1.1 Prior to the 1996 Federal Election, the then Leader of the Opposition announced that if elected, the Coalition intended to privatise one-third of Telstra. He sought a mandate for that one-third sale and gave a commitment that there would be no further sale without an explicit mandate from the Australian people at a future Federal election.

1.2 In May 1996, the process for the sale of one third of Telstra was set in train with the introduction into Parliament of the Telstra (Dilution of Public Ownership) Bill 1996. The legislation was passed, and the sale of one third of Telstra was concluded in 1997.

1.3 On 15 March 1998, the Prime Minister announced that if re-elected his Government would sell the rest of Telstra; he also indicated that legislation would be introduced into Parliament immediately to commence the process.

1.4 The Telstra (Transition to Full Private Ownership) Bill 1998 was introduced into the Parliament on 30 March and on 1 April the legislation was referred to the Senate Environment, Recreation, Communications and Arts Committee for an inquiry.

Conduct of the Inquiry

1.5 In its determination to stifle a full and comprehensive inquiry, the Government opposed attempts to provide the Committee with an adequate time frame, and consequently a very short period of time was allowed for the lodging of submissions and the conduct of public hearings.

1.6 This led, for instance, to the cancellation of a scheduled public hearing in Townsville due to insufficient submissions having been received by the closing date to justify taking the Committee to Townsville. It also resulted in insufficient time being available to properly explore issues through the public hearing process, and Committee members were inevitably forced to skate over some of the complex public policy matters relating to privatisation; competition policy; and service delivery. Nevertheless, some clear conclusions can be reached from the evidence received.

1.7 Despite attempts by the majority report to gloss over the issues and misrepresent much of the evidence received by the Committee, the overwhelming conclusion indicated by the evidence, is that there is no broad enthusiasm in the community for the Government's plan to privatise Telstra. This, of course, is entirely consistent with the view that has been reflected by the broad public opinion results which have been published over recent months.

Conclusions and Recommendations

1.8 Fundamentally, the Opposition members of the Committee do not believe that the legislation should be considered by the Senate. In 1996, the Prime Minister gave a commitment to the Australian people that no more than one third of Telstra would be sold unless he sought and received a mandate at a subsequent Federal Election for a further sale. Until and unless that mandate is sought and obtained, the Senate should not consider any legislation which deals with the privatisation of Telstra. It is more useful for the Senate to devote its time and resources to deal with the considerable backlog of legislation it already has before it, rather than consider legislation which may not ever be proclaimed.

1.9 Notwithstanding this fundamental objection, the Opposition members of the Committee have also concluded that on the evidence submitted to the inquiry that no case has been made for the privatisation of Telstra. No clear economic benefits associated with the sale of Telstra were established, and serious doubt was cast on the capacity of the regulatory framework to ensure that the interests of competitors and consumers would be enhanced, or even protected, under a fully privatised Telstra.

1.10 Even if it could be established that there was an “in-principle” justification for the sale of the remainder of Telstra, this should not be contemplated until there is clear and unequivocal evidence to show that the regulatory and competitive regime in Australia's telecommunications industry is providing an adequate framework for the protection of the interests of all consumers, and the growing number of telecommunications carriers and service providers.

1.11 Considerable evidence was received by the Committee which indicated that even amongst those people who have no “in-principle” objection to the privatisation of Telstra, there is a general fear that the current regulatory regime provides no barrier to preventing a fully privatised Telstra from continuing to exploit its monopolistic power.

…in our view, a fully privatised Telstra will become a more fearsome and awesome monolith than it is today. We are very concerned. But at least today the government does hold the majority shareholding in Telstra and that gives us some comfort that, in the event there are things that need to be done, the government would be at least prepared to listen to our concerns.

…Frankly, we are scared out of our wits at the thought [of full privatisation]. [1]

1.12 Rural and remote Australians continue to remain fearful for their communications future if Telstra is fully privatised. [2]

1.13 It is significant that a number of submissions and witnesses expressed support for the retention of parliamentary scrutiny of Telstra, and the Ministerial Power to Direct Telstra in the national interest.

