Tag: privitisation

TELSTRA VS CRAZY JOHN’S –

Communications, Technology

30 November 2004 by Richard Chirgwin

Are Wholesale Services `Up to Scratch’?

The lawsuit between Crazy John’s and Telstra is, in my mind, just as important to the privatisation debate as the ongoing and pointless discussion about whether services are ‘up to scratch’.

When Australians think of telecommunications services, they’re apt to think of what reaches the retail consumer. However, in a contestable market, with a wholesale-retail split, services are also what reaches the retailer from its upstream wholesaler.

What’s sold at wholesale is quite different from retail, and not just in volume.

The retailer buys a lot of things from wholesalers, but they all add up to this: retailers are buying the ability to make money. They’re buying the services themselves (mobile, fixed, or data); they’re sometimes buying a supply of physical products; they’re buying some level of tech support to keep the services running.

And most of all, they’re buying an income stream.

That income stream depends on accurate record-keeping – a point brought home years ago in the One.Tel collapse – but it’s still one of the most difficult and challenging parts of the wholesale-retail relationship.

In part, that’s because Australia is still relatively new to the wholesale-retail business. The Telecom of old had no need for the kind of wholesale business IT systems it now needs: there was no retail sector.

That changed throughout the 1990s, but we’re still only into perhaps the second or third generation of wholesale business process in this country.

The retail business, however, continues to change much faster than the systems which support it. This is partly because the wholesale market has become so contestable. When Telstra was the only source of wholesale business, products were available in ‘any colour, so long as it’s black’. Wholesale competition has brought with it the need to differentiate products; this, in turn, makes the products and the relationships more complex.

Herein lies the importance of the Telstra-Crazy John’s court case.

It’s possible that Australia’s telecommunications market is too monolithic for true contestability, at least for another decade to come.

Whether or not that’s true, a contestable market demands that the wholesale-retail relationship functions properly.

In trying to determine whether or not Telstra’s services are ‘up to scratch’, the federal government is gazing with a fixed stare at rural and regional services – not even the whole of the carrier’s retail business.

As a result, the government is ignoring whether or not the carrier’s wholesale services – upon which the storefront retailers depend – are also ‘up to scratch’. This seems strange, because most retailers (by number if not by value) are the kind of business which is supposed to be the Liberal Party’s core constituency: the owner-operated, probably franchise-based SME.

The Crazy John’s lawsuit is more important than the industry thinks.

IN DEFENCE OF ZIGGY

Business, Communications

02 December 2004 by Richard Chirgwin

The Low Share Price is Structural, Not Personal

If nobody’s listening, I’ll tell you a secret: it’s not Ziggy’s fault.

Some things were Ziggy’s fault – the Asian expeditions, the Fairfax follies, the conviction that Telstra should become a dotcom.

But the share price? Only a brain donor blames the share price on Ziggy. A brain donor – and an institutional investor.

For a while now, a rumour that Ziggy was going to leave Telstra would send the share price upwards; this was the institutions’ signal that they wanted Ziggy gone. The reasoning, instantly seized upon by the business pages that the institutions were blaming Ziggy for the low share price.

They wanted to send that signal, but they were lying through their teeth, and worse still, they’re lying as a cartel. With the lie endorsed by all the institutions (whose representatives can be relied to ask the most clue-free questions any journalist can ever hope to hear), all they need do is act in concert and cast their vote.

The reason Telstra’s share price is between $4.50 and $5.00 is because that’s what the company is worth . The reason it was sold for a much higher price is that the government fudged its value, because the buyers were captive to the stupid idea that a utility stock was somehow magically transformed into a growth stock by the Internet; because the world believed that ‘Internet traffic is doubling every 180 days/three months/six months’. All of this was endorsed by the same goons who now play with the share price to punish an individual.

Three lies, put together, inflated the share price, which the government liked because it let them pay down government debt.

Back to Ziggy. He went along for the ride, and therefore deserves his share of the criticism, but for the institutions to personalise the share price in this way is reprehensible; particularly because it lets the institutional fee-farmers continue pretending they had nothing to do with the whole Telstra share debacle.

Why are the instututions lying to us?

First, because they don’t want the blame sheeted home to the government. They’ve eaten well at the hands of Canberra, and don’t want to ever close a door in Parliament.

Second, because blaming the CEO lets them divert attention away from their own role. The institutions were just as enthusiastic at priming the “Telstra is worth $10” as anyone else. They were either suckers or knaves.

Third, because most of all they want the Telstra privatisation to keep yielding fees for the financial industry.

Hence the share price rose on the news of rumours.

Strangely, when the reality came the first response was a fall in the share price.

My bet is that the institutions knew damn well that a change at the top is not going to help any of the things they want. It’s not going to roll back the competitive market, which caps Telstra’s growth capacity. It’s not going to materially affect the schedule of the privatisation fee-fest. It’s not going to change the economy of telecommunications, or the need to spend money on network upgrades, or the fact that there’s only so much fat you can cut from the carrier before you cut services.

In other words, with Ziggy’s departure, the truth becomes clear: it was personal. On rumours of his imminent resignation, the institutions gave the world their view of Ziggy the person, and pumped up the share price. When the rumour became fact, the real view became clear, and the share price went down.

Ziggy is responsible for some things. But the depressed Telstra share price? The institutions are far more responsible – and they don’t resign.