“This is a fucking second-rate decision from a second-rate Government.”

That was Paul Keating, storming out of the Hawke cabinet in September 1990, after it had approved Kim Beazley’s proposal to merge Telecom and OTC and have a managed duopoly in telecommunications.

Keating had wanted OTC to stay separate and become the basis for a competitor to Telecom, and open competition. Instead, the debt-laden Aussat got that role.

The issue, and the fight between Beazley and Keating, dominated politics after the 1990 election. Keating’s fury was partly derived from the growing leadership tensions with Hawke, who sided with Beazley (there was by that stage talk that Hawke was promoting Beazley to replace him rather than Keating), but was mostly genuine. Beazley’s plan was cooked up in concert with Telecom management and, critically, Telecom’s unions — this was the days when Telecom had nearly 90,000 workers.

Beazley was terrified of upsetting the powerful public sector unions. Keating pushed the Treasury line for more competition and giving a serious competitor a leg-up to take on the established giant. He lost. The best place to read about the clash is Mark Westfield’s ripping yarn of a media policy history, The Gatekeepers.

Telstra was thus born in the conflict between politics and economic theory, and has remained there ever since.

In 1990, economic theory wasn’t quite as clear cut as it is now about infrastructure. The Hilmer Report, which remains one of the most important policy documents in modern Australian history, was still several years away. Encouraging competition in monopoly markets was a complex and difficult issue. Pricing access to infrastructure in a way that rewarded owners appropriately but encouraged competition was the stuff of obscure economics articles rather than public debate.

Beazley was also influenced by the experience overseas, especially in the UK, and by notions of a national telecommunications champion. The older among you might recall “national champions”, a quaint version of protectionism that suggested propping up a huge, inefficient monopoly domestically enabled it to “compete” overseas against, well, other national champions. Economic policy by B-grade movie.

When time came to privatise Telstra under the Howard Government, economic orthodoxy came up against a different opponent: naked greed.

The economic benefits of privatisation are maximised when assets are sold in a way that encourages competition. But invariably, encouraging competition means a lower price for the asset. The private sector would far prefer to buy a monopoly or stake in an oligopoly rather than a player in a competitive market, thanks very much.

Instead of breaking Telstra up and flogging its retail and network components separately, the Howard Government kept it together to maximise its sale price. Since then, some consultants — most particularly Henry Ergas — have virtually lived off this decision, providing complex and ultimately entirely spurious reasonings for Telstra to keep behaving as anti-competitively as possible and block competitors from obtaining reasonably-priced access to its network. Incidentally, Stephen Conroy had the line of the day yesterday when he noted that Ergas had recently “structurally separated from his own company.”

There’s an element of politics in Conroy’s decision to break Telstra up, to be sure. It’s about maximising the possibility that the NBN will cost the Government as little as possible by getting access to Telstra infrastructure. But it’s also good policy. It’s even brave policy. The Opposition is already talking about Telstra shareholders. Telstra shareholders have earned dividends for years off the back of Telstra’s gouging and anti-competitive behaviour. If their shares are down even further than Sol Trujillo left them, tough bloody luck. No one made you buy them in the first place. That doesn’t mean there won’t be complaints from them, which should be appropriately directed to The Australian, which will happily run them.

Conroy’s use of the threat of preventing Telstra from bidding for wireless spectrum is also smart. Wireless was the only area were Trujillo demonstrated some nous and innovation, bequeathing an excellent wireless broadband service in Next G. Conroy has seized on that as the area where he’ll place most pressure to force Telstra to comply.

Twenty years after Keating and Beazley clashed, we’re still stuck with the issue of how to resolve the conflict between infrastructure owners’ right to an appropriate return on their investment, and the benefits that flow from competitors’ access to that infrastructure on economic terms. It’s a particularly difficult issue for Australia, which has such a low population density that a lot of infrastructure is barely economic at the best of times.

Access regimes, Competition Tribunal judgments, well-armed regulators and even infrastructure owners eager to avoid a war with the Government are all second-best options. The only way to resolve the dilemma is to remove the conflict and ensure the interests of infrastructure owners and those who want to use the infrastructure accord. And the only way to do that is to ensure the infrastructure owner isn’t also offering services that use the infrastructure.

That’s where Conroy is finally taking us, correcting the huge mistake Bob Hawke and Kim Beazley made. If he does nothing else, Conroy will have done more than many of his predecessors, Labor and Liberal, managed in the intervening decades.