In light of Telstra's role in the economy and power in the marketplace – which is a critical marketplace – yes, it is important for parliamentary scrutiny to continue. [3]

We feel that that power was very wisely put in the initial legislation and we see no reason whatsoever to remove it in these circumstances… It is not a power that is likely to be abused by any minister. However, I believe it is a safeguard to the Australian people. [4]


Effects on Public Sector Finance

1.14 One of the primary reasons advanced in support of privatising Telstra is the alleged benefit to be gained from using the proceeds of the sale to retire public debt, thereby reducing the Commonwealth's public debt interest liability. However, this saving must be measured against the loss to the Commonwealth of its share of Telstra's earnings. The question is, is the gain more or less than the loss?

1.15 Notwithstanding the optimistic spin given to this matter in the Government's more public announcements, economic theory suggests that the gain and the loss should be equal. Common sense supports this: if selling assets to pay off debt was a sure gain, why would anyone want to buy?

1.16 The majority report admits this:

As a general statement, if perfect markets with full information exist, the proceeds the government receives from an additional sale of Telstra shares would be equal to the stream of dividends plus retained earnings in Telstra. Therefore the net effect would be neutral. This view is supported by the Office of Asset Sales and IT Outsourcing: `…the efficient pricing of a secondary public share offer by a market that is fully informed pursuant to standard Corporations Law requirements will reflect the currently expected present value of both the future dividend stream and capital growth. Thus there is no loss of presently expected future value to the Commonwealth by selling rather than holding the equity. [5]

1.17 Of course, if there will be no loss from selling, by the same logic neither will there be a gain.

1.18 In practice, the wildcard in these calculations is the chosen discount rate - that is, the rate at which one discounts expected future earnings in calculating a present value. Choosing a discount rate must include a estimation of `market risk': a buyer will offer less for an expected future benefit in proportion as there is some doubt about whether the benefit will actually occur as expected.

1.19 Estimating risk is a matter of argument in which there is no objectively `right' answer. If Telstra's future earnings after privatisation drop unexpectedly (that is, more than the market has allowed for), the shareholders will be the losers (they will start to think they have paid `too much' for the asset), and the public treasury (having sold up at a good time) will be the winner. And vice-versa. Whether the sale turns out `a good deal' for the public treasury depends on the accuracy of judgments about risk within quite a narrow range.

1.20 Predicting the future earnings was a matter of argument: government witnesses stressed what they saw as the uncertainty of Telstra's future subject to the new competitive regime; sceptics pointed to Telstra's monopolistic power in many areas - a power which they feared might increase under full privatisation. On balance the Opposition Senators believe that over time the lost earnings will outweigh the interest savings.

1.21 We note also that the part-privatisation of Telstra does not appear to have been a net gain to the public purse, as was pointed out by Professor Quiggin (who, incidentally, was one of few commentators to predict the market's valuation of one-third Telstra accurately):

…it is an elementary error to count only dividends and disregard retained earnings. In the first financial half-year affected by privatisation, ending 30 December 1997, Telstra's earnings after tax were $1.6 billion, of which $900 million were paid out in dividends, and $700 million retained to finance new investment. By selling one third of its holding, the government, the government has foregone dividends of $300 million and retained earnings of $200 million for the half-year, as against interest savings of $450 million, yielding a net loss of $70 million. Since earnings can be expected to grow, while interest savings will remain constant in nominal terms, the loss to the public will increase over time. [6]

1.22 The folly of pursuing privatisation blindly was succinctly summarised for the Committee:

If the interest savings achieved by selling assets and reducing debt are less than the income generated by the assets in question, net worth will be reduced, not increased, by asset sales. [7]

1.23 As for the argument that we should do it because everyone else is doing it, we hope that this will be given the short shrift that it deserves:

Senator Tierney: Does it disturb you that under your plan we would be in line with North Korea and not the rest of the world?

Prof Quiggin: As I have referred to in my submission, this is really the argument from fashion. Most of these countries were nationalising a wide range of government enterprises - most European countries were 25 or 30 years ago. I assume that people opposed to that would then have been told that only a few bastions of a discredited system opposed that treatment. It is not appropriate for Australia to say that this is the international fashion and therefore we will follow it. We should be addressing the issue on its merits rather than following fashions. [8]

Economic `Trickle down' effect

1.24 It was argued before the Committee that any measure of the full economic impact of selling Telstra had to go beyond a simple analysis of the interest saving versus the loss of Telstra's earnings:

DoFA is of the view that the key benefit from full privatisation will arise from the net gain to economic efficiency, as well as public sector savings effect.

