This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Contact Officer and Copyright Details
Telstra (Transition to Full Private Ownership) Bill 1998
Date Introduced: 30 March 1998
House: House of
Portfolio: Communications, the Information Economy and the
Commencement: Each of the five schedules to the Bill commences on
a different date. The commencement dates are set out in the Main
To facilitate the sale, by the
Commonwealth, of the remaining two-thirds of the shares of Telstra
Corporation Limited (Telstra).
The sale of the first third
The coalition's 1996 election policy contained a commitment to
partially privatise Telstra. The major features of the policy
- One-third of the Commonwealth's equity to be made available
through a share float, 65% of which would be reserved for
- Foreign investors only to be allowed to subscribe to 35% of the
float and no foreign investor to be allowed to acquire more than
five per cent of the one-third float
- Incentives to be provided to Australian citizens and Telstra
employees to encourage participation in the float
- Telstra not to be broken up
- Telstra to remain incorporated in Australia with an Australian
citizen as Chairman of the Board, of which a majority will also be
- The government would reserve the right to veto any excessive
- The community service obligations (CSOs) of telecommunications
carriers to be maintained, along with the requirement for such
carriers to contribute to a Universal Service Levy to meet the
costs of the CSOs
- The existing right to untimed local telephone calls to be
maintained and guaranteed by legislation
- All existing price caps to be maintained and the price controls
outlined in the Labor Government's August 1995 statement to be
- A new legislated customer service guarantee to be met by all
- Competition regulation to be administered by a special branch
of the Australian Competition and consumer Commission.(1)
On 2 May 1996, the government introduced the Telstra (Dilution
of Public Ownership) Bill 1996.
The Telstra share offer opened on 15 October 1997. By the close
of applications on 3 November 1997, 1.8 million Australians applied
for shares. Of the employees eligible to subscribe for shares under
the employee share scheme, 92% took up the offer. Shares were
issued at $3.30 and that price was payable by two instalments; the
first $1.95 ($2.00 for institutions) and the second $1.25 ($1.30
Of the one-third of shares which were sold, up to 35% (11.67% of
all issued shares) could be purchased by foreign investors. At the
end of 1997 the actual figure was 19.5% (6.8% of all issued
Telstra shares were first traded on the Australian stock
exchange on 17 November 1997. At the opening of trading on 9 April
1998, the partly paid Telstra shares were priced at $3.80.
The remaining two thirds
On 15 March 1998, the Prime Minister announced the government's
decision to sell the remaining two-thirds of Telstra. It is
envisaged that the legislation to facilitate the sale, namely the
Telstra (Transition to Full Private Ownership) Bill 1998, will be
enacted prior to the next general election but the provisions in
respect of the sale will not commence until after the election.
Apart from the issue of public ownership the major concerns in
respect of the sale have related to the continued provision of
service and new technologies to rural and remote parts of Australia
and to the continued access to untimed local calls.
The Customer Service Guarantee (CSG)
In addition to providing for the sale of one-third of Telstra
and imposing ownership restrictions, the Telstra (Dilution of
Public Ownership) Act 1996 introduced a significant regulatory
policy measure, in the form of the customer service guarantee
The CSG provisions have been re-enacted in the
Telecommunications Act 1997 and essentially provide that
the Australian Communications Authority may make performance
standards to be complied with by carriers.(3) Those performance
standards relate to practical matters such as connection and
rectification times and the keeping of appointments to meet
customers.(4) If a carrier fails to meet a performance standard it
is liable to pay damages to the customer in the amount specified in
a scale determined by the ACA.(5) For example, where there is a
delay in connecting a standard telephone service, the customer is
entitled to be paid (or to have their first account reduced by) the
equivalent of one month's line rental for each day of delay.
Telstra's performance in country areas
Concerns in respect of the standard of service provided by
Telstra to country areas have been underscored by statistics
contained in the most recent issue of the Telecommunications
Performance Monitoring Bulletin.(6)
Telstra's performance in the provision of new services on or
before the 'agreed commitment date' (ACD - this is the date agreed
between the customer and Telstra which is acceptable to the
customer and realistic in terms of available workforce) in country
areas declined by 9 per cent to 66 percent during the quarter
ending 31 December 1997. This was a 16 per cent reduction on the
quarter ending 31 December 1996.
