Telstra sells lots of mobile phones. One isn’t going to make a difference to its business, unless it has an ‘i’ in front of it. But it’s kneecapping of HTC’s handsome new HD2 reveals a company more interested in controlling you than competing for your business. And that says a great deal about why this company’s future looks far worse than its past.

HTC has tried to fix one of the mobile market’s big problems — Microsoft’s ugly and complex mobile operating system (yes, yes, reviews of its new OS are blisteringly good but, after seven attempts, you’d expect some progress). HTC has put an interface between what the user sees and the software that runs the phone. As John Davidson explained in his Australian Financial Review column a few weeks back, it aims to let the user determine how the phone looks, to “make it mine“.

But Telstra doesn’t want to make the phone yours, it wants to make it theirs. On the home screen, there are huge logos of its email service and Foxtel. There’s even a big icon that assumes you use Sensis for web searching. Sensis! Davidson counted truckloads of Telstra icons, none of which can be easily removed.

How can Telstra think this is a good idea?

Monopolists don’t deal well with competition. They find it hard to accept their power has waned. To them, customers are to be captured, not satisfied. Just as Microsoft wanted you to use its web browser by preloading it with Windows, Telstra wants you to use its email service by preloading it with your phone.

The seductive pull of the idea of controlling markets rather than competing in them is too great for a monopolist. They become attuned not to customers but to the exercise of market power. It’s simply how they think.

So instead of innovative new products, the preservation of power prevails. Witness the legal battles with the European Union in the case of Microsoft or the ACCC in the case of Telstra. Instead of the iPod, we get the Zune. Instead of all-you-can-eat download plans, we get ISPs locked out of Telstra’s exchanges. Instead of an attractive phone interface, we get a castrated HTC HD2.

Telstra’s monopoly power stemmed from its fixed line business. That’s now in terminal decline. There’s little evidence of Telstra being able to adapt: it screwed up its iPhone pricing, it resisted mobile bucket plans because they cut into margins, and when it gets its hands on a lovely new phone it turns it into one giant ad.

What does the future hold for such a company? Much like Microsoft: incapable of innovation, squabbling with authorities, strong-arming customers, unable to change.

The rivers of cash from Telstra’s fixed line operations won’t last. The mindset that has developed around them almost certainly will. Unless something changes, eventually, customers will leave. Shareholders will soon follow.