The impetus of competitive pressure to improve performance and, in turn lower prices, is likely to have positive flow-on effects for the economy is general over time. [9]

1.25 The implication of this argument is that the ownership of Telstra has an impact on its ability to participate fully and effectively in the open and competitive environment in the Australian telecommunications industry. Logically, this implies that the management of Telstra is currently operating at a sub-optimal level and that this problem can only be overcome by privatising Telstra.

1.26 In reality, if Telstra has a competent and effective management team, and if the competitive and regulatory framework in place is effective, then the benefits of competition in the Australian telecommunications industry as well as efficiency improvements achieved by Telstra, should already be flowing through the Australian economy. The nature of Telstra's ownership, in fact, is irrelevant.

Telstra Accountability and Flexibility in the Market

1.27 Telstra management submitted that partial privatisation has introduced a new tension into the decision making process for the company.

Currently, Telstra is in a “half-way house” where the Board and management must balance the interests of 1.6 million shareholders and a majority Government shareholder, who represents a wide range of other interests. [10]

1.28 It claimed that full privatisation would allow 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. [11]

1.29 However, the Parliament must fulfil its obligation to protect the interests of all Australians, and the importance of the national telecommunications infrastructure to the economic and social life of the nation demands that parliamentary scrutiny should assume a higher priority than day to day difficulties that Telstra might encounter in the management and balancing of competing interests. It should also be noted that Telstra is not unique in being a telecommunications company that has to balance competing interests – the Minister for Communications himself has pointed out that the Nippon Telephone and Telegraph Company was partially privatised in 1984 and there has been no need for or inevitability about any further privatisation. [12]


Customer Service

1.30 The Committee received substantial evidence of community dissatisfaction and concern with Telstra's current level of service delivery, and what the future would hold under a totally privatised Telstra. Chapter 5 provides specific detail on the impact that partial privatisation has had on staffing levels and the consequences this has had for service delivery standards, particularly in rural and regional areas.

1.31 The Australian Communications Authority report on Carrier Performance for the 1997 December Quarter indicated a decline in Telstra's service delivery and evidence was received by the Committee which supported the view that since partial privatisation there has been a decline in customer service and that fears are held that there would be a further decline under a fully privatised Telstra.

I have had very regular contact with Telstra over the past 6 years…I have generally met with a reasonable standard of service until very recently…

In the 6 years prior to this year I have never met with such long waiting periods for service connections and repairs, total disregard for service provision standards and the current general unwillingness to assist with clients' requirements…

It is our very firm belief that the full privatisation of Telstra will lead to immense drops in service and standards and that those who will suffer most are the elderly, disabled, uneducated, those with mental health problems and those who do not have the advocacy and support necessary to stand up for their rights and insist on the provision of adequate services for which they are paying. [13]

Customer Service Guarantee

1.32 In order to overcome concerns that service levels would decline under the partial privatisation of Telstra, the Government introduced the Customer Service Guarantee Scheme which provided for compensation to consumers where service standards were not met. As the Communications Law Centre has observed, there is:

…growing concern that the Scheme has not even ensured the maintenance of existing service quality levels provided by an only partially privatised Telstra. [14]

1.33 In an attempt to nullify community concern at these declining service levels and increases in waiting times, the Government has included what it regards as an enhanced Customer Service Guarantee (CSG) in the legislation, which provides for fines of up to $10 million for a breach of the CSG.

1.34 Upon further examination, it appears unlikely that the new CSG will provide any real level of protection against declining service standards. In the first instance, the overwhelming view of customers is that they are not interested in the daily credit available under the CSG – they are more interested in having a telephone service connected, and there is also a suspicion that a carrier may decide that it is cheaper to pay the daily credit rather than provide a timely service. Further, it became clear from the evidence, that the capacity for individual customers to pursue action which may lead to a $10 million fine against a carrier, is extremely limited.

Senator SCHACHT --- If a consumer contacted you – and this may be evidence from a CoT case – and claimed that a telephone exchange was consistently at fault in providing a service to their business over a period of eight years –

Mrs Alter --- Is that just the one consumer we are talking about?

Senator SCHACHT --- Yes. Would that be a systemic fault?

Mrs Alter --- I could not really see a pattern there if only one person was complaining out of a whole exchange.

Senator SCHACHT --- So the systemic fault has to affect tens of thousands of consumers at once?