Telstra's performance in country areas in the number of faults
cleared within one day also fell during the December 1997 quarter
by 7 per cent to 61 percent. This was a 13 per cent reduction on
the December 1996 quarter. The percentage of faults cleared within
2 days fell by 6 per cent to 80 per cent during the December 1997
quarter and by 10 per cent when compared to the December 1996
The clearing of faults with payphones in country areas was even
worse. The number of faults with public payphones which were
cleared within one day fell by 14 percent to 47 percent during the
December 1997 quarter and by 20 per cent when compared with the
December 1996 quarter.
These performance indicators are summarised as follows:
|Service Provided in Country
|New Services connected on/before the
|Faults cleared within one working
|Faults cleared within two working
|Payphone faults cleared within one
|Payphone faults cleared within two
Source: Australian Communications Authority,
Telecommunications Performance Bulletin, issue 3 -
December 1997 quarter.
Telstra explained each of these reductions in service usually in
terms of organisational changes or inclement weather. Readers are
referred to issue 3 - December 1997 quarter of the
Telecommunications Performance Monitoring Bulletin for
extracts of those explanations.
The Ministers' response to concerns for country
In response to the release of these figures, the Ministers for
Communications, the Information Economy and the Arts and Finance
and Administration jointly announced that the government was not
satisfied with Telstra's existing service standards. It was also
announced that the government would introduce amendments to empower
the Australian Communications Authority (ACA) to direct all
carriage service providers, including Telstra, to take remedial
action to correct any systemic problems which arise in meeting
customer service guarantee performance standards.(7)
The Ministers have also referred to the Universal Service
Obligation (USO) as the overriding means by which Australians in
rural and remote areas will continue to have access to a standard
The Universal Service Obligation
The Universal Service regime is contained in Part 7 of the
Telecommunications Act 1997. The USO is the obligation to
ensure that the standard telephone service (STS) and payphones are
reasonably accessible to all Australians on an equitable basis.(8)
STS refers to a service which permits voice telephony or an
equivalent service for a person with a disability.(9) Regulations
may be created which extend the definition of STS.
The definition of the STS was recently reviewed by the Standard
Telephone Service Review Group with a view to determining whether,
among other things, the STS should include ISDN capability.(10) The
STS review group recommended that digital data (i.e. ISDN
equivalent) capability should be provided through the operation of
the market throughout most of Australia and where the market does
not operate to make this capability reasonably accessible to all
people in Australia on an equitable basis, it should be provided
through the USO mechanism.(11) However, in a dissenting report,
Professor Henry Ergas was critical of the logic used by the group
to arrive at that conclusion.(12)
The Minister for Communications is empowered to declare that a
specified carrier is the national universal service provider. At
present, Telstra is the declared national universal service
provider. Where Telstra incurs a loss in complying with the USO it
is entitled to recoup those losses. That amount is recouped by
imposing a levy on all carriers in proportion to their share of
total carrier revenue.
Untimed local calls
Part 8 of the Telecommunications Act 1997 deals with
the obligation on carriage service providers to provide customers
with an option to have their local calls charged on an untimed
basis. The untimed local call option must be given in respect
- residential voice calls
- residential data calls (i.e. internet connection and fax
- business voice calls.
There is no requirement to provide an untimed local call option
in respect of business data calls.
Section 226 of the Telecommunications Act 1997 deals
with the provision of comparable benefits to the untimed local call
for those rural and remote customers for whom there is no such
thing as a local call. The Minister is obliged to ensure that
regulations are in force from 1 January 1998 to give comparable
benefits to those who do not have untimed local call access. For
the purposes of comparing benefits the legislation provides that
regard must be had to the ability to make essential community and
business calls on an untimed basis.
