CHAPTER 1
INTRODUCTION
1.1 The Telstra (Dilution of Public Ownership) Bill 1996, (`the Bill')
was introduced into the House of Representatives on 2 May 1996, and received
by the Senate on 9 May 1996. In considering a motion to exempt the Bill
from an order of the Senate (by which its further consideration would
have been automatically deferred until the Senate first met for its Spring
sittings on 20 August 1996), an amendment was agreed to referring
the Bill to the Environment, Recreation, Communications and the Arts References
Committee for inquiry and report by 22 August 1996. [1]
1.2 The reference of the Bill to the References Committee, rather than
to its companion Legislation Committee, was considered to be appropriate
as the legislation was seen as central to a broader inquiry into a series
of interconnected issues which called for wide community and industry
consultation.
1.3 The Bill cannot be considered in isolation from other proposed
legislation and other current and prospective developments in telecommunications
policy and regulation. The partial privatisation of Telstra is an element
of the Government's restructuring of the telecommunications industry.
The other key elements are the introduction of legislation and institutional
arrangements for a deregulated telecommunications environment post-July
1997.
1.4 The inquiry was advertised nationally during the period 25-27 May
1996. The Committee received 650 submissions and a number of supplementary
submissions, which are listed at Appendix 1. The Committee examined
136 witnesses at 11 public hearings in all mainland State capitals,
and Canberra, during the period 25 June to 26 July 1996 (see Appendix
2).
1.5 This report is based on the 650 submissions received, most of which
have been printed, in 17 volumes running to more than 3300 pages, and
on the Official Hansard Reports of the 11 days of public hearings (1019
pages). At the hearings, the Committee tested assertions made in submissions
and sought elucidation and further information. This information, all
on the public record, constitutes an important and authoritative database.
It has been used to substantiate the Committee's arguments, conclusions
and recommendations in this report.
1.6 Only a small number of submissions received argued strongly for
partial privatisation. These included the Department of Finance, the
Department of Communications and the Arts, Telstra, the Business Council
of Australia, and the Chamber of Commerce and Industry of Western Australia.
Most organisations which supported partial privatisation, such as BZW
Australia, did so with reservations. These are discussed in subsequent
chapters of this report. The Committee noted that the majority of those
who supported partial privatisation, such as Telstra management and
market analysts, had strong vested interests in seeing it happen.
1.7 A significant proportion of the 650 submissions were concerned mainly
with the adverse effects on the urban environment of overhead cabling
and mobile telephone towers. Chapter 6 of this
report is concerned with this issue. It is obvious that many individual
citizens, local government and community organisations took advantage
of the existence of the Committee's inquiry to voice their deep concerns
about these issues.
1.8 In accordance with Part 2 of the terms of reference, the Committee
took note of the inquiry undertaken in the 37th Parliament, by the Senate
Economics References Committee, into the impact on industry, employment
and the community of telecommunications developments up to, and beyond,
the year 2000. The report of that Committee was published in November
1995. Connecting You Now...Telecommunications Towards the Year 2000 recommended
(Recommendation 11) that the definition of "standard telecommunications
service" allow for the provision of radiocommunications services,
and consequently be renamed the "standard communications service".
This Committee supports that recommendation. This Committee also took
note of recommendations 12, 14 and 19 of that report. [2]
1.9 The Committee gave the highest priority to completing the task,
assigned it by the Senate, of reporting within a limited time on the
range of issues relating to telecommunications policy set out in terms
of reference (a) to (n). The original reporting date of 22 August 1996
was reached after negotiation between the Government and non-Government
parties in the Senate so as not to delay the progress of the Bill, which
was scheduled for re-introduction on that date. An extension of time
to 9 September 1996 to report was sought only after the Government indicated
that the Bill would not be re-introduced before that date. Many of the
issues addressed under (a) to (n) of the terms of reference could have
been the subject of reference committee inquiries in their own right,
and it has been an onerous task to do justice to them all in a single
report.
1.10 It is expected that the other legislation relating to telecommunications,
which the Government proposes to introduce in this parliamentary term
(discussed in Chapter 2), will also require close
scrutiny by the Senate. The proposed Telecommunications (Numbering Charges)
Bill 1996, designed to provide for the payment of charges for the allocation
of numbers for particular telecommunications services, will have enormous
and fundamental implications for the valuation of Telstra and consequently
for its privatisation. This is just one of several important bills which
the Government plans to introduce. The Committee is concerned that the
financial and staffing constraints which the Government has imposed upon
the Parliament will unduly limit the resources required by the Senate
and its committees to satisfactorily discharge the duty of scrutiny of
legislation.