Mrs Alter --- I would have to be able to detect a pattern, and if there is just the one consumer, then I am not going to be able to detect a pattern. [15]

1.35 The majority report identifies that there have been significant shortcomings in the Customer Service Guarantee Scheme and recommends some strengthening of the scheme. In fact, the failure of the scheme to protect against declining service levels should be seen as a further indication of the increased risks that would be faced by consumers under a fully privatised Telstra.

Rural and Regional Australia

1.36 The particular problems faced by people living outside the metropolitan centres are best summarised by the National Farmers Federation.

Access to comparable telecommunications is essential for rural Australians to enable them to compete in business and to enjoy a lifestyle in a manner similar to urban Australians and people in other countries. Telecommunications provides, potentially, practical alternatives to people in rural and regional Australia as brick and mortar services are withdrawn. Tin time, these alternatives can extend to finance, health, education, trade and commerce. However, rural Australia lacks the quality and price of telecommunications services which are reasonably similar to urban Australia. [16]

1.37 At a personal and family level, and at a time when country folk see services being withdrawn from their communities, telecommunications services become even more crucial. This point was made by the Country Women's Association of Australia.

…it was stated last week by the CEO of the NAB that banks are not in the business of providing for people who want to have a social experience at the local bank. Now it might be perceived that the use of Telstra is a social experience too for rural people but it is not. It is a lifeline. We need to make sure that it is there and that it will be there as technologies improve. It is used, as I have said today in some information I have brought with me, for distance education. It is vitally important. Those things affect all of our members and their families. [17]

1.38 The legitimate concerns throughout rural and regional Australia are summarised well by the Local Government and Shires Association of NSW:

The Associations positions are based on concerns about telecommunications access, costs, employment and economic development. These concerns are particularly acute in rural and regional NSW. The experience in many of these locations is that privatisation and rationalisation result in a decline in services, increased costs and the loss of jobs, often having a devastating effect on the local community. [18]

Universal Service Obligation

1.39 The Universal Service Obligation (USO) is central to the provision of telecommunications services across the nation on an affordable basis.

…the universal service obligation provides a crucial element of the legislative scheme regulating Australian telecommunications. Universal access to affordable basic telecommunications is essential to effective participation in Australia's society and economy.

The existence of a universal service mechanism acknowledges that a liberalised, privatised telecommunications market will not, of itself, deliver adequate levels of service to all Australians.

1.40 The crucial aspect of the Universal Service Obligation in the provision of access to high quality telecommunications services at an affordable price to all Australians, is the definition of the Standard Telephone Service. This is the basic service that will be provided countrywide. Many submissions identified the need for the definition of the Standard Telephone Service to be upgraded and expanded to ensure that customers – particularly in rural and regional Australia – receive a high quality service rather than just the copper wire and handset.

1.41 This highlighted the appalling policy process that has been employed by the Government. Putting aside the question of whether the privatisation of Telstra is justified or not, the first priority for the Government should be to ensure that it has the regulatory framework in place to ensure that all Australians have access to minimum levels of telecommunications technology and infrastructure. The Government of Western Australia has identified that there are still consumers who are missing out.

Statistics tend to boast of the impressive, say, 93 per cent of the population which does have access to this or that service, or the 93 per cent of cases where targets are met. The Western Australian Government is focused on the seven per cent which miss out, or for whom targets are not met. [19]

1.42 Other organisations such as the National Farmers Federation [20] highlighted the importance of using an expanded definition of the Standard Telephone Service to ensure that under the Universal Service Obligation all Australians have access to an affordable and world-class telecommunications system.

1.43 It can hardly be emphasised strongly enough that it is essential that these regulatory issues should be the first order priority for the Government.


1.44 Many submissions, especially from Telstra's competitors, were concerned that the regulatory scheme is inadequate to prevent Telstra from using its market dominance for anti-competitive purposes. The issue is all-important because the Government's argument that a private Telstra in competition will deliver superior benefits to consumers depends fundamentally on preventing Telstra from exercising monopoly power.

