Researcher scorns ‘failed’ telco regulation

Telstra has every right to be bitter about any forced regulation of its next-generation network according to one researcher who claimed similar policies were a failure in the US.

Washington-based chairman of economic and regulatory consulting firm CapAnalysis, Jeff Eisenach, said he was first to experience the failures of unbundled local loop (ULL) regulation when it was mandated by the Federal Communications Commission for all US telecommunication services in 1996.

ULL regulation was introduced as a means to prevent incumbents from stifling access by other carriers to last-mile networks, and hence competition. But in reality, Eisenach claims, ULL regulation failed to provide a “stepping stone” for other carriers which opted to rent the incumbent network and invest in marketing rather than building their own.

“Virtually all went bankrupt but our cable sector, which was not threatened with unbundled requirements, has [had investment] in converting to digital and been successful,” he said. “The same phenomenon is happening in Australia where carriers are moving customers from their own networks and reselling Telstra’s to get higher profits.”

Eisenach declared the only verdict of ULL regulation is that it was a failure that reduced investment.

“There is now a new approach in US with scaled back ULL and we now have deregulated the broadband infrastructure,” he said.

“The record shows additional cost reduces a carrier’s ability to deploy, mandated sharing reduces innovation, and is not necessary for competition to take place.” Eisenach also sympathized with any decision by Telstra to hold back a next-generation network for fear of other carriers getting an easy ride.

“Will Telstra build out the next-generation network anyway? Others in the US didn’t, prior to a safe harbor,” he said. “Telstra is a business that will build as far as it can go to the revenue expected. Telstra will build significantly less infrastructure in a ULL environment.”

Telstra’s group managing director of public policy and communications, Dr Phil Burgess described regulation as a “wildcard” that will shape the future of Telstra.

“Regulation determines how we can run our business and is an integral part of it,” Burgess said, adding it has had a negative impact on Telstra’s business and reduced investment in the local telco industry.

Burgess’ deputy, Kate McKenzie, said Telstra is regulated to the extent to which it might prevent the company from deploying new services.

“Poor regulatory decisions oblige the board to question the wisdom of such decisions,” McKenzie said. “Governments around the world are struggling to get the balance right [but] the balance is tipping towards letting the market decide, with promising results.”

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