Breaking Telstra - Is the Government looking for a better market structure, or just buying a monopoly?

Is Telstra being denied procedural fairness through the forced splitting of the copper network from the retailing and mobile networks? And, is the government forcing the split for the right reasons?

The front page (and pp 50-51) of the Fin Review today spouts off against the splitting of Telstra, suggesting that the telephony super-power has been denied ‘procedural fairness’ and suggesting that the government is forcing the split purely to ensure a monopoly over the broadband network? The Opposition is trying to stop the split or at least put discussion of the split off to next year.

And, for once, I think I’m probably sitting on the opposition’s side of the fence.

Whilst I’m all for the splitting of Telstra for the competitive benefits stemming from the split, I’m the whole situation smells a little to me. Is the government forcing the split to promote competition in the telecommunications industry, or is it forcing it to ensure it has a monopoly in the future broadband network? Moreover, how dare the government sell Telstra off and then institute this type of reform. If I were a Telstra shareholder, I would be livid.

As briefly touched on yesterday, there is considerable benefits from splitting up vertically integrated companies trading in non-competitive markets. However, the Government’s bill to force Telstra to sell its copper network is just shifting the monopoly from the telephone industry to a monopoly in the broadband industry. If Telstra does not sell its copper network to the NBN Co. it could become NBN Co’s largest (and only) competitor. This, to me, is anti competitive behaviour that the ACCC should look at very carefully before it allows any such changes.

Clearly shareholders are suffering too. The Telstra Share Price has dropped significantly since ‘Conroy’s convoy’ first entered the arena. As seen below, Telstra’s stock price has depreciated strongly, even in light of an upward moving market.

Australian Securities Exchange 2009

Whilst I think that the move to split Telstra is a good one, I this is another example of mediocre policy, crap timing and poor planning. The split should have been completed prior to selling Telstra. Telstra should be allowed to keep its copper network; if for no other reason, it should be able to keep it to promote competition in the new broadband network. If nothing else, Telstra should only sell its copper network at a price that is acceptable/beneficial to shareholders – just like any other acquisition.