1.1 In May 1996, the government introduced legislation to Parliament to sell one-third of the Commonwealth's equity in Telstra Corporation by means of a share float. The Bill was subsequently referred to the Senate Environment, Recreation, Communications and the Arts References Committee for inquiry. The References Committee conducted an Australiawide inquiry between May and September 1996 and tabled its Report in the Senate on 9 September 1996. The issues relevant to the full privatisation of Telstra were canvassed extensively in that Report. [1] The Bill was passed, and the one-third sale proceeded in late 1997. It raised $14.3 billion for the Commonwealth. [2]

1.2 On 15 March 1998, the Prime Minister, the Hon John Howard MP, announced that it was the intention of the government to seek a mandate at the next federal elections to sell the two-thirds share of Telstra that is currently governmentowned. The Prime Minister committed the government to using the bulk of the proceeds from the sale to retire public debt.

1.3 Public debt stood at $96 billion when the government came to office in 1996. Treasury projections show that with the proceeds from the sale of Telstra that debt will be reduced to $9.6 billion by the year 2002, a 90% reduction.

1.4 The Telstra (Transition to Full Private Ownership) Bill 1998 was introduced in the House of Representatives on 30 March 1998.

1.5 Telstra is one of Australia's largest corporations. It has about 80 per cent of Australia's telecommunications market. [3] In the 1996-97 financial year it had revenue of about $16 billion, profits before tax of $3.8 billion, [4] and paid dividends of $4.1 billion. [5] Its return on assets (before accounting for abnormal items) was 17.7 per cent. [6]

1.6 Telstra is the descendent of Telecom, the public monopoly telecommunications provider created in 1975 by the break-up of the former Australian Postmaster General's Department. Telecom was corporatised in 1989. Telecom merged with the former Overseas Telecommunications Commission (OTC) in 1992; and it changed its name to Telstra in 1995 (in 1993 overseas). Full competition in telecommunications was introduced from 1 July 1997 with the Telecommunications Act 1997 and related Acts.

The Committee's Inquiry

1.7 On 1 April 1998 the Senate referred the current Bill to the Environment, Recreation, Communications and the Arts Legislation Committee for inquiry and report by 13 May 1998. On 12 May 1998, the reporting date was extended to 26 May 1998 by resolution of the Senate.

1.8 The inquiry was advertised nationally in the print media during the period 48 April 1998. The Terms of Reference were also made available on the Internet. The Committee received 103 submissions and these are listed at Appendix 1. One third of the submissions were one page letters from private individuals opposing the further privatisation of Telstra.

1.9 The Committee examined 65 witnesses at three public hearings in Sydney (29 April 1998), Melbourne (5 May 1998) and Canberra (6 May 1998). Details of witnesses who appeared at the public hearings are in Appendix 2. A list of tabled documents and of Additional Information provided to the Committee is at Appendix 3 and 4 respectively.

1.10 The Terms of Reference for the inquiry are:

1. That the provisions of the Telstra (Transition to Full Private Ownership) Bill 1998 be referred to the Environment, Recreation, Communications and the Arts Legislation Committee for inquiry and report by 13 May 1998, with particular reference to the following matters:

(a) whether the proposed accountability regime in the Telstra (Transition to Full Private Ownership) Bill 1998 is adequate to protect the public interest;

(b) the impact on public sector finance of the full privatisation of Telstra;

(c) the effect on delivery and quality of services for rural, regional and remote areas and for smaller States and Territories;

(d) whether the provisions of the Telecommunications Act 1997 and the Telstra (Transition to Full Private Ownership) Bill 1998 provide effective and adequate consumer protection safeguards, including:

i. access to untimed local calls;

ii. free directory assistance;

iii. public telephone facilities;

iv. customer service guarantee; and

v. price caps;

(e) the effectiveness of the standard telephone service, as guaranteed under the Universal Service Obligation, in ensuring that rural and regional customers have access to modern telecommunications services and whether the standard telephone service definition needs to be expanded to take account of rapidly changing communications technology;

(f) the impact of privatisation on employment and economic activity, particularly in regional Australia;

(g) the impact of the privatisation of Telstra on industry development issues, including research, development and manufacture in the Australian telecommunications equipment and services industry; and

(h) whether the privatisation of Telstra confers an unfair competitive advantage to it, in detriment to open competition and the involvement of other telecommunications companies and the implications of foreign ownership on these matters.

