Dancing on the grave of employment

A Review of Independence and the Death of Employment By Ken Phillips. (Voltan, 2005, 207 pages)

William is a 24-year-old shearer from Queensland.

I’ve worked on shearing teams which are staunch in their observance of the [industrial] Award. They have the 3 minute bell which is a warning to all the shearers that the end of the run will happen in 3 minutes and they have to finish up their last sheep … They do not do any weekend work or extra hours during the week or any hours outside the exact allocated hours in the Award …

However, this is too restricted for me. I would rather have the choice whether I wanted to work weekends. I believe it is up to the individual … I believe that if I want to work weekends then that should be okay.

This attitude is repeated in dozens of industries all around the country. Independent contractor status is, as Ken Phillips’s new book Independence and the Death of Employment makes clear, increasingly seen as a more flexible alternative to traditional, heavily regulated employment structures.

And independent contracting status, while the most obvious manifestation of this new attitude to work, is by no means the only one. Phillips notes the existence of ‘independent employees’ — workers who work in firms, and are nominally under the command-and-control contract and structures of employment, but in their ‘actions, desires, thoughts and ambitions’ are independent none the less. These workers can be a firm’s greatest asset but also its greatest weakness: endlessly creative and innovative if the incentives are right, but resistant and often resentful at having their actions controlled.

Phillips’s book is a comprehensive, paradigm-shifting overview of these and a countless range of other issues, essentially trying to answer the basic question, ‘what is employment?’

Most economists tend to think of employment as a work-for-pay relationship. But Phillips suggests that this is incorrect. He alleges that employment is a relationship of legal and behavioural control — precisely the argument that the labour Left have been pounding away at for centuries. The evolution of legal precedent and the formalization of industrial relations in dedicated bodies has rigidly defined employment in this way.

Employment law distorts many of the objectives of work regulation. In the context of the law, employees are considered witless and lacking in control. The employer is supposed to be responsible for their witless employees. Independence and the Death of Employment controversially argues that employment degrades human beings and removes responsibility.

Employers take the blame for employees’ actions – discrimination or for breaking work safety instructions. But this is merely the framework with which the legal system approaches employment. Phillips’s argument is that the experience of employment is quite the opposite. Independent contractors and the phenomenon of ‘independent employees’ belie the fact that a job is more than mere servitude.

Career desires, power urges, ego trips and personal self-interest are the dominant motivations in the firm. Individuals in the firm will be ambivalent toward the firm’s making losses if the individual is unaffected.

Economists have long recognized this as an agency problem—managers, for example, don’t always operate in the interests of shareholders. But the solution is not more highly regulated employees but allowing greater independence, which workers are already striving for, to create the appropriate incentives for mutual benefit. And the legal framework and regulatory impulses of government which surround employment must catch up.

These are changes that are being made already — sometimes against great resistance. The Queensland shearers’ desire to practise as independent contractors formed the backdrop to an eighteen-month legal case between the Australian Workers Union and the State of Queensland.

Independence and the Death of Employment is a combination of manifesto, self-help book, and rigorous analysis. It represents a massive shift in thought on labour regulation and employment, and will be heavily scrutinized and criticized by analysts from across the political spectrum. But whatever change it represents in intellectual thought, it is dwarfed by the massive change in how Australians work today.

IPA Review Editorial, September 2005

The Babylonian Code of Hammurabi was not merely a list of laws and their applicable punishments; it also dictated a wide variety of labour market regulations and price controls.

‘If a man hire a field-labourer, he shall give him eight gur of corn per annum’. Herdsmen were less valued, only receiving six gur of corn per annum. To hire a 60-ton boat for a day, a ‘sixth part of a shekel of silver’. These measures so weakened the Babylonian economy that they helped bring down the empire.

Forty Centuries of Wage and Price Controls by Robert Schuettinger and Eamon Butler was published in 1979 by the Heritage Foundation, in part to illustrate the folly of the policies that were being enacted in the political and economic turmoil of the Nixon–Carter years.

Perhaps this is too harsh on Hammurabi. After all, he does look a touch like Father Christmas. And it is hard to blame the ancient world for not possessing the wisdom of Adam Smith, although Nixon and Carter should have. Hammurabi instituted his political economy in an era when there were no political economists — governing the first civilization was governing in a world bereft of theoretical and ideological justifications for policy.

