The commotion over Telstra’s falling share price has exposed the
reality of the government’s motives in attempting its privatisation.

If Telstra was really just another company in the market (as the
government sometimes seems to claim it is), then Sol Trujillo’s
complaints about the discriminatory burden of regulation on it would be
entirely justified. The government’s position on the regulatory issue
only makes sense on the assumption (correct, in my view) that Telstra
in reality is still a monopolist.

But if that is the case, then the drop in the share price is a good
thing: it means that the markets think Telstra’s dominance is on the
wane, that its capacity to screw future profits out of consumers has
been reduced. In other words, the combination of regulation and
competition is working.

Since the government refused to take the proper step of disaggregating
Telstra before privatisation (as, for example, Alan Stockdale did with
the Victorian electricity industry, a similar vertically-integrated
monopolist), it could be argued that the next best thing would be for
Telstra to go bankrupt and have the market sort out the disposal of its
components.

Even leaving that aside, a low share price is a good thing for genuine
supporters of privatisation. If small investors can get in at the
bottom of the market and then make profits, it will lock in their
support – that’s what happened in Thatcher’s Britain. Conversely, the
unrealistically high price of the T2 issue has probably soured its
purchasers on the whole idea of privatisation.

But if you were a government that was more concerned with making a fast
buck out of the sale than with getting the telecommunications market
right, then you wouldn’t care about any of that: you’d just be upset
that Telstra’s executives were talking the sale price down.