The insertion of section 226 into the Telecommunications Act
1997 was prompted by an Australian Democrats amendment
proposed during the Senate's consideration of the
Telecommunications Bill 1997. It has resulted in the Minister
announcing a rebate scheme of up to $160 per year for the 17,000 or
so customers who are without benefits comparable to untimed local
The Minister's power to direct Telstra
Section 9 of the Telstra Corporation Act 1991 (TCA)
enables the Minister to give such written directions to Telstra as
appear to the Minister to be necessary in the public interest. The
only limitation on the power is that the Minister cannot give a
direction in relation to the amounts to be charged for work done or
services supplied by Telstra. If the Minister wishes to regulate
Telstra's charges he must do so under the price control
arrangements in Part 6 of the TCA.
In its original form, the Telstra (Dilution of Public Ownership)
Bill contained a provision which repealed section 9. However, the
non-government parties succeeded in retaining the Minister's power
of direction through a Senate amendment. As far as the writer is
aware, the Minister has never issued a direction under section
A possible problem could arise on any purported exercise of this
power. The problem is that by complying with the Minister's
direction, Telstra's board of directors could place themselves in a
position where shareholders might claim that they are being
oppressed under section 260 of the Corporations Law. This
could occur in circumstances where, for example, the Minister
directed Telstra to engage in a substantial infrastructure
development program in a non-profitable area.
The amendments which are proposed to be effected by this Bill
are contained in five schedules and are grouped according to the
date on which they are to commence.
Schedule 1 - Amendments commencing
on Royal Assent
The amendments contained in this Schedule are the response to
the Ministers' dissatisfaction with Telstra's performance in
meeting customer service guarantee standards.
Item 3 of this Schedule inserts
proposed new section 236A into Part 9 of the
Telecommunications Act 1997 (which deals with the Customer
Service Guarantee). The new provision will empower the ACA to give
directions to carriage service providers requiring them to:
- take specified action to ensure that the provider does not
contravene a CSG performance standard, or
- take such action as will ensure that the extent of the
provider's compliance with the standard reaches or exceeds a
specified goal or target.
The Minister will be able to require the ACA to give directions
under this provision.(14) The ACA must consult with the
Telecommunications Industry Ombudsman before giving a direction
unless the direction is one which the Minister has requested it to
The ACA's directions are disallowable instruments.
The proposed section provides 2 examples of the type of
direction that the ACA may issue:
- that the provider implement effective administrative systems
for monitoring compliance with a CSG performance standard
- that the provider take such action as is necessary to ensure
the provider's compliance with a CSG performance standard reaches
or exceeds a specified goal.
A failure to comply with a direction by the ACA may result in
the provider being liable to a civil penalty of up to $10
Digest Comment: A provider will not be at risk of a
penalty (in excess of the damages they are currently obliged to pay
to the customer, as mentioned above) for merely failing to connect
a telephone service within an agreed time or for failing to repair
a telephone service within a specified time. It is not correct to
suggest that failing to comply with a CSG standard automatically
puts the provider at risk of incurring a $10 million penalty.
Proposed new section 236A is a two step process
which first requires the ACA to issue a direction before the threat
of a pecuniary penalty becomes a reality for the provider. The
effectiveness of the provision therefore hinges on the ACA's
willingness to readily issue these directions. The ACA will need to
be vigilant in the use of this power to provide the impetus for
providers (especially Telstra) to change their operations with a
view to improving the standard of service provision.
Schedule 2 - Amendments commencing
on the first proclaimed day
The amendments contained in Schedule 2 commence on a day to be
fixed by Proclamation. That Proclamation must not be made before
the return of the writs for the next election of the House of
Schedule 2 amends the TCA.
Most of the items in this Schedule either amend the provisions
which facilitated the sale of the first third of Telstra so that
they apply appropriately to the sale of the remainder of the
Commonwealth's interest or they clarify the legislation as a result
of the experience with the sale of the first third of Telstra.
Item 18 inserts new section
8AUA into the TCA. That section will allow the Minister to
amend Telstra's constitution (i.e. its memorandum and articles of
association) at any time between the commencement of the section
and the day on which the Commonwealth's shareholding in Telstra
falls below fifty per cent. The amendment must relate to the sale
of Telstra and the effect of the alteration must be to remove the
requirement that a particular act or thing be done only with the
consent of the Minister.
