Different economic and accounting approaches, or “costing models”, lead to very different results, which can be very confusing to the consumer, the shareholder and the media.
Our competitors like regulators to use approaches to price-setting that require us to give them lower prices. When regulators engage in price-setting, we like them to use approaches that allow us to recover all our costs – so we don’t have to deliver services to our competitors at a price that hurts our shareholders and customers because it is below our costs.
Consumers and shareholders alike should also care about regulator price-setting that sets prices so low that it kills off investment, reduces innovation, stunts growth and robs shareholders of an opportunity to grow their investment as their share prices decline in value.
Eventually, policies that kill the incentive for people to invest will undermine the ability of companies to deliver services – depriving the consumer of choices as companies shrink and downsize, not as a result of shrinking markets or new technology or bad management but because of misguided public policy.
On 5 September 2005, Telstra issued earnings guidance to the Australian Stock Exchange which provided, amongst other things, that revenues lost to regulatory decisions are large and growing each year. In 2005/06, regulatory price reduction decisions that have already been made or are pending are likely to cost Telstra more than $850 million in lost revenues and have been factored into the company’s earnings outlook.
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Please note that this figure does not represent the total cost to Telstra of regulatory imposts, universal or community service obligations.