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Live with monopolies in modern time - the case of Telstra

Comments on Alan Kohler “Telstra's costly mistake”, 20/05/2009, http://www.businessspectator.com.au/bs.nsf/Article/Telstras-costly-mistake-pd20090520-S7SL4?OpenDocument&src=sph&alerts&loc=center

Alan, with due respect, I tend to disagree with you on two of the main points why Telstra should be split up. You mentioned that your main reason, “the reason”, is it has shown itself incapable of operating effectively as an integrated Telco, looking after both sets of customers. A firm is supposedly to maximise profit for its shareholders. How they conduct themselves to achieve that goal is their own businesses. If it is in their own interests to look after their customers, they will do that. If they don’t, they will not be able to achieve their maximum profits. Their main accountability lies in with their shareholders. If they do look after their shareholders interests, the management will be voted out of their jobs and will be replaced by others.

While government may have a role in looking after consumers, small businesses, they should do so with a clear framework. They should regulate according to well established principles. Similar to the case of Robin Hood, the government should not just bash big firms if there are problems between them and others. They should not take it as granted that big businesses are generally in fault when there is a conflict with others. That is ideological but irrational. That is a popular approach but an inefficient and unfair one. Government should have constraints to its behaviour too. It should not regard itself as above everyone and everything with free will to do whatever it wants or wishes to.

The other point is the so called “some theoretical regulatory preference” to do so. The key issue in this case is the existence of a monopoly in a market. What is it better to split an integrated company just because it operates both as a wholesaler and a retailer? To split it up into two, a wholesaler and a retailer, does not solve the case that the wholesaler is a monopoly. The government will still be faced with that monopoly and have to regulate its pricing, and possibly its conduct with regard to potential new comers. Telstra has been regulated heavily in terms of its wholesales pricing. In this particular regard, one may say that the government/ACCC has been too heavy-handed to Telstra in its pricing so that it discouraged new investments in the Telco infrastructure sector. So what else would the government do to further lower its wholesale price when Telstra is split up? Otherwise how can the government make the whole system better in terms of the price received by customers?

We need to approach regulatory issues rationally. It is equally intolerable to behave as a big brother; no matter it is a big company or a government. All firms, irrespective their size, should all have equal rights, similar like human rights. They should be respected, not violated at some people/government’s free will with little constraint.

Australia is relative small by international standard. When firms grow, it is inevitable that we will see some big ones or very big ones. If that is a result of efficiency, be it. We have lived with monopolies in the past. We should be able to live with some more of them in the future. We should not be intimated or even scared by big firms. We should re-examine the theoretic underpinnings of regulatory frameworks to enhance the welfare of all Australians. If big firms can do that, let them do it. If we have to regulate them, let’s follow well established international standards.

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