Items 26 to 33 deal with the
foreign ownership restrictions. The amendments are of a technical
nature and do not change the existing foreign ownership limits,
i.e. total foreign ownership must not exceed 35 per cent and no
foreign individual may own more than five per cent.
Item 41 creates new section
8CCA which is an anti-avoidance provision. The section
will prohibit Telstra from entering into a scheme for the purpose
of avoiding the application of any of the provisions of the TCA.
The Explanatory Memorandum to the Bill cites examples of the types
of provisions which could be the subject of avoidance through the
use of a scheme as, the foreign ownership restrictions, the
requirement that Telstra base its operations in Australia and the
price-cap regime contained in Part 6 of the Act.
Part 2C of the TCA was inserted by the Telstra (Dilution of
Public Ownership) Act 1996 immediately prior to the sale of
the first third of the company. Part 2C is headed 'Re-affirmation
of Universal Service Obligation' and contains a restatement of the
core elements of the USO. Its insertion was intended to:
re-affirm that the transfer of part of the Commonwealth's equity
in Telstra will not affect the 'Universal Service Obligations' that
apply to Telstra and other telecommunications carriers.(16)
The USO at that time was contained in the Telecommunications
Act 1991 and is now contained in the Telecommunications
Act 1997, as mentioned above. Consequently the re-affirmation
served no legal purpose but instead was intended to allay concerns
about Telstra's performance of its community service obligations
following its partial privatisation.
Item 47 repeals Part 2C.
Schedule 3 - Amendments commencing
on the designated day
The designated day is the first day, after the commencement of
Schedule 2, on which a majority of the voting shares in Telstra are
owned by persons other than the Commonwealth.
Items 1 to 9 of
Schedule 3 make amendments necessary to
discontinue the eligibility of the Telstra employees to accrue
entitlements under Commonwealth long service leave and maternity
Item 10 inserts new Part 3A
into the TCA. Proposed new sections
9B to 9E preserve the service of
employees for the purposes of accruing long service leave
entitlements so that those entitlements are not lost following the
sale. Following the sale, Telstra employees will no longer accrue
entitlements under the Long Service Leave (Commonwealth
Employees) Act 1976. Proposed new section 9G
preserves employee entitlements where the employee has served the
required long service leave period of 10 years.
Proposed new sections 9J and
9K preserve employee entitlements to benefits
under the Defence Force Retirement and Death Benefits Act
1973 and periods of service for the purposes of that Act.
Proposed new section 9M and 9N
continue the application of the Maternity Leave (Commonwealth
Employees) Act 1973 for the benefit of female employees who
are on maternity leave on the designated day and who commence
maternity leave within twelve months after the designated day.
Schedule 4 - Amendments commencing
on the second proclaimed day
The second proclaimed day is the day on which the Minister
certifies that he is of the opinion that the Commonwealth no
- holds shares in Telstra that carry the rights to exercise at
lease one-half of the total voting rights attached to the voting
shares in Telstra
- controls the exercise of at least one-half of the total voting
rights attached to the voting shares in Telstra
- holds at least one half of the total paid-up share capital of
- has an entitlement to hold at least one-half of the total
rights to any distribution of capital or profits of Telstra on
- has an entitlement to hold at least one-half of the total
rights to any distribution of capital or profits of Telstra,
otherwise than on winding-up.
Under Division 3 of Part 2 of the TCA, Telstra is obliged to
provide financial information to the Minister and to notify the
Minister of significant events such as disposing of a significant
business or commencing or ceasing a significant business
activity.(17) That Division also requires Telstra to prepare a
corporate plan annually and to provide the Minister with a copy.
Item 2 of Schedule 4 repeals
Division 3 of Part 2.
Item 6 of Schedule 4 removes
the Minister's power of direction over Telstra.
Schedule 5 - Amendment commencing at
the end of the first annual general meeting of Telstra held after
the second proclaimed day
Item 1 of Schedule 5 repeals
section 26 of the TCA which appoints the Commonwealth
Auditor-General as Telstra's auditor.