1.45 There was some argument in evidence over whether Telstra does in fact exercise monopoly power, to the detriment of customers. The government's witnesses pointed hopefully to Telstra's gradually declining market share in certain niches such as mobile and long distance calls. Telstra's competitors feared that this trend is fragile:

At the point at which the level of competition in Australian telecommunications should be burgeoning and strengthening, it is instead tapering and precarious. Although customers are now enjoying the benefits of cheaper long distance calls, the long-term continuance of these benefits presently appears unlikely. This is before customers have even learnt to resent the prices they pay for local calls, let alone the prohibitive cost of ISDN connections or any other service still under Telstra's monopoly control. [21]

1.46 In this context the most important and undeniable fact is that, with present technology, the local access network is a natural monopoly. Telstra owns the local access network, Telstra carries 99 per cent of local calls, and all competitors must deal with Telstra to gain access to the local access network. We do not think it is coincidence, then, that while long-distance charges have declined under pressure of competition, local call charges have not declined - a point which both Telstra and the Department of Communications and the Arts, in their submissions to the inquiry, were at pains to avoid drawing attention to. [22] While some submissions hope that this monopoly will be broken by wireless technology in the not-too-distant future, [23] there is no certainty of this. The Opposition Senators think it would be rash indeed to look to future technology to solve the present problems of regulating Telstra.

1.47 In evidence Telstra's competitors raised various concerns about anti-competitive behaviour. Some of these were accusations against Telstra; others were more fears of what might happen if pro-competitive regulation is not strengthened. Most (though not all) of their concerns are reasonably summarised in the majority report. We recapitulate:

Access to Telstra's network

1.48 Telstra's competitors have a right to access declared parts of Telstra's network, subject to arbitration by the ACCC, if agreement on terms cannot be reached. [24] Given Telstra's dominance as owner of local network infrastructure, this is a key provision to prevent the behaviour of a natural monopolist. Competitors complained that there is inadequate access to information about Telstra's costs of providing access, [25] and that cost price is difficult to ascertain, given Telstra's vertical integration:

The cost structure and the way Telstra passes costs within its own vertically integrated business is very important to competition. Unless Telstra is forced to provide us with the same pricing as it uses within its own organisation in passing from one level of its vertically integrated business to another, then I do not see how we are ever going to be able to get fair competition in this country… The ACCC now has a working group running and they are trying to get to the bottom of this… but they will never really know because there are too many unknowns in the cross-subsidies and in the way that Telstra manages its business. [26]

1.49 They said that arbitration by the ACCC on access is a long-drawn out process, the delay being generally to Telstra's advantage. It was suggested that the ACCC should be able to order interim access pending arbitration. [27] They recommended that cost-based pricing of access to Telstra's network should be mandatory. [28] They argued that Telstra should be `ring-fenced' (that is, forced to account for its various business units separately) to make internal transfer prices more obvious.

1.50 On the proposal that the ACCC should have discretion to publish cost data of bottleneck facilities (which would be part of a ring-fencing scheme), the ACCC commented:

Senator Schacht: Would you find that a useful power to have to help you with administering competition policy overall?

Mr Shogren: I think, by and large, yes. I would have some small reservations about it, but it seems that is essentially what happens in the UK where BT costs of bottleneck facilities are published. It does not seem to have caused any harm to BT or to investment in that regime. [29]

Price discrimination

1.51 Competitors claimed that Telstra's vertical integration and uncertain cost structure allows other anti-competitive behaviour. AAPT Telecommunications claimed that Telstra is well-placed to use cross-subsidisation, price discrimination and `bundling' of its offerings to form special pricing packages, to the detriment of competition. This could lead to customers in market segments where there is little competition (for example, residential and rural customers) cross-subsidising aggressive pricing in areas where there is more competition. AAPT recommended mandatory filing and publication of all Telstra's tariffs as a disincentive to this behaviour. [30]

Confidentiality of access agreements

1.52 Telstra's competitors complained that Telstra, by demanding confidentiality for access agreements, is able to play its competitors off against each other unfairly. [31] AAPT called for all Telstra's access agreements to be published as long as Telstra enjoys substantial power in the relevant markets. `This is the situation existing in some other countries, such as New Zealand, where the publications of all interconnection agreements is mandatory'. [32]

Right of action under Part XIB of the Trade Practices Act 1974

1.53 At present Part XIB of the Trade Practices Act creates no private right to seek injunctive relief for contravention of the competition rule unless a competition notice has been issued by the ACCC. Telstra's competitors say that this is unfairly restrictive, and that affected parties should be able to act independently - for example, in cases where the ACCC does not wish to. [33]