By comparison, the twenty-first century is rich with both political theories, and historical examples to hang them by. There are a raft of scholarly justifications for any policy preference, no matter how clearly devoid of logic. For a good illustration of this, Mike Nahan’s investigation of public service spending under the Carr Government (p7) shows the folly of governments adopting radical academic theories. (This IPA Review revives the ‘Around the States’ series, which will look at the issues facing the States, five years after the introduction of the GST.)

Even thousands of years after it was clear that the economic controls detailed in the Code of Hammurabi were self-destructive, governments practise the same flawed policies around the world. In this issue of the IPA Review, Erik Gartzke looks at the often-repeated claims of ‘democratic peace’, and finds them wanting (p12). He concludes that, instead, economic freedom is correlated much more closely with peace. This makes sense. Economic freedom, with its immeasurable benefits for the work and leisure of citizens, eases political pressure on governments — pressure which so often manifests itself as internal or external violence.

Looking at Africa in this context is instructive. In the pre-colonial era, free trade and free enterprise flourished — price and wage controls had no place in the continent – wide trade routes that characterised inter-tribal relations. Socialism and government regulation don’t exist in the African tradition. But nonetheless the continent has been cursed for more than a century with archaic price and wage controls. ‘Trade not aid’ is a slogan often bandied about, but it is clear that economic freedom — policies enacted in the countries themselves—is the only solution to the African ‘problem’. The path to economic freedom is rocky. Thankfully, as Nicholas McGowen details in this issue, there is an optimistic case for Africa.

This December issue is full of provocative articles. Looking at the recent revival of Bill of Rights advocacy, Rohan D’Souza asks whether more laws make more freedom. David Tribe takes a long view of biotechnology in agriculture—taking the great transition slowly just isn’t an option, let alone trying to reverse it, as much government policy seems to desire. Alan Moran reminds us why football is an interna-tional game, and the AFL is stuck in Australia. Federalism continues to be a focus, as Gerard Boyce examines the distorted and dangerous workplace safety regimes around the country. And Daniel Mandel uncovers what Trafalgar means to the Anglosphere today.

I hope you enjoy the issue, and your holidays.

Myths of the Corporate Media

Conventional wisdom places the print and broadcast media on a knife’s edge between two mutually exclusive requirements — the requirement to provide citizens with a challenging, informative and independent media, versus a desire to express the interests of ‘big business’ and make a profit. We are continuously told that both the broadcasting and the print media are increasingly driven by the profit motive. Independence, quality and diversity versus business interests — like Kipling’s East and West, never the twain shall meet. We are told that the media is irrevocably biased against ‘progressive voices’. Our very own Australian media mogul, Rupert Murdoch, is more dangerous to civil democracy than Citizen Kane ever could be. His Fox News is not merely biased, but actively partisan. (The far-left moveon.org proclaims ‘The Communists had Pravda. The Republicans have Fox’.)

Around the world, much of this is blamed on media deregulation in the 1980s and 1990s. In Australia, the 1992 Broadcasting Act, which created the Australian Broadcasting Authority, moved the media in the direction of a market-based, less interventionist approach to media regulation. While we maintain stringent local content quotas and cross-media ownership regulations, critics assert that the media is consolidating into fewer and fewer giant transnational cartels, and producing entertainment that is homogenous, bland and uncritical. Despite such heavy regulation, our media is less ‘diverse’.

What is diversity?

In February 2003, The Guardian conducted an analysis of the editorial line on the Iraq War in all 175 Murdoch newspapers around the world. It argued that each one supported American involvement in that conflict, and that they:

all are singing from the same hymn sheet. Some are bellicose baritone soloists who relish the fight. Some prefer a less strident, if more subtle, role in the chorus. But none, whether fortissimo or pianissimo, has dared to croon the anti-war tune. Their master’s voice has never been questioned.

Australian media policy is aimed at encouraging the diversity that The Guardian claims News Ltd’s coverage is lacking. The 1992 Act states as one of its objectives that its aim is to promote a ‘diverse range’ of broadcasting services offering education, information and entertainment.