2. That the committee advertise for submissions in the media and conduct public hearings as and where it deems appropriate.

1.11 The Committee expresses its appreciation to all those who made submissions, provided additional material and information and gave evidence to the inquiry.

Should Telstra be Privatised?

1.12 The Committee notes that no submission chose to address the extensive Terms of Reference of this inquiry. Instead, submitters selected aspects that were important to them. The majority of submissions were either not concerned with ownership or were concerned with ownership only in so far as it affected the level of regulation (and therefore consumer safeguards and consumer benefits) that the largest telecommunications carrier was subject to. Of those submissions that opposed further privatisation of Telstra, one third consisted of one page letters from private individuals.

1.13 The Australian Consumer's Association's (ACA) Ms Bun was typical of the majority view in her assertions that:

Our association is of the view that ownership is less of an issue than full competition and full consumer protection. [7]

1.14 This was also the position of the National Farmers' Federation's witnesses who submitted:

It is NFF's view that ownership is not the major issue for us. The major issue is the quality and price of telecommunications services in rural Australia. Government ownership, however, may well provide a barrier to an effective rules based telecommunications industry….It is critical that the government establish a regulatory environment which ensures improvement of standards in rural Australia while encouraging competition in the market. [8]

1.15 The majority of witnesses at public hearings either supported further privatisation as did the Australian Telecommunications Users Group Ltd. (ATUG) who stated:

ATUG supports the concept of the privatisation of Telstra for some specific reasons: to deliver beneficial outcomes and because we see that it is a sensible way forward. We also see that privatisation will better enable Telstra to take the commercial risks that it may have to in this rapidly developing marketplace. [9]

1.16 Or they pronounced themselves to be “agnostic” as did the Consumers Telecommunications Network's Coordinator:

The Consumers Telecommunications Network remains agnostic about the question of whether a utility such as telecommunications ought to be in private or public ownership. Our principles are those of access and equity… We are just concerned that those preconditions are set in place so that we can be sure consumers are protected. [10]

1.17 However the Committee did receive some evidence relating to the central issue of ownership. For example, from the Small Enterprise Telecommunications Centre submission:

Small business supports private sector ownership and control in principle.

Small business supports private ownership of Telstra but is concerned to ensure that there are adequate safeguards for the interests of small business and residential consumers in the medium and long term. [11]

1.18 One of the main concerns throughout the inquiry, both in submissions and from witnesses was the issue of regulating Telstra (and other telecommunications carriers) in order to produce the best outcomes for customers everywhere in Australia.

1.19 The need for government regulation was linked to two major areas of concern:

i) Customer service; and

ii) Need for open competition.

1.20 The concern expressed took different forms, emphasised slightly different aspects but the issue remained of primary importance in all the evidence presented to the Committee's inquiry. The Committee will deal with this issue in Chapters 2 and 3 of this Report.

1.21 The first area of concern is covered by Terms of Reference (c) (d) and (e) and relates to issues of access, delivery and quality of services throughout Australia but more particularly in rural, regional and remote areas of the country. Those issues are addressed in Chapter 3.

1.22 The second issue (covered by part of Term of Reference (h)) was of concern to a smaller group of witnesses including most of Telstra's main competitors who argued that they had the potential, if given fairer access (as they saw it) to the infrastructure to deliver a better service to telecommunications customers.

1.23 This group included Optus, AAPT, Macquarie Corporate Telecommunications and Global One and also representatives of the main consumer groups within the telecommunications industry such as the Telecommunications Consumers Network and ATUG. The regulatory issues raised by this group of submitters and witnesses are addressed in Chapter 4.

1.24 The other issues raised in the Terms of Reference were each addressed in only a few submissions to the Committee. They are dealt with in Chapter 5 of this Report.

The Benefits of Privatisation

1.25 The Department of Communications and the Arts considered that the full privatisation of Telstra is a logical extension of the Government's policy objectives in privatising one third of the company:

… the beneficial effect on Telstra's performance of market disciplines imposed by investors' scrutiny and changes in the share price; maximising Telstra's capacity to access capital in the private market; moving shareholder risk to private shareholders; and enabling the retirement of significant amounts of public debt. [12]

1.26 OASITO argued that full privatisation will bring additional benefits to the ones already available as a result of partial privatisation including:

1.27 In support of its position, OASITO cited British Telecom as a major example of successful privatisation:

The evidence from overseas experience, in particular that of British Telecom (“BT”) suggests that full privatisation provides a range of benefits in terms of lower prices, improved service and reliability, expanded customer choice and a wide range of new services. These improvements in product service quality and customer choice have been accompanied by improved financial performance. [14]

1.28 OASITO noted also the advantages that would result from eliminating any perception of conflict in the roles of the Government as both regulator and owner of the major carrier and stated that full privatisation would:

… create scope for competition to exert downward pressure on prices to the benefit of consumers and business in general.

