Tuesday, August 08, 2006
The bomber has been bellowing like on old bull 'bout broadband – but as usual, he was making little sense, and demonstrating a poor grasp of the broader issues. The proposed fiber investment was simply a shot at circumventing the declaration of the copper network, and only made commercial sense to Telstra on these terms. There are alternative broadband investments, such as ADSL2+, that make better sense from a purely economic point of view – however they are based on the declared copper network, and are therefore subject to existing access arrangements.
Sure, if Beazley can convince the electorate that there is a broadband crisis, and that it is the Government’s fault, then it may make good politics. However, he runs the risk of looking like he’s fighting Sol’s corner, not the consumer’s corner, which is not really the natural home of the labour party.
It the Government / ACCC had given Telstra the commercial assurances that they desired, Telstra would’ve pulled up the existing copper node-loop, and replaced it with fiber. This would’ve meant that the ‘declared’ infrastructure – the stuff on which the Government set the prices Telstra could charge its competitors – would’ve been replaced with ‘undeclared’ infrastructure – on which the Government did not set the prices Telstra could charge its competitors. This would’ve allowed Telstra to regain control of the bulk of the wholesale prices it charges – effectively guaranteeing Telstra a new piece of monopoly infrastructure from which it may earn its fresh stream of excess rent.
This investment offered only marginal technical benefits above what is available from copper local loop, and ADSL2+ enabled exchanges, but it had a valuable strategic advantage. Telstra was willing to pay $4bn (the investment’s cost) to get control of the wholesale price they could charge, even though it would not give them a significantly better product for the retail market. The fiber product is only a little better (technically) than the ADSL2+ product, so Telstra would’ve struggled to charge much more for it then they might’ve for ADSL2+.
The fiber investment would’ve given Telstra the power to charge competitors whatever it liked – which would’ve almost certainly led to higher prices for broadband, regardless of the speeds on offer.
Posted by Matt Johnson at 8:57 PM