But quantifying diversity is not as simple as listing whether a newspaper supports or opposes the War in Iraq. A glance over the Melbourne television guide presents an extremely wide range of genres — drama, sitcom, reality, sport, news & commentary, music, documentary — each of which can be divided further into its own subcategories. It would be hard to argue that both Rove Live and SBS’s current affairs programme The Cutting Edge would have a ‘homogenous’ political viewpoint. Even the difference between viewpoints expressed in Neighbours and Home and Away can be significant enough to warrant a ‘diverse’ rating.

When is content sufficiently diverse? Does the mere fact that a programme is broadcast in another language qualify it as diverse? If every newspaper were published in a different language, yet held the same editorial line on contentious political issues, would this be sufficient? While these examples may seem facetious, they highlight the ambiguous nature of the cries for diversity in our media. Media diversity is widely advocated for a host of social and cultural reasons, yet few participants in the debate are willing to address the practical applications.

The inelegance with which local content rules try to enforce a one-sided diversity attests to a simple fact — these appeals are more often than not either veiled protectionism or attempts to silence opposing viewpoints.

In reality, we are experiencing an age of unparalleled media variety. If diversity of opinion is what critics desire, then they should take solace in the multiplicity of content provided by the explosion of entertainment options. In Australia, there are 259 commercial radio stations, and more than 2,000 community and narrowcast stations. Cable television offers a massive range of stations, and TV programmes, from Nickelodeon to the Australian Christian Channel and from BBC World to Fox News. DVDs, podcasting, satellite radio, not to mention the Internet, provide more media options — and more diverse voices — than it is possible to survey.

Their master’s voice?

Does the ownership of broadcast and print services even matter? It is constantly suggested that media services are being consolidated into massive international conglomerates, and that these serve to exclude ‘voices’ which diverge from their corporate view.

But the relationship between ownership and content is far more complicated than is generally acknowledged. Communications researcher Benjamin Compaine’s recently released paper ‘The Media Monopoly Myth: How New Competition Is Expanding Our Sources of Information and Entertainment’ argues that, in the United States at least, there is no reason to suggest that corporate ownership is having a deleterious effect on the quality and diversity of programming.

Instead of providing the media moguls with an uninterrupted outlet to spread corporate propaganda, the drive for profit increases the alternative voices available. Michael Moore’s self-promoting blustering aside, the vehemently anti-Bush documentary Fahrenheit 9/11 was financed and produced by Miramax — a subsidiary of Disney — and distributed by Lions Gate Entertainment, an enormous media conglomerate with interests in a wide range of industries. The film went on to become the highest grossing ‘documentary’ in history.

It could not be argued that Fahrenheit 9/11 played to any corporate message. On the contrary, the documentary was in fact strongly supported because it was an alternative message — and alternative, anti-establishment messages can be a great way to make money. Big business is regularly portrayed as a moral enemy — even by media executives themselves. A recent James Bond film, Tomorrow Never Dies, in which a megalomaniac media baron tries to foment war with China by sinking a British battleship, was produced by MGM, now a subsidiary of Sony Entertainment. It could not be argued that the media are producing mere corporate propaganda.

In Australia, Margo Kingston rails against the corporate ownership of media in her screedish Not Happy John: Defending our Democracy — published by the Penguin Group, which is owned by the massive Pearson Plc. Kingston’s book was enormously successful, and can be found in major, corporate bookstores around the country. To accuse the mainstream media of drowning out dissenting voices, while simultaneously having one’s book published by one of the largest publishers in the world, is absurd.

Media quality

There are some indications that media output produced by conglomerates is of a higher quality — although this is obviously much harder to pin down. The US-based Project for Excellence in Journalism has attempted to do just that by a range of methods for quantifying ‘quality’ journalism. One method consisted of surveying all the often ambiguous and contradictory academic literature on the subject and looking for general patterns. The study, which focused on newspapers, showed that most of the literature connected higher expenditure with higher quality — variously defined — and then consequently with higher circulation.

Another study ‘Does Ownership Matter in Local Television News?’ gathered together a panel of 14 industry professionals and asked them to rate, over a five-year period, the quality of news broadcasts in a variety of genres. The study found that, while smaller stations tended to produce higher quality newscasts than large network stations, the highest quality was produced by those whose parent company owned a newspaper in the same market.

The study found significant differences between newscasts depending on their ownership structure. For instance, cross-owned stations aired more than one side of a controversial story half of the time, compared with just over a third of the time for those with no horizontal interests. They also tended to rely less on syndicated feeds. Rather, the company, as a whole, did more of its journalism in-house. While there were a few complicating factors in the analysis, the study concluded that, by and large, cross-media ownership tends to produce better quality news broadcasts.

