Privatisation Of Telstra Essay, Research Paper

PRIVATISATION – TELSTRA

What are the advantages of privatising Telstra and how does this impact it’s ethical conduct while striving to satisfy community expectations?

I believe that putting important public assets into select private hands is not in Australia’s long-term interests, and oppose the partial/full sale of Telstra for the reasons that the Government has given.

The argument the Government has given for the privatisation and corporatisation of Telstra has been a budget conscious one where the proceeds of Telstra will provide a “one-off” opportunity to:

1) abolish Telstra’s pastoral call rate and provide untimed local calls in extended zones in remote Australia;

2) increase funding for Networking the nation; and

3) pay off foreign debt left over by the previous government

However, this is not true as the Minister, Senator Alston already has the power to direct Telstra to provide services and upgrade infrastructure (points 1 and 2). If the USO (Universal Service Obligations Act) or performance standards under the CSG need changing, then the Minister should invoke his power to direct, and these changes should be made distinct from any attempts to sell Telstra.

Statistics also show that the sale of the first third netted a total of $0.37 billion loss to the Commonwealth. By the year 2000, it is estimated that Telstra earnings will exceed $2 billion annually. The Howard Government estimats an interest saving of about $2.4 billion per year. This doesn’t take into account the income that will be lost to the government every year in revenue earnings from Telstra. By 2007, the sale of Telstra is expected to create a budget black hole of $4 billion.

The government cites that the “Mums and Dads” of Australia will benefit by purchasing shares in the float, which is true. But eventually the real beneficiaries will be the multinational companies who will have the controlling majority, not the Australian public. This can have detrimental effects on society, especially to the rural regions of Australia.

The Democrats and the Labor Party also disapprove of the privatisation of Telstra for the above reasons.

Privatisation is when a Government Business Entity (Statutory Body) is sold to the general public and becomes a public company. There is a belief that Government run businesses are inefficient because their motive isn’t necessarily money, although there is no consistent evidence that privatisation increases efficiency. However in the case of Telstra, there have been clear signs of deterioration in services since it’s partial privatisation.

Delays are longer on connection and service times. Recent changes to the charging regime for community calls will impact on costs, particularly for small business, in rural and regional areas. (One in three rural customers were denied connections to new services ~ SMH 5/2/99)

Rural and regional customers also suffered the biggest fall in standards for repairing faults. The Telstra Communications Network is also set to suffer shutdowns along the lines of the power cuts in Queensland and Auckland. All these factors can contribute to the downward spiralling of the essential qualities of life for country families.

This deterioration in services has been a direct consequence of privatisation, where the focus of the company has shifted to profits rather than providing a cheap and efficient service. Another example of this can be seen when according to the Media (ABC), Telstra reaches an excess of funds of up to $1.5 billion as a result of staff/service cuts. The Board of Directors are urging for a special dividend to shareholders or a share buyback (to increase share prices). No one is suggesting the obvious, strategic investment.

Privatisation has also made an impact on the working conditions of employees. One of the first stages of structural reform that Telstra implemented was downsizing and the cutting of working conditions of over 60 000 workers (formerly) employed by Telstra, after experts claimed that there is an excessive labour load of about 27000 strong. As Telstra was previously a GBE, it’s structure was “suboptimal” in a business sense ie: Telstra’s activities exceed what it would have undertaken in a free market. This has given it one of the worst staff to phone line ratios in the advanced world.

After 15 months of negotiations with the Communications Electrical and Plumbers Union (CEPU), the standardisation of ordinary hours for full time employees, introduction of 3 main work streams and the extension of shift arrangements to all sections was agreed upon. Many workers suffered pay losses when they were re-graded. The Financial review (17/2/99) records that in 1998, Telstra’s labour costs dropped 7.7% (the number of it’s employees fell by 20000), despite a huge increase in the expansion of Telstra’s business.

While cutting costs and restructuring has seen record profits for Telstra, it also faced increasing national competition and has been sharply effected by the failure of it’s global ventures, including mounting losses from investments in Indonesia, India, China and Indo-China. The increasingly ruthless struggle for market share is driving the deepening assault on workers’ conditions, which will only accelerate as time goes on.