1.11 None of the witnesses who argued in favour of partial privatisation
of Telstra denied that their final aim was full privatisation. The Committee
noted that the arguments presented to support the privatisation of Telstra
were essentially rhetorical rather than empirical. The arguments hinged
upon dubious international studies which had no relevance to Australian
social, economic or geographical conditions. No persuasive empirical
evidence was presented to support the contention that privatisation
or partial privatisation of Telstra would produce productivity improvements
over and above those produced by competition. The much-cited World Bank
study in particular was not based on case studies of telecommunications
industries comparable with Telstra, nor with the regulatory or competition
regimes of Australia. The World Bank report is therefore of very little
value in an analysis of the benefits of the proposed privatisation of
Telstra.
1.12 At risk in the privatisation of Telstra are:
- access to advanced communications services.
- service availability, quality and price;
- public finances;
- foreign ownership;
- employment; and
- local manufacturing;
1.13 The Committee was particularly concerned that the Government is
attempting to privatise Telstra at a time when a major overhaul of the
regulatory regime for the telecommunications industry is being planned.
All witnesses, including those who supported privatisation, acknowledged
that it is competition and regulation rather than ownership which are
the primary drivers of efficiency improvements and consumer welfare.
The Committee therefore considered that the Government should devote
its efforts towards ensuring an appropriate regulatory regime is implemented.
The concern shared by the Committee is that the Government may sacrifice
stringent consumer and competitive safeguards in the interests of short
term revenue raising.
1.14 Telstra is currently one hundred per cent Australian owned —
and all Australians share in the benefit of that ownership — all
Australians get a return on their investment. The Committee noted that
the Government's long term strategy is to fully privatise Telstra. The
transfer from public to private ownership would mean that fewer people
would benefit.
1.15 Telstra provides telecommunication services to the whole of Australia.
It performs a unique service, given Australia's demography — some
18 million people — and landmass spread over eight million square
kilometres. Australian society has one of the highest levels of telephone
access of any country in the world — 97 per cent of Australians
have a telephone.
1.16 Telstra has changed enormously in recent years. The introduction
of competition in 1991 has seen a remarkable improvement in Telstra's
consumer focus, and it is able to balance out its national obligations
with its consumer services in a much more effective manner. Telstra's
financial performance has improved greatly, and meets international comparisons
well in a range of areas. This was confirmed by BZW Australia. [3]
1.17 The strongest advocates of privatisation have been the Telstra management
and market analysts, two groups most likely to directly benefit from privatisation.
Management would be able to secure market salaries and benefits far beyond
those they could expect from a publicly-owned organisation. [4]
The senior executives of Telstra in recent years have accepted substantial
bonuses which have reflected efficiency improvements. If Telstra is perceived
to be inefficient, it remains to be answered why bonuses were offered
in the first place. The Committee notes that it has not been explained
what management improvements, if any, would occur specifically as a result
of privatisation.
1.18 The Committee noted that social obligations imposed on government
enterprises have often been essential for furthering national development.
Social priorities are often judged more important than short term financial
benefits. The capacity of all Australians to use the national telecommunications
network, no matter where they live, is one such priority. The employment
of Australians and the provision of services in regional centres is also
of great importance. Yet, it would appear that those expected to pay for
the privatisation are the 24 000 Telstra employees identified in Project
Mercury, many of whom are to be sacked in order to make Telstra's prospectus
more attractive to potential investors (see Chapter
5). The Committee has been advised by advocates of privatisation that
it is more efficient to replace the scrutiny of the Parliament and public
accountability with the private sector market and private sector accountability
of the stock exchange. Privatisation would result in reduced Parliamentary
scrutiny because management would not be subject to parliamentary committees.
While this is promoted as a reduction in political interference, it implies
reduced public accountability for the actions of management.
1.19 The debate about the future of Telstra and the telecommunications
industry will continue after this report has been presented. The Committee's
inquiry has allowed Australian citizens as current 'shareholders' in
Telstra to voice their opinions on issues broader than whether they
are for or against the proposed partial sale. The introduction of customer
service guarantees proposed in the Bill, and other related issues concerning
the rights of consumers and environmental matters, needed to be debated
publicly, and the Committee's inquiry has provided an opportunity for
this to occur. In addition, citizens have used the inquiry to express
their deeply held concerns regarding duplication of infrastructure,
overhead cabling, and carrier immunity from State, Territory and local
government environmental protection and planning laws.
