Privatization Of Telstra Essay, Research Paper

What

are the advantages of privatizing 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 privatization

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 privatization of Telstra for the above

reasons. Privatization 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 privatization increases

efficiency. However in the case of Telstra, there have been clear signs of

deterioration in services since it’s partial privatization. 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 privatization, 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. Privatization 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 Privatization 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 privatized 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 privatization,

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 privatized. 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.