21 July 2004

Why McGauchie is a brave, brave man

Telstra has estimated the cost of connecting fibre to every home in the country at $30 billion. This is beyond the company's capital resources unless it can get a long access holiday - that is, unless it is removed from the ACCC access regime until Telstra makes a return on capital from it.

An informal conversation has already started about this, along with a couple of fibre network pilots in Queensland.

The issue collides potently with privatisation.

The most efficient builder of a $30 billion national fibre network is the Government, just as it was the most efficient builder of the copper network. It is clearly essential infrastructure, to be used by future generations and should be funded by government debt - not the far more expensive private capital that Telstra can raise.

In fact, it would be a national scandal if Telstra funded this new network using expensive capital and then received an access holiday (that is, monopoly pricing) to pay for it, when the Government could do it for half the capital cost and make it available to all-comers.

But a new government network would destroy Telstra's existing infrastructure business. The Government owns half of Telstra and is a seller, motivated to preserve its value in the face of collapsing phone call prices. It has a huge conflict of interest.

This discussion is vastly complicated and important for the nation and for Telstra, and now leading it is Donald McGauchie - farmer, Reserve Bank board member and professional director. Let's all wish him luck.

Let's not. Let's ask instead why Telstra should not be split into a public network provider and a private access retailer. Especially when it is clearly abusing it's effective monopoly in a rent-seeking binge by raising retail phone costs and wholesale network access costs.

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