ok, this is going to sound a little naive no doubt because I’ve just started to dig around a little around the whole Sol kafuffle and really dont have time to get more than the surface. But here goes anyway.
Telstra under its USO (universal service obligation) is required by legislation to supply comparable services to the bush even if it makes a loss for those services. There is further price control legislation that determines how much Telstra can and cannot charge across the board. This basically means it has to cross-subsidise from its city revenues that is to meet costs (and make a profit), Telstra has to charge its city users a bit more money so it can afford to supply country people.
There are a number of other telcos out there now that compete with Telstra but they have a choice as to where they compete. The easiest section to compete would be in the city presumably and because these telcos dont need to supply services to the bush, they are always going to be cheaper than Telstra. As competition in the city is going to drive down prices in the city, Telstra in having to match city prices for country subscribers will find itself making even more of a loss. Eventually, Telstra will find its city customers moving to other telcos while it still has to supply bush customers at ever increasing loss levels.
I wonder how long that can last before the government steps in and renationalises Telstra (after it has suitably devalued and shrunk to a struggling country telco network). Personally, I think it’s a great strategy – make big bucks out of Telstra shares, construct regulation so that Telstra cant help but fail in the next few years, blame Telstra when country users kick up a shit by saying hey it’s a private company – nothing to do with us, then buy it back for a song amidst great fanfare about protecting country consumers. In that time, country users will be used to very poor service levels and you’ve managed to extract a lot of money from telstra shareholders for pork.