The best things about blogs are the responses. I welcome them, positive or negative, because they give me the opportunity to address genuine concerns or gaps in my communication. I therefore thank Dan Warne for questioning my claim that government funding of OPEL for “commercial services” was a bad thing.
Let me start at the endpoint or objective of telecoms regulation – that is to encourage sustainable competition – where the market is working to set the correct price for services. Competition is better than regulation at ensuring there is innovation and investment in services because competing companies will continue to improve price and/or service to attract customers.
Back to the beginning: What is a “commercial service”? This is a service in a market where company X can provide the service, sell it at a price that consumers are willing to pay, AND cover its costs and make a profit.
However, in the absence of competition, there is no way of knowing if this price is the right or best price that an efficient company could offer. So a competitive market is where more than one company can provide a “commercial service” – cover its costs and make a profit. Success in a competitive market depends on getting better at winning customers because you may be more efficient, cheaper or otherwise more attractive than competitors – while still covering your costs and making a profit.
In the past the government has offered funding for UNcommercial investment – like in regional towns where there weren’t enough mobile phone users to allow a company to recover its investment costs and make a profit. The government provided funding to offset the commercial gap in programs like the “towns under 500(pop.)” tender, won by Telstra.
To my memory the OPEL farrago is the first instance where the government has interfered in the market to the extent of funding services that a company could have provided through normal profitable investment – in places like outer metro Brisbane, Tamworth and Bathurst.
This is anti-competitive because it doesn’t let normal market forces find the “right” price, as one player has had its costs subsidised. This means that prices will probably be lower than they should be if non-subsidised companies are to cover their costs. This could force some out of that market, or otherwise make the market unstable.
It is anti-investment because it makes it unlikely that other companies will invest in these geographic areas in competition to a subsidised company with artificially low costs.
You can see the mockery that has been made of the market in that OPEL is meant to be a wholesale company. Yet it is out there talking about "expected" retail prices (www.elders.com.au) and running TV commercials in regional Australia as if it were selling directly to the consumer.
OPEL shouldn’t have any direct involvement in what either Elders or Optus plans to sell their retail service for. In that vein, I look forward to hearing more about the operational structure of Elders and Optus to ensure separation in the decision-making on their respective retail pricing plans.
The more we learn about OPEL, the less sense it makes as a piece of public policy. In the more than 300 towns and suburbs funded for ADSL services, all already have access to the service.
The use of taxpayers’ money to subsidise a “competing” wholesale service shows a complete dismissal of market dynamics.
While there is a bit of economic theory in here, let me bring it back to the kitchen table…funding of OPEL to provide “commercial services” is money for jam.