Targeting Telstra: The negative side of separation

Recent media reports again have Optus suggesting Telstra should be structurally separated. This would no doubt help Optus to compete more effectively in many ways and might even help with improving competition, leading to cheaper prices, more customer choices and so on.

But there is a negative side. Despite the urban myths and the political rhetoric, many studies (1) indicate that small businesses do not contribute to innovation and employment to the extent that large businesses do. Indeed, Telstra is one of Australia's major innovators and employers. If Telstra is functionally or structurally separated, how will this impact upon innovation? Telstra is also a large employer, so what about employment?

The (functional or structural) separation debate needs to be visited carefully. Some of the questions which are escaping the onslaught of Telstra-bashing include:
  1. What will Telstra look like once its wholesale and retail arms are separated?
  2. How will this affect innovation and employment, especially during the global financial crisis?
  3. Telstra is one of the top telcos in the world. How will Telstra's separation affect its international competitiveness?
  4. If the government is going to let Telstra buy 49% of the NBN, will the NBN company utilise Telstra employees?
  5. Who will train the people needed to run the NBN company? Will it be necessary to duplicate Telstra's expertise to run the NBN?
These are some of the questions which remain unanswered, and there are no doubt many more which will need to be addressed.

In the meantime, the consultation on regulatory reform has fallen back (at least in the news media) on how to constrain Telstra; not on how to make the ailing system work.

The reform consultation provides a major opportunity to fix a problem which has plagued Australia for close to three decades. Telstra is only one small part of the problem but it is popular to blame the world-class company for woes which have never really been its fault.

Leo Gray, Sydney specialist media barrister, pointed out what needed to be done years ago:
[W]e do not have a systematic body of communications law which allows new technologies and new uses for old technologies for that matter, to be conveniently slotted in to their correct place in a single integrated regulatory framework (cited on p. 29 of the 1989 Standing Committee on Transport and Communications Infrastructure Report)
The problems associated with technological convergence were raised by the then Australian Broadcasting Tribunal (ABT), calling for a 'radical overhaul' of the broadcasting, telecommunications and radiocommunications laws. Despite the expert voice of the ABT, the policy changes were hardly radical.

But the problems have mostly fallen by the wayside and pragmatic solutions remain elusive. Instead of focusing on the regulatory system and getting that right, the focus is on how to reduce Telstra to a non-world-class company, reduce its innovative capacity, and most likely reduce the number of jobs the company provides.

The situation hasn't really changed much from the 80s, and getting it right means breaking from the old ways. Regrettably, focusing on Telstra will make it great for the other telcos, but leave the benefits to citizens (which technological convergence enables) suspended in the future. The trouble is that the benefits have been there for decades.


1. See, for example:

Ács, J. & Audretsch. D.B. (1990) Innovation and small firms. Cambridge: MIT Press: 16.

Hoffman, K. Milady, P., Bessant, J. & Perren, L. (1998) 'Small firms, R&D, technology and innovation in the UK: a literature review'. In Technovation, Vol. 18, No. 1: 39-55.

Nooteboom, B. (1994) 'Innovation and diffusion in small firms: Theory and evidence'. In Small Business Economics, Vol. 6, No. 5: 344-345.