Uncommon Wisdom

Nov 30 2010   2:53PM GMT

Australia approves Telstra split, but don’t look for competition anytime soon

Tom Nolle Tom Nolle Profile: Tom Nolle

Sometimes governments solve problems, and sometimes they cause them. Sometimes it’s a bit of both.  I’ve been watching Australia as an indicator of the extreme end of pro-consumer telecom regulation, and it has passed a bill that will split Telstra and create a telco that’s more reliant on what I’ve been calling the “service layer” than any other in the world.

The National Broadband Network (NBN) that will now provide broadband access may creep further into infrastructure, and Telstra would do well to firm up its higher-layer assets and prepare for being a kind of new breed of over-the-top (OTT) player, one with the low internal rate-of-return expectations and capital base of a public utility.  That could be a truly formidable competitive position providing that Telstra can shed the inertia of a telco along with the access assets.

I’ve argued for years that breaking up regulated monopolies that were telcos was a mistake. Competition isn’t created by deregulation unless regulation suppressed it, and in the telco world the fall of the CLEC wave is pretty positive evidence that venture capital and private equity don’t want to fund competitive telecommunication because the return is too low.

Getting Telstra out of the access business isn’t going to make Australia’s network more competitive; it’s just going to change dominance from Telstra to NBN.  But that may not be bad, even for Telstra and its shareholders, if the company can shake off the old model and embrace the opportunities of the new.  If they do, it’s a half-step to making Australia a poster child for the way telecom will be done worldwide.

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