Media (de)consolidation

That media corporations are continuously merging into ever-larger empires has become an accepted truism by most commentators. Indeed, in Australia, the small number of owners with large profiles (Packer, Murdoch) helps to reinforce this impression. But, when considering the international context of media conglomerates, the opposite is the case. Certainly there are enormous media companies, but it is deconsolidation that is the trend. Right across the industry, companies are divorcing and restructuring at a rapid rate. Viacom, the corporate owner of, amongst other things, MTV, Showtime, Simon & Schuster and Paramount, is splitting into two entities at the end of June. Disney is splitting with Miramax. AOL and TimeWarner, who merged a few years ago to cries of doom from political commentators, are also considering separation after enormous losses. Even News Corp may be considering splitting up.

It seems that ‘synergy’, that cringe inducing slogan for media consolidation, is dead. Big media corporations, trying to cope with the new markets created by technology and diversity of content, are struggling to ensure profitability. Even before they announced their June split, Viacom had shed Blockbuster Video, which was threatened by Internet rental services such as Netflix, and the increasing consumer ownership of DVDs. Instead, a simpler business model is preferred in this new era — one which can quickly react to ever-changing demand.

Conclusion

This article has not directly considered the radical consequences that the Internet and its secondary technologies — such as bittorrent, podcasting and blogs, which, in a few short years, have suddenly democratized the media — will have on quality, diversity and ownership. But it is clear from the overview provided that the effect that ownership has on the media is by no means as opaque as many popular critics assert. The relationship between the drive for profit and the drive for quality or diversity is not a mutually exclusive one. The widely and enduringly held views surrounding the Australian and international media must be re-examined closely.

Why do drug dealers live with their mums?

A review of Freakonomics: A Rogue Economist Explores the Hidden Side of Everything By Steven D. Levitt  and Stephen J. Dubner. (William Morrow, NY, 2005, 242 pages)

One day in 1989, at the behest of his graduate advisor, Sudhir Vankatesh, a young PhD student, strolled into a housing project on the shore of Lake Michigan carrying a multiple choice, seventy-question survey. The first question on the survey was:

How do you feel about being black and poor?
a. Very bad
b. Bad
c. Neither bad nor good
d. Somewhat good
e. Very good

The lifts didn’t work, so he took the stairs. On his way up he stumbled across what turned out to be a gang of junior-level crack dealers, who were using a stairwell as a base for operations in an ongoing gang war. After a long period trying to convince them that he wasn’t a threat, he attempted to read out his questionnaire. As he would later tell his University of Chicago colleagues, the test should have looked like this instead:

a. Very bad
b. Bad
c. Neither bad nor good
d. Somewhat good
e. Very good
f. F— you

After this inauspicious start, Vankatesh befriended the gang, and eventually its leader, J.T. After two years of unfettered access to all the gang’s activities, he emerged with a stack of well-worn spiral notebooks — a complete record of the gang’s financial transactions over a period of four years. Wages, sales, dues, death benefits paid out to the families of murdered members, everything. With such priceless documents, Vankatesh quickly came into contact with Steven Levitt, a young Chicago economist.

Steven Levitt has made a career of asking peculiar questions. Which is more dangerous — a gun or a swimming pool? Do black children’s names hurt their career prospects? Do parents really matter? With Vankatesh’s spiral notebooks, he posed the question — why do drug dealers still live with their mothers?

The book, which he wrote with New York Times journalist Stephen J. Dubner, is an anarchic, disorganized, and immensely entertaining survey of Levitt’s research. As the authors enthusiastically proclaim, the book has no ‘unifying theme’, but is, instead, a exploration of the hidden side of conventional wisdom.

Often, the topics for analysis seem mundane. They spend a chapter studying what conclusions can be drawn from children’s names. For instance, the parents of a child named Angel have, on average, 11.38 years of education, compared with Lucienne’s parents, who have 16.6 years. Similarly, how a name is spelt can be an indicator of parents’ education levels—Jasmyn’s parents have, on average, one more year of schooling than Jazzmin, and nearly two more years than Jazmine.