`Hit and run' tactics

1.54 AAPT Telecommunications argued that:

Part XIB [of the Trade Practices Act 1974] … requires the ACCC to undertake a complex and lengthy investigative process in order to prove anti-competitive conduct, during the course of which it has no power to make orders regarding the conduct being investigated… [this] enables a party to engage in `hit and run' tactics, by engaging in offending conduct for a limited but significant period of time, then withdrawing before an investigation is completed. During this time , a competitor's plans may be frustrated, its customers disaffected and the ACCC's resources committed and wasted…

1.55 AAPT suggested that the ACCC should have the power to issue interim `stop' orders pending investigation. [34]

1.56 An underlying theme in these arguments is the practical difficulty of detailed bureaucratic regulation of a large corporation which conducts a varied, widespread and technically complex business. The question is whether any scheme of regulation can fully control monopolistic behaviour in the public interest, if the corporate culture of the monopolist is hostile.

Telstra… is able to frustrate, inhibit and ultimately eradicate opposition because of the control it exercises over its competitors in every important facet of their operations…Telstra's conduct since the introduction of the 1 July 1997 regulatory framework reveals and antipathy towards the underlying objectives of regulation. In the critical markets of the self-regulatory process, such as the development of access codes and the lodgement of access undertakings, Telstra has sought to undermine the self-regulatory process in order to frustrate, to the greatest extent possible, the development of sustainable competition. [35]


1.57 The present regulatory scheme has had only a short period of operation, and already there is strong evidence that it is not working as well as it should. In light of this, it would be irresponsible to privatise Telstra on the basis that the present regulations will adequately protect the public interest and prevent anti-competitive behaviour. The risk of a fully private Telstra, dominant in the market, acting to maximise shareholders' profit at the expense of customer service and the public interest, is a real and serious risk. Opposition senators believe that the regulatory scheme should be strengthened whether or not Telstra is privatised, and we would support splitting the bill to enact a strengthened regulatory scheme, separate from the privatisation issue. On this basis we are sympathetic to the recommendations of the majority report as far as they go. We would add the following, in line with the concerns of the Telstra's competitors:


1. Telstra's access agreements should be published.

2. The Australian Competition and Consumer Commission should have the power to issue interim `stop' orders pending investigation of alleged anti-competitive conduct.


Terms of Reference (f) and (c).

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

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

Employment within Telstra.

1.58 At the time of the 1996 Senate Inquiry into the partial privatisation of Telstra, full-time staff numbers within the company stood at 76,522. By February 1998, the most recent date for which such information is publicly available, the number was 58,800 - a decline of 17,722 full-time employees or 23% of staff in 20 months.

1.59 Further staff losses are projected by Telstra, with the company having announced its intention of shedding 25,500 positions over a four year period. This target is broadly in line with those set by the Project Mercury taskforce, whose activities were documented in the 1996 report of the Senate Environment, Communications and the Arts References Committee, Telstra: To Sell or not to Sell. Project Mercury was set up in April 1996, immediately after the present Government came into office with a policy of partial privatisation of Telstra.

1.60 The scale of the job losses within Telstra is a matter of public record. What is at issue is the degree to which they have been driven by the partial privatisation of Telstra and their impact on both service delivery and economic activity, particularly in regional Australia.

Impacts of Privatisation.

1.61 In its submission, Telstra attributed recent staff reductions primarily to the impact of competition:

Telstra believes that competition is having an impact on its cost structures and employment within the industry..

Competition has forced Telstra to focus more sharply on productivity and costs, including labour costs. [36]

1.62 Similarly, Mr. Paul Rizzo, in his evidence to the Committee, suggested that privatisation was not a major factor in Telstra's cost reduction targets.

I think the line of questioning is suggesting that privatisation is the prime driver in our cost reduction program. We have said in previous appearances before this committee that it is competition and the evolution of the market that is actually driving it…. You can forget privatisation. [37]

1.63 The Communications, Electrical and Plumbing Union, however, argued that privatisation had had a major impact on the way Telstra approached employment levels, bringing an increased focus on staffing ratios and, consequently, a pressure to remove staff from its books irrespective of either real cost savings or operational needs.