1.20 It has become clear to the Committee during its inquiry that there
is great unease in the Australian community about the whole question
of privatisation. Australia's telecommunications infrastructure is seen
by many as a fundamental element in the national endowment which should
always remain in public ownership. Like defence, it is one of the central
responsibilities of the state and is too important to be delegated to
private interests. The view taken by the framers of the Australian Constitution
and agreed to by all Australian governments at Federation was to allocate
telephones and telegraph telecommunications exclusively to the Commonwealth
Government. The Committee believes that while there is a place for private
enterprise in the telecommunications industry, to sell off this public
asset which has been built up over a century of national enterprise
would be to depreciate an inherited trust.
1.21 Telstra is an important part of nation building, and has done
so at high levels of efficiency as measured in financial terms. Basic
telecommunication services have been built up over the last one hundred
years. Telstra has pioneered research and development of international
importance in telecommunications infrastructure for a range of services
in both voice and data to very high standards. The Universal Service
Obligation has ensured that rural and remote communities have been provided
with telecommunication services. This is important not only for national
development, but also for reasons of social justice. The Universal Service
Obligation is funded through cross subsidies estimated to be $226 million
each year (see Appendix 8). It is unlikely that a private carrier operating
on a purely commercial and profit driven basis would undertake these
developments. Optus, at its peak, only expects to service 50 per cent
of Australian households. While Telstra's competitors are expected to
contribute towards the cost of the USO, it is actually Telstra that
has to fulfil them.
1.22 Telstra has played an important developmental role in the Australian
telecommunications industry. Its 1992 five year industry development plan
involved expenditure of $40 billion. [5]
In one year alone, 1994/95, $3 billion was spent on Australian-made goods
and services. [6] About one thousand
companies had contracts worth more than $400 000. Fifty companies were
awarded contracts of over $10 million. [7]Over
$200 million has been invested in research and development. Telecommunications
is a rapidly expanding industry, with growth rates expected to be in excess
of 15 per cent per annum, new investment rates expected to be in excess
of 22 per cent per annum, domestic sales expected to increase by 20% per
annum, and exports expected to increase by 38% per annum. In 1994/95,
Telstra purchased goods and services worth some $1.2 billion from small
and medium sized enterprises. Fifty-five per cent of all Telstra purchases
are of locally manufactured telecommunications equipment and services.
Telstra is one of the nation's biggest companies, and its long-standing
commitment to buying Australian has boosted the national telecommunications
industry to the point where it has grown from $2.1 billion of sales in
1991 to $4 billion in 1995.
1.23 Telstra provided payments to government in 1994/95 in excess of
$2.7 billion, and makes a substantial contribution to public sector revenues.
[8] At the same time, it finances its
own capital expansion and makes an insignificant impact on Commonwealth
guarantees for loans. Within three years, it is likely that the remaining
$700 million of Telstra's Commonwealth guaranteed debt will have been
retired.
1.24 Telstra is one of Australia's leading companies. It is playing an
increasingly significant role internationally, and has the potential to
be a major Australian flag carrier in the world economy. It is pursuing
a range of off-shore projects, particularly in the Asian region, including
Vietnam, Pakistan, India, Indonesia, Thailand and central Asia. Australian-produced
technology, meeting Australian standards, is being applied to the international
market, so that switching systems, mobile networks and long distance networks
suitable for Australian conditions have a broader market reach. This provides
opportunities for Australian companies and Australian workers to improve
domestic prosperity and security. Multinational corporations are establishing
Australian bases, helping to develop the Australian telecommunications
industry, providing employment for Australians, meeting Australian national
interests, and exporting that expertise to the world. Companies such as
Alcatel, Ericsson, ERG (Energy Resources Group), Siemens and MIM Cables
provide an important adjunct to Australian manufacturing industry. These
are the companies which the Minister for Communications, Senator Alston
referred to as 'sheltered workshops' in the Senate on 9 May 1996. [9]
Telstra has the potential to be amongst the world's great companies, participating
in the rapid growth rate of telecommunications world-wide. New technology
means that national borders are becoming increasingly insignificant. It
is important that a company owned by all Australians is a part of world
trade, rather than having Australia left at the mercy of foreign-owned
corporations.
1.25 In a rapidly changing technological environment, and without the
1997 regulatory regime in place, there is limited prospect of long-term
security for either consumers or the community at large. There is no
agreed definition of what the basic telephone service should be.