But their left-field analysis isn’t restricted to the mundane. Levitt gained an enormous amount of publicity from a 1999 study which concluded that rather than innovative policing strategies or police numbers, tougher gun controls or a booming economy, the single most important factor in the massive reduction in crime over the last decade had been legalized abortion.

His logic is simple. Women who are most likely to seek an abortion — poor, single, often minorities, and young — are also the most likely to be those whose children would grow up to be criminals.

The controversial nature of this conclusion, if it wasn’t lost on Levitt when he completed the study, was certainly reinforced after the publication of his 1999 paper. He was called, by both sides of politics, an ideologue, a eugenicist, and a racist.

As a ‘rogue economist’, Levitt has done remarkably well. He has been offered jobs by both Bill Clinton and George W. Bush. His undergraduate paper, which asked ‘Do more police translate into less crime?’, is still cited as the rebuttal to the liberalized punishment system of the 1960s and ’70s.

Freakonomics is a controversial and a provocative book. Levitt’s only real message is to encourage confrontational questions, and this is certain to secure him a permanent following.

The Debate: Campaign Spending

Should campaign spending be capped after Malcolm Turnbull’s $600,000 Wentworth win?

NO: Limitations on the amount of money spent on election campaigns and the way it is spent do not create the egalitarian political landscape that their supporters claim.

There is considerable evidence to suggest that spending caps reduce the competitiveness in electoral races and work against challengers and in favour of the incumbents.

Incumbents are already well known throughout their electorates and their positions clearly defined, in part, because of past spending but most importantly, because they hold the keys to the public treasury.

Incumbents are able to use their positions to gain financial and promotional advantages that their challengers are not.

Spending caps don’t work. Experience shows us that spending goes underground.

Soft money raised by unions, political action committees and other ill-defined lobby groups — nominally independent of political parties but in reality closely aligned — has just as much influence on the electoral process than any money collected by the parties or politicians themselves.

Chris Berg is the director of communications for the Institute of Public Affairs

ACCC Should Be Good Sports

The chairman of the Australian Competition and Consumer Commission, Graeme Samuel, argues that if Telstra acquires the exclusive right to broadcast popular content on mobile phones then its competitors will be discouraged from investing in modern infrastructure. This is not the case.

By allowing service providers like Telstra the capacity to provide exclusive content to their customers, it encourages other networks to develop similar offers.

Optus already provides video news to their mobile customers.

Other phone and internet companies are contentedly building new infrastructure and developing new technologies to provide better, higher quality services to consumers. In the drive to attract more consumers, companies are forced to be more creative and more innovative.

Samuel argues that if Telstra is allowed to provide its customers with Australian Football League statistics and replays then this may cease. This is disingenuous at best.

To pick on one type of entertainment, popular though it may be, and then decide that it is suddenly a public good seems absurd. Exclusive sporting content is not the barrier to third-generation telecommunications competition that the ACCC thinks it is.

Leave sporting rights alone.

Nothing would encourage the competition that the ACCC is sworn to defend like letting the providers actually compete.

There Can Never Be Too Much Sport, Mr Samuel

While the first footy game of 2005 might still be weeks away, former AFL commissioner and now chairman of the Australian Competition and Consumer Commission Graeme Samuel recently kicked off the pre-season competition. He suggested that the ACCC was considering regulating the sale of the rights to broadcast AFL games over the internet and via mobile phones.

Samuel’s target is Telstra, which he fears will use its substantial financial resources to buy the exclusive rights to matches.

The problem, according to him, is that customers will prefer the internet and mobile phone products of a company that carries AFL games, compared with a company that doesn’t. And this, according to the ACCC, is anti-competitive.

On this logic the AFL grand final is anti-competitive because only one team can win.

If this is an indication of an ACCC keen to redefine anti-competitive behaviour, then the regulators are going to be very busy cracking down on auction houses, the record companies, film studios – indeed, anything that exclusively sells a unique product.

It’s about time that Samuel and the ACCC narrowed their focus to actual cases of market failure

Leaving aside the question of whether the ACCC has the power to act in such a matter – which arguably it doesn’t – there is the more fundamental question of why Samuel believes it is the role of government to interfere in the sale of broadcast rights to football games.

The AFL should be free to sell its own product to whoever it wants, for whatever price it wants, and under any conditions it determines. For as much as we here in Victoria might like to think otherwise, Australian rules football is not an essential commodity.