As the minutes of the Project Mercury meeting indicated, Telstra has been prepared to contract out work even when there was no clear cost saving to the company in order to reduce its formal staffing ratios, the obsession of financial markets. Privatisation has ensured that such ratios (employee per access line) have now become a subject for regular reporting. [38]

1.64 As Mr. Colin Cooper put it in his evidence to the Committee:

We know from internal documentation that at the moment Telstra managers are told to get rid of staff irrespective of the fact that it will cost them more to do work in other ways. The costing is irrelevant.. it is all about getting rid of staff. [39]

1.65 The Union pointed to the fact that Telstra's indirect labour costs appeared to be rising more rapidly than its direct costs were falling as further evidence that staffing levels were being driven by and tailored to market perceptions.

1.66 When asked whether technological change and competition meant staff reductions were inevitable, Mr. Cooper from the Communications, Electrical and Plumbing Union replied:

As I say, we accept some reductions and always have.. It has been part of our industry to adapt and adjust to that change. We have usually been able to do it, firstly to ensure that that change benefited and in fact served the community and, secondly, to ensure that our people were generally protected.

That is not what is happening now. [40]

1.67 While the recent staff losses in Telstra were thus attributed variously to the impacts of technological change, to increasing commercial pressures and to privatisation, the fact remains that Telstra has shed nearly a quarter of its full-time staff in less than two years. This represents the sharpest drop in employment within the company in its history. The only comparable decline is that which occurred between financial years 1991-92 and 1993-94, when staff numbers fell by 14%, only to rise again to the 1991-92 levels by June 1996.

Impact on Regional Employment.

1.68 A number of submissions voiced concerns as to the impact of Telstra's staff reductions on regional and rural employment opportunities, particularly in the context of the broader economic changes currently affecting country Australia.

1.69 The Western Australian Government submitted that it was expected that “full privatisation would have some impact on the number of staff located in non-metropolitan areas..” and that

Whilst full privatisation of Telstra might have only slight adverse impact on general employment and economic activity in regional areas, it is unfortunately the case that this will be happening concurrently with rationalisation downsizing in other industries, so it is the combined effect which is so detrimental to regional Australia. [41]

1.70 The South Australian Government said:

…In regional centres the impact of such staff reductions and office closures on local communities where Telstra is a major local employer will be severe. The repercussions of such reductions in the local employment based can extend far bey0ond the loss of the service itself, to affect local businesses and cause reductions or even closure of services such as schools and hospitals. [42]

1.71 The Queensland Government had similar concerns:

The Queensland Government is concerned that privatisation will have an impact on employment and economic activity, particularly in regions. Rural and regional areas of the State are already suffering from contraction of services and employment. Telstra, and other carriers, will no doubt make decisions on the location of their facilities and workforce based principally on commercial reasons. [43]

1.72 Telstra's submission acknowledged such community concerns, but Telstra denied that its staff reductions had had a disproportionate impact on regional areas.

But in the geography, that downsizing has not disadvantaged country Australia any more than metropolitan. So the downsizing has been fairly consistent across the board. [44]

1.73 The Communications, Electrical and Plumbing Union, however, cited evidence presented by Telstra to the Senate Estimates Committee to claim that regional areas were being disproportionately affected by staff losses.

1.74 Based on an examination of job losses in non-metropolitan Victoria over the 12 months to February 1998, the Union argued that

As might be expected, smaller centres have been hit hardest, in relative terms, by the staff losses. Regional Victoria as a whole appears to have suffered a loss of 10.2% in employment opportunities within Telstra over the reported period, a figure below the overall national loss of 13% over the 12 months to December 1997. If the largest regional centres (Ballarat, Bendigo and Geelong) are excluded, however, the decline in Telstra employment in the rest of regional and rural Victoria is 17.7%. [45]

1.75 Additional employment figures presented by Telstra [46] to the Committee during the course of this Inquiry show that the ratio of its country to metropolitan employment did not change significantly over the twelve months to March 1998. This is not inconsistent, however, with the contention that small country centres will feel the impacts of downsizing most sharply than larger centres, as they are generally operating off a low employment base before the reductions occur. The loss of 13 positions in Ararat, in regional Victoria, for instance, represented a 30% reduction in the Telstra workforce in that area.

1.76 As opportunities for alternative employment are limited in such areas, the flow on effects of these job losses on economic activity in the region will be all the more marked. The impacts of a 30% (or higher) reduction in staff resources is also likely to have serious implications for service quality in country areas.

Staff Reductions and Service Quality.