1.26 So-called guarantees may be undermined by means other than deliberate
avoidance. The passage of time and changes in technology may render
any guarantees given today obsolete in ten years time. Although the
Government claims that consumers and the community can rely upon the
legislative framework to protect their interests, the Committee remains
unconvinced that targeted assistance, price caps, billing standards,
tariff information to customers, untimed local calls, free directory
assistance, and free emergency call services, will be protected over
time. Most of these are contained in regulations, licensing conditions
or AUSTEL determinations which can be altered by the Government without
requiring amendments to legislation. In view of the public discussion
on timed charges for data users and adjustments to local call zones,
the Committee is not confident that these guarantees will endure. Private
shareholders would be likely to apply pressure for their removal in
order to maximise returns on investment.
1.27 The proposal to set up a Natural Heritage Trust Fund, and the linking
of this Fund to the sale of Telstra, is an attempt to blackmail the Senate
and the community to gain support for the dilution of public ownership
of Telstra. Initial funding of $1 billion for the Trust is to be sourced
from the partial privatisation of Telstra, and of this amount, $700 million
(or an average of $140 million per annum) is to be applied to five projects
over a five year period. The remaining $300 million is to be invested
and the interest used for environmental and natural resource management
projects. This interest, after inflation, may amount to $10 to $18 million
per annum. [10] After the initial five
years, there will be a paltry amount left for any environmental project
— and one-third of Telstra and one-third of its profits will have
been lost.
1.28 For all those reasons, and for reasons developed more fully in
the following chapters of this report:
| RECOMMENDATION 1:
The Committee recommends that Telstra remain in full public ownership.
|
1.29 In spite of national advertising, and three extensions of time
to receive submissions, the inquiry by the Senate Environment, Recreation,
Communications and the Arts Legislation Committee into the Natural Heritage
Trust of Australia Bill 1996 has received only 97 submissions. Those
who have submitted show that the environment movement has not fallen
into line behind Government plans, as very few support obtaining funds
for the proposed Trust from the sale of Telstra, or even wish to discuss
the sale of Telstra.
1.30 Finally, the Committee thanks all those who participated in the
inquiry by appearing as witnesses, providing written submissions and
assisting with the arrangements for meetings and public hearings. The
work of the Senate is greatly assisted by such community-wide participation.
Footnotes
[1] Journals of the Senate, 20 May
1996, p 159; 21 May 1996, p 173.
[2] Recommendation 12: The [Economics] Committee
recommends that:
- the Bureau of Transport and Communications Economics review
the possible applications of, and investigate demand for, modern
radiocommunications technologies in rural and remote areas, with
a view to determining their possible use in enabling the Universal
Service Obligation to these areas to be met; and
- the Spectrum Management Agency, in consultation with the Bureau
of Transport and Communications Economics and possibly the Australian
Bureau of Agricultural and Resource Economics, review the restrictions
which inhibit the long range use of radiocommunications technologies
in rural and remote areas and formulate a strategy which will
allow their use as an important medium for communications. This
strategy should be put to the National Information Services Council
and the Committee of Officials on Information Services for consideration
and implementation.
Recommendation 14: The [Economics] Committee recommends that the
Government undertake a review of the communications requirements of
the elderly, to ascertain the most comprehensive and appropriate communications,
including the telephone, that should be readily available.
Recommendation 19 The [Economics] Committee recommends that the Australian
Bureau of Statistics conduct a full scale nationwide household and
business survey to ascertain:
- current use of information and communications technology in
households and businesses; and
- community responses to the possible uses of all current and
proposed telecommunications, radiocommunications, broadcast and
satellite services.
[3] Mr Ian Martin, Telecommunications Analyst,
BZW Australia, Official Hansard Report, 3 July 1996, pp. 151-152.
[4] The Victorian TAB is a good example its
senior executives have been able to secure salary packages worth up
to $8 million per annum since its privatisation.
[5] Telstra, Annual Report 1995, p.27.
[6] Telstra, Annual Report 1995, p.27.
[7] Telstra, Annual Report 1995, p.27.
[8] Telstra, Annual Report 1995, p.13.
[9] Commonwealth of Australia, Parliamentary
Debates: Senate Hansard, 9 May 1996, p.626.
[10] Professor J. Quiggin estimated a minimum
annual yield of approximately $10 million to a maximum $18 million flowing
from the proposed Trust; Supplementary Submission No.192B, Vol.17.