Unlike the subjects of privatisation in the past, Telstra operates as a monopoly with extensive community service obligations. Under a new board of directors who favour privatisation, some of these obligations have also been neglected.

To date, ACCC (The Australian Competition and Consumer Commission) has issued 4 notices against Telstra in respect of the “commercial churn” transfer process, alleging that Telstra’s conduct is anti-competitive. Telstra’s competitors have complained that Telstra has used it’s near-monopoly powers to restrict local and long-distance customers transferring to other providers and that this inhibits the ability of telecommunications customers to enjoy the benefits of a more competitive environment. The ACCC instituted proceedings in respect to 2 of the notices in Federal Court on December 24th.

The 3rd competition notice, received on the 25/1/99 alleged that Telstra discourages competition by forcing other carriers wanting to transfer customers to Telstra to use a manual process that is inefficient and Cumbersome. Finally, the 4th notice alleged that the package of conduct that is continuing, along with the price charged by Telstra for the churn, is cumulatively a breach of the competition rule by Telstra. If found to have breached the competition rule, Telstra is liable for significant penalties of up to $10 million or more for each offence.

In an attempt to prevent a private monopoly and to ensure that Telstra’s ongoing delivery of new technologies and services can be maintained, the Government has promised that Telstra will remain in majority public ownership until an inquiry be conducted (independent of both Telstra and the Government). When, and only when a set of service requirements (included in the Telstra Sale Bill) has been “ticked off” by the inquiry would the process begin to sell any of the 51% remaining in public ownership.

“The object of Privatisation is a deregulation which allows the famous hand of the market to operate.” (the New Australian 29/9/96). This means that all government direction and other uneconomical operations (sometimes includes USO, CSO) have to be removed, which in turn implies breaking up the $30 billion corporation into a dozen bite-size chunks, until companies can afford enter the market to compete with a reasonable amount of initial investment. Only when Mr Howard opens up the whole sector to competition will the system function properly, removing the need for schemes such as the USO.

However, on the contrary, Mr Howard assures us that the privatised Telstra will NOT be broken up and be strictly regulated. He also says that the Liberals will impose price caps and give Telstra no freedom to introduce timed local calls. The media states that the Government will also force Telstra to extend cross-subsidies community service obligations via the introduction of digital ISDN exchanges in rural rates. If his plan is for a tightly regulated Telstra, then what’s the point of privatisation? This is another reason why I am opposed to the sale of Telstra, as the intent of the PM’s actions do not seem very clear to me.

Part privatisation, like the current “part-competition”, I believe, is the worst of all choices. If open competition is desired, Telstra must be split up and all services and entrepreneurial ventures privatised. But for the protection of the common good, the core network should remain in public hands, as Telstra provides more than a service; it is the infrastructure of which the services of our country rely on.

In fact, if Telstra reduces expenditure on advertising and sponsorship, remove cross subsidisation of Pay TV, and give up on it’s international ventures (which are loosing money) to concentrate on giving Australia a cheap and efficient network; the cost of phone calls would be considerably reduced.

In the United States, local carriers are regulated monopolies, where price caps are forced down.

As technology develops and becomes more efficient, the cost of distance in telephone calls will continue to decrease.

Perhaps eventually there will be a telecommunications regime where you pay an annual fee for connection, while all local/long-distance calls are free and no restrictions are placed on usage; much like how our current sewerage networks already operate. If we can achieve this, then we will have a leading edge position in the Age of Information.

(NOTE ~ not part of essay: is this highly unlikely as such changes in operational efficiency would destroy competitors such as Optus and Vodaphone etc.???)

Overall, my preferred position would be for the commonwealth the buy back to 1/3 of Telstra already sold, because of the public benefit derived from public ownership. Telstra is in an effective monopoly position, and taxpayers’ funds have made the telecommunications giant what it is today. It is not fair to place this public infrastructure into private hands, which have failed to deliver service

merely for the purposes of profit and shareholder interests.