The primary concern in respect of the decision to sell the
remainder of Telstra relates to the continued provision of
telephone services to rural and remote areas of Australia and the
progressive improvement of those services in line with the
improvements to services in metropolitan areas. The suggestion
appears to be that the sale of the Commonwealth's remaining
interest will cause a diminution in the quality of service to those
It can be argued that the proposed further sale will have no
additional effect on the quality of service provision to rural and
One-third of the issued share capital of Telstra is held
presently by private individuals and corporations. The priority for
the directors of Telstra is to manage the company with a view to
maximising returns to those shareholders. Even with only partial
private ownership it is not appropriate, within the usual confines
of corporate law and practice for Telstra's directors to pursue
activities, such as the expansion of infrastructure in unprofitable
regions, which could result in a reduction of returns to
shareholders. This is the case regardless of the proportion of
Telstra which is in private ownership.
There is a possible argument that the pursuit of such other
priorities could result in a claim by shareholders that the
company's affairs are being conducted in a manner that is
oppressive or unfairly prejudicial against them, under section 260
of the Corporations Law.(18)
It is not the case that rural and remote customers will
become reliant on safeguards like the USO, the CSG, the
price cap regime and provisions relating to equivalent benefits to
untimed local calls from the time the remaining two-thirds of
Telstra is sold. Rural and remote customers are already
reliant on these measures and have been so since the sale of the
first third of Telstra. The question is whether those safeguards
The safeguard which will be removed is the Minister's power to
direct Telstra under section 9 of the TCA (mentioned above). The
rationale for the abolition of this power seems to be that it would
be inappropriate for the Minister to retain such a power over a
privately owned company. It may seam to some rather curious that
this rationale is applied in the abolition of that power, when the
price cap regime under Part 6 of the TCA which applies exclusively
to Telstra, is to be retained.
- Liberal Party of Australia and National Party of Australia,
Better Communications, 1996.
- Mullane, M., 'That's not all from Telstra', Australian
Financial Review, 22 December 1997.
- Telecommunications Act 1997, Part 9.
- Telecommunications (Customer Service Guarantee) Standard
- Telecommunications (Customer Service Guarantee) Scale of
- Australian Communication Authority, Telecommunications
Performance Monitoring Bulleting, December 1997 quarter.
- Minister for Communications, the Information Economy and the
Arts (Richard Alston) and Minister for Finance and Administration
(John Fahey), 'Government to get tough on telecommunications
service standards', , 30 March 1998.
- Telecommunications Act 1997, section 149. Press
- Telecommunications Act 1997, section 17.
- Department of Communications and the Arts, Standard Telephone
Service Review Group, Review of the Standard Telephone
Service, December 1996, Canberra.
- ibid., 167.
- ibid., 179.
- Minister for Communications, the Information Economy and the
Arts (Richard Alston), 'Remote Australia to receive discount on
phone calls', Press Release, 14 January 1998.
- Telecommunications Act 1997, section 242.
- Through the operation of section 98, section 101(1), clause 1
of Schedule 2 and section 570(3) of the Telecommunications Act
- Australia, Parliament, Telstra (Dilution of Public Ownership)
Bill Explanatory Memorandum, 1996, 3.
- Telstra Corporation Act 1991, sections 8AD and
- Readers should contact the writer of this Digest if they need
more detail on this argument.
9 April 1998
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to
Senators and Members of the Australian Parliament. While great care
is taken to ensure that the paper is accurate and balanced, the
paper is written using information publicly available at the time
of production. The views expressed are those of the author and
should not be attributed to the Information and Research Services
(IRS). Advice on legislation or legal policy issues contained in
this paper is provided for use in parliamentary debate and for
related parliamentary purposes. This paper is not professional
legal opinion. Readers are reminded that the paper is not an
official parliamentary or Australian government document.
IRS staff are available to discuss the paper's contents with
Senators and Members
and their staff but not with members of the public.
Commonwealth of Australia 1998
Except to the extent of the uses permitted under the
Copyright Act 1968, no part of this publication may be
reproduced or transmitted in any form or by any means, including
information storage and retrieval systems, without the prior
written consent of the Parliamentary Library, other than by Members
of the Australian Parliament in the course of their official
Published by the Department of the Parliamentary Library,
Back to top