… produce [in combination with measures to enhance competition] a broader range of products that consumers want and are willing to pay for.

… where privatisation involves the proper alignment of interests of employers and employees there is an improvement in employee relations and productivity.

… produce economies in operating costs and also assist in increasing revenues per employee. [15]

1.29 Over 40 major countries have privatised their previously government-owned telecommunications companies and some of these companies have been fully privatised. In evidence to the Committee, the Department of Communications and the Arts's Secretary pointed out that North Korea was one of the few countries to maintain full public ownership of its telecommunications carrier [16] and stated that:

As competition has emerged, governments have realised that ownership of the telecommunications carriers is not the most effective way of delivering quality services and competition to consumers in those countries. As a result there has been a worldwide move to privatisation of the previously owned government owned telcos. [17]

1.30 Ord Minnett also argued that “the privatisation of public enterprises and the trend of significant retail investment in those opportunities, leads to more productive investment outcomes, higher levels of savings and higher levels of net wealth over time”. [18]

1.31 In its submission, Telstra paid particular attention to the expected benefits from full privatisation, including resolving the perceived conflict with the government's dual role as part owner of Telstra, and the telecommunications industry regulator. [19]

Full privatisation would bring additional benefits including the following: allowing Telstra to move forward more strongly focused on meeting competition from global communications companies; reducing the potential for conflicts of interest between the government's shareholder and other regulatory interests; improving transparency in the delivery of government objectives under legislation; and having continuous performance assessment and greater flexibility in accessing resources. [20]


1.32 It is difficult to estimate the exact effect on Commonwealth revenues from the sale of the remaining two thirds of Telstra because of the many variables that need to be assessed. However the Committee is satisfied that the government's commitment to use the proceeds of the sale for the purpose of retiring public debt will ensure that the beneficial impact of the sale will be felt through all areas of the Australian economy and benefit all Australians.



[1] Senate Environment, Recreation, Communications and the Arts References Committee. Telstra: To Sell or not to Sell? September 1996, Senate Environment, Recreation, Communications and the Arts Legislation Committee. Telecommunications Bills Package 1996, March 1997, Refer also to the Senate Economics References Committee. Inquiry into Public Equity in the Telstra Corporation Ltd, March 1997.

[2] Submission No. 75, p. 603 (Office of Asset Sales and Information Technology Outsourcing)

[3] Transcript of Evidence, p. 226 (Mr Suckling)

[4] Note: This figure is before accounting for abnormal expenses, of which the biggest item was provision for redundancy and restructuring.

[5] This dividend was not typical of the previous years' trend. It included a `special dividend' of $3 billion.

[6] Telstra Corporation Ltd., Annual Report 1997, pp. 2, 68 and 71.

[7] Transcript of Evidence, p. 57, (Ms Bun)

[8] Transcript of Evidence, p. 247 (Mr Watson)

[9] Transcript of Evidence, p. 58 (Mr Horsley)

[10] Transcript of Evidence, p. 100 (Ms Campbell)

[11] Submission No. 65 (The Small Enterprise Telecommunications Centre Ltd (SETEL)), p. 544.

[12] Submission No. 30 (Department of Communications and the Arts), p. 139.

[13] Submission No. 75 (Office of Asset Sales and Information Technology Outsourcing), p. 620.

[14] Submission No. 75 (Office of Asset Sales and Information Technology Outsourcing), p. 602.

[15] Submission No. 75 (Office of Asset Sales and Information Technology Outsourcing), p. 603.

[16] Transcript of Evidence, p. 191 (Mr Stevens)

[17] Transcript of Evidence, p. 189 (Mr Stevens)

[18] Submission No. 28 (Ord Minnett Limited), p. 123.

[19] Submission No. 39 (Telstra Corporation Ltd.), p. 278.

[20] Transcript of Evidence, p. 101 (Mr Rizzo)