The commercial justification for the ACCC’s interference is flimsy to say the least, and if Samuel gets his way the diversity of products available to consumers could actually be reduced.

Telecommunications providers require “content”. The more material they have to broadcast the more willing customers will be to sign up. So to enhance the value of their internet broadband and mobile telephone services, companies provide extra content to subscribers – cheap legal music downloads, video rentals, movie trailers and sports.

The internet enhances the home experience of sport by increasing the content available. By bundling content with their basic internet packages, companies can offer the consumer better value.

Rather than lessening the sport available to Australians, a deal between Telstra and the AFL will provide more.

It’s about time that Samuel and the ACCC narrowed their focus to actual cases of market failure.

Why is he trying to protect us from too much sport?

The Revolution in Telecommunications

Although a strong telecommunications policy was not judged by any political party to be a powerful electoral strategy, the resounding Coalition victory has put Telstra strongly back into the spotlight. The privatization of Telstra, for so long a backburner issue, has suddenly become not just a possibility, but almost a certainty.

The Productivity Commission recently released a draft of its Review of National Competition Policy Reforms which, in part, advocates an enormous structural change to the carrier and to the Australian telecommunications industry.

The copper wire network in Australia is based on an open access regulatory system. Telstra owns and is responsible for the network, while the ACCC forces the carrier to rent the network out to the other carriers. This system is akin to forcing the owner of a property to take boarders, with the cost of rent subject to centralized price controls — similar to the rent control system in New York City.

Needless to say, this process is highly inefficient. Wholesale price changes are not controlled by market forces, but by a slow and time-consuming process of bureaucratic review, and often legal proceedings. It can also be used by some companies as a weapon to wield against competitors — by claiming that another carrier is acting anti-competitively, companies can stifle others’ business. Still, at the time of the original sale of Telstra, when nearly all telecommunications was conducted through the same copper wires, such an open access system may have seemed attractive.

The proposal of the Productivity Commission is, therefore, to split Telstra in two, to create a clean separation between its retail and wholesale functions.

Passing ownership of the network to a separate entity would compel Telstra to petition and deal with this new entity on the same footing as all the other 100-plus Australian carriers. The loss of market dominance by Telstra would surely follow, as would the repeated cries of ‘Telstra is a bully!’ As the Productivity Commission argues, the entity that arises from the vertical separation of the network would improve its relations with the other carriers. No longer would the owner of the network also be a competitor, but more a neutral arbiter of the industry.

Would the entity be a private company or a further government bureaucracy? The restrictions placed on private ownership would be non-trivial. For instance, such a firm would be forbidden to offer any cut-rate services to businesses or consumers because to do so would make the separation from Telstra meaningless.

This private entity would be trapped between the ACCC and the telcos as the regulators try to micro-manage the industry — an unenviable position in which to be, and a prospect which would excite few firms.

The other option is to leave the government in charge. At least, by this method, the ACCC would be less busy. There would be no need for the tedious legal back-and-forth that frustrates our telecommunications innovation cycle. By essentially integrating the regulators with the regulated, the ACCC would have no worries about promoting ‘competition and fair trade’ for the ‘consumers, business and the community’.

By this method the government could continue to fix wholesale prices at whatever it feels are in the best interest of the community. Not only that, but it could use its new power over the industry to regulate consumer prices — refusing to rent lines to companies which charge more than 22 cents for local calls, for instance. Instead of removing the government from the business operations of telecommunications firms, ownership of the copper wire gives them far more capacity to manage the industry as they see fit, without the pesky corporate lawyers trying
valiantly to defend the competitiveness of their firms.

There is a term for this, of course—‘infrastructure socialism’. It is not intended as a compliment. This would give them the entire copper wire network in Australia, and control of the entire industry, not just the occasional oversight that the ACCC now affords them.

It is an understatement to say that government is not the most effective manager of the telecommunications industry — Telstra was partly privatized in 1996 for a reason. For instance, installing a basic copper wire phone service in some rural and regional areas used to take up to 30 months; it is now less than three. Exposing the telecommunications industry to
competition has increased the quality and decreased the price of services across the board — an illustration of the stunning inefficiencies of socialized communications.

Considering both options, it is clear that selling the wholesale side of Telstra to a private company is far preferable to leaving it in the hands of a government bureaucracy. But what is not clear is why slicing Telstra across the middle is actually necessary.

