-inflicted fate of Telstra.