It seems to me that business is slowing rapidly in Sydney judging by the strangely quiet and empty feeling that pervaded the CBD yesterday when I went to a meeting in the early afternoon there. At this time of year it is usually very busy and noticeably so but yesterday there were very few people and when I bought a magazine on the way back the vendor said it had been very, very quiet for several weeks - so much so he said he closed his booth now just after lunch instead of staying open till 6 pm. His 'regulars' had stopped buying and he didn't see many of them any more. It would appear that the problems with the majority of the financial institutions and the resultant lay offs has had a significant effect on the actual number of people working in the city and therefore spending money in the CBD.
Which was pretty much in line with the discussion I had with a long term acquaintance and small supplier to Exetel who was in Sydney for a few days attempting to recover what he could from two of his largest customers who had recently 'closed their doors' owing him a considerable amount of money that he said might well cause his own business to fail. We had a depressing conversation over coffee (in a practically deserted coffee bar that is usually all hustle and bustle) and I could do nothing but sympathize as there was nothing I could do to help. I picked up from the conversation that there were many problems in his type of business (buying from a major carrier and wholesaling to a large number of small 'distributors') and his view was that at least two other 'aggregators' were experiencing similarly serious problems to his own.
As I drove back to the office it occurred to me that there was a lot to be said from not wholesaling which is perhaps why Telstra under the Trujillo regime used the words 'parasites' when they first arrived in Australia to describe their wholesale customers. I suppose I've never really thought about it before but listening to the sad situation that my long term acquaintance finds himself in puts 'wholesale', at least in the Australian communications industry in this decade, in a different perspective as far as I'm concerned. I never considered Exetel as a 'parasite' but I suppose we are as far as the carriers who provide us access to services are concerned. I know that shouldn't be the case and a combined retail/wholesale distribution 'model' has been in existence for almost as long as there has been a commerce element in human society. So how did this happen?
Car makers seem to be quite happy to be solely a manufacturer and have 100% of their product sold through independent dealers in whom they have little or no money directly invested. The same for most other 'stand alone' consumer goods. Most services (gas, electricity, water, roads, bridges, etc) have no 'wholesale' element because of the requirement of 'delivering and maintaining' some sort of end to end connectivity between the source and the end user. Is there any other service in Australia, other than communications, that actually has a dog's breakfast of retail/wholesale/regulation that provides similarly essential services from a 'source' to an end user? Maybe my brain continues its headlong race to senility but I can't think of one, or such a comparable mess.
In my simplistic understanding of the rationale for an organization to distribute its products via both a retail and wholesale 'model' is that the organization uses it wholesalers to sell the product in geographic areas or to discrete market segments where, via its value adding, it can do a more effective (cost and coverage) than the 'manufacturer' can do with a retail sales operation. Such companies use their retail sales operations in other areas and don't compete with their wholesalers as that is pointlessly wasteful. So how do we get to the "parasite" situation in Australian communications?
I don't know. I do know I'm glad that the old AAP knocked on my door (literally) back in the early 1990s and asked if I would like to reduce my overseas telephone call bill by 75% by simply allowing them to install a 'black box' attached to our PABX. So perhaps they were the first parasites because they forced the then Telecom Australia to gradually reduce their overseas call charges - but that did take years and even today Telstra's overseas call charges are still 4 times more expensive than those of any other sensible alternative so perhaps nothing has actually changed?
Similarly having three, or four, mobile carriers has very obviously driven the cost of mobile call services down from the sky high call costs that existed in the early days when the only mobile service available was from Telecom Australia. But, again, in reality is it the competition that has driven the cost down or is it just time and technology advances? Does it really benefit Australia to import 4 times the amount of 'foreign' hardware to build the mobile networks (and I know that isn't the way it scales but it illustrates the point) and pay four times more locally to install antennae all over the country rather than just building one super network and having the prices regulated by the relevant authority?
It made me think, in the brief time available in driving the couple of kilometers back to the office, that the sell off of Telecom Australia was a major mistake and everyone would be better off if it had never happened. The national accounts would be better off by reducing the import bill by more than the amounts that the treasury received from the T1 and T2 sales and the overall efficiency and end user pricing would be at around what they are now based purely on regulation. There would be a lot less lawyers wasting everyone's money on endless communications litigation and we would have had a much better national data network long before this.
By the time I'd found a parking space in North Sydney I'd pretty much reached the conclusion that the worst government decision of the last 25 years was the decision to 'de-regulate' the Australian communications industry. I think that today we would have much better services at pretty much the same pricing today if that had not been done.
There would be no "parasites" and no rolling bankruptcies of a succession of small and not so small companies who lacked the knowledge and skills either technically and/or financially to operate in a business that clearly can't exist using a wholesale and retail 'model'.
My conclusion - the Federal Government should buy back Telstra on a compulsory 'nationalization' basis and operate it as the sole shareholder that requires no dividend. After the current job loss problem 'goes away' the 100% owner would dismantle Telstra's retail operation and expand its wholesale operation or, if that is not preferred, it should close the wholesale operation and increase the retail operation. It should, if it kept the wholesale operation, prohibit wholesalers from wholesaling.
One of the interesting regulatory structures that came out of the electricity privatisation in Victoria and South Australia was the legislation of a system planner for the electricity transmission networks.
Essentially the system planner would be a small and very lean organisation which is zero profit and funded purely by market participant fees. Their primary role would be to look at network capacity bottlenecks and growth projections and recommend the most economically efficient capital works program to achieve the stated network objectives. The people in this type of organisation are engineers, not bureaucrats.
This system plan would form the capital works program for a separate network owner/operator who is entitled to a regulated return on any money spent maintaining or extending the network. They would also be entitled to a profit share out of any efficiency they can derive out of the operation, but are specifically precluded from retail operations.
The retail space would then be open to any player to innovate their services however they chose with the only restriction being the tariff structure of the network use.
I think in this way you can achieve really preferable outcomes. The existence of a natural monopoly without rent seeking ability and a structure that is nationally beneficial without being buried within a government department.
I think this structure works very well in an industry where fundamental technological change can take decades. I don’t know how it would survive in a highly innovative and dynamic telecommunications industry though…...