The revolution in telecommunications

Telstra may have a monopoly over the copper wire system, but that doesn’t mean that Telstra has a monopoly over the means of communications. Not any more.

It is often argued that the successor to the industrial revolution of the eighteenth and nineteenth centuries has been the revolution in computing of the last two decades. This is not without truth, but it is becoming clearer and clearer that the revolution is not that of ‘computing’ but of ‘communications’. Since the first e-mail message in 1971, the most powerful and the most useful of all the myriad functions that computers can fulfil has been that of communication. There is nothing computers like to do more than talk to each other. And we just suck it up.

It is estimated that, by 2005, over 35 billion e-mails will be sent … each day.

Of course, innovation doesn’t stop at e-mail. Developments in user-to-user software have all but broken any social restraint on breaking copyright in music and movies. Similarly, a new system, Voice over Internet Protocol [VoIP], promises to do the same for the copper wire network. Simply put, VoIP is a method of making a call to a traditional copper-wired phone from a computer through an Internet connection. The quality can far surpass that of traditional phone calls, depending on the individual preferences of the users. (Like most computer programs,
VoIP software is highly customizable.)

As long as one is connected to the Internet, the outward call bypasses the copper wire network — and, by doing so, bypasses Telstra’s monopoly. The 22 cent phone call which is the norm around the country drops suddenly to a fraction of that. If, however, one makes calls between two VoIP services, they become effectively free. And VoIP is not just idle experimentation. Skype, the most popular program, boasts that it has already been downloaded 33 million times.

To use VoIP services, you still need an Internet connection, preferably a broadband one. In Australia, one of the most common methods of broadband access is still through the copper wire networks, a system called ADSL. ADSL is subject to the same forced access regime that traditional voice services are — Telstra owns the lines and is forced to sell access to its competitors by the ACCC.

The telecommunications revolution, however, is breaking this mo- nopoly as well. Many Australians are connected to the Internet via their pay-television cable lines. Around the world, companies are starting to lay fibre-optic cables. The capacity of this technology is incredible. In principle, optic cables can carry up to 25 trillion bits per second — enough, in a single cable, to carry all of the conversations in Australia and the United States at any one time, and still leave room to provide broadband Internet.

Innovation isn’t limited to laying cables. Wireless broadband is steadily becoming more common in homes and businesses, and smaller ISPs are experimenting with full wireless services. Exetel is providing wireless services to metropolitan Sydney for prices comparable with normal ADSL connections.

When you combine the extraordinarily fast Internet connections being developed and installed around the world with the monopoly-breaking Voice over IP, it is clear that we are undergoing a revolution in telecommunications.

But the Productivity Commission proposals appear ignorant of these momentous changes. The benefits of splitting Telstra in two will, at best, last for a few years, and will then benullified by technological progress.

The Productivity Commission’s proposal is akin to reforming a water-canal transport network after the invention of the car. Considering the massive cost, the legal nightmare, and the damage to Telstra’s share-holders’ investment, splitting the company is just not worth it. The benefits are both marginal and temporary.

Telstra’s Regulatory Waltz

Allan Fels would like to increase the already innumerable regulations to which Telstra is held (“Fully privatised Telstra more of a bully”, Opinion, October 13).

Telstra is already responsible to its customers, its shareholders, the government, the Australian Competition and Consumer Commission and the Australian Communications Authority, not to mention self-regulation groups like the Australian Communications Industry Forum.

Every significant change in price structure is greeted with a barrage of competition notices and inquiries. If Telstra tries to offer discounted prepaid phone packages, they are condemned. If they try to harmonise their fixed line rentals with the new broadband market where many households are disconnecting their second line they are condemned.

Telstra is even condemned by the telecommunications industry ombudsman when their broadband customers voluntarily spend more money than expected.

The price war over broadband earlier this year is a case in point. Every attempt to offer Australian consumers cheaper and faster internet access is in spite of, not because of, the ACCC. No wonder the quality of our internet connections is so low compared to the rest of the world, when it must first sit through this regulatory waltz.

The last thing the industry needs is even more regulation. Already restricted by its universal service obligations and price controls, Telstra has less control over its own direction than does the ACCC. And in a time when broadband is becoming increasingly ubiquitous, the overly aggressive restrictions that Fels proposes will pre-empt a dynamic and competitive industry.