1.77 The impact of these staff reductions on Telstra's service delivery, especially in regional Australia, was an issue addressed by many submissions from a variety of interest groups, ranging from local Councils to State governments. Mr. Peter “Sid” Sidebottom, submitted that

Since the initial 1/3 sell off of Telstra, there has been a fall in the quality of service on the North West Coast of Tasmania. The isolated community of King Island has lost a major part of its telecommunications service. Following a Telstra review of service, the only technician on the Island was retrenched.

Further to this, Telstra has removed a linesman from the West Coast which has exacerbated the area's communications problems…

Now there is a proposal to cut 50 jobs in Northern Tasmania which will have a significant effect on the delivery and quality of service to residents of the North West Coast. [47]

1.78 Similarly, the Western Australian Government noted that

Telstra has already withdrawn many staff previously located outside the major cities, however, it has not yet put in place adequate arrangements for sending staff to country areas when needed as evidenced by the slow response to some telephone system outages. [48]

1.79 According to the South Australian Government:

…Telstra's performance in country areas has declined over recent months, which raises serious concerns for regional areas. [49]

1.80 According to the Queensland Government:

There is a clear trend to limited availability and reduced quality of service in commercially marginal areas under the present arrangements. In regional, rural and remote areas there has been no effective competitive market. [50]

1.81 The Communications Electrical and Plumbing Union cited the instance of an exchange outage at Blackall, in rural Queensland.

The Blackall Exchange serves some 2000 customers in the Western Queensland region. On the night of Monday 30th March the exchange developed two fault, cutting service to the whole town. The single technician responsible for clearing such faults in the central west area (an area roughly the size of Victoria) is based at Longreach, about 200k away, but when the notification of the fault reached him, he was dealing with another problem at Winton, some 400k from Blackall and a five hour drive at night. [51]

1.82 Similarly in the New England region of New South Wales:

Recently there have been major problems in the Armidale New England area with many Telstra customers being unable to obtain satisfactory service… Telstra admitted the staff cuts in that area were too drastic and they have no provided increases in resources to enable customers to be given proper service. [52]

1.83 In its evidence to the Committee, the union commented:

I do not think they care these days when a country town goes off the air.. It was a crime once in Telstra to have a place off the air for seconds. Now it can be off for hours and nobody really cares, and that is a different attitude. [53]

1.84 Several rural Shire Councils made submissions to the Committee expressing fears about standards of service. For example:

The area [Coolah Shire] is already experiencing significant delay in installation of new phone lines up to 4 weeks, with a team finally travelling from the Blue Mountains some 3.5 hours away, to make the connection. If this is what is currently being experienced, what does the future hold for service levels to rural areas under the proposed sell off? The Coolah Shire does not currently have any mobile phone access. A privatised Telstra will result in decisions based purely on economics, logistics and population base, this will mean that the Shire is not likely to be serviced. What guarantees exist that a mobile phone service will be realised in the future within the Coolah Shire and what time frame? [54]

1.85 The Local Government and Shires Associations of New South Wales commented:

The experience of many of these locations [rural and regional NSW] is that privatisation and rationalisation result in a decline in services, increased costs and the loss of jobs, often having a devastating effect on the local community. Rationalisation of Telstra, driven by partial privatisation and other factors, has already seen the loss of thousands of jobs. The impact on rural areas has been disproportionately heavy because it has not been offset to any significant extent by new jobs being created in information technology and telecommunications industry. It is inevitable that full privatisation would accelerate the process of rationalisation. [55]

1.86 The Consumers Telecommunications Network also voiced concerns about perceived declines in the quality of Telstra's service to both regional and urban residential customers:

Our members, particularly those in regional areas, are reporting to us a perceived decline in the speed in which faults are repaired and in the responsiveness, particularly of Telstra, where there are concerns about line quality. There appears to be a move towards making more of the network the individual customer's problem rather than being something the provider will take on. [56]

1.87 In its report on carrier performance for the December 1997 quarter, the Australian Communications Authority (ACA) revealed a significant decline in Telstra's delivery of a number of services. While this decline affected all customers during the reporting period, the ACA found that rural and regional customers had fared particularly badly.

1.88 For instance, while in the twelve months to December 1997, there was a 10% decline nationally in the percentage of new services connected on or before the Agreed Commitment Date (ADC), the decline was 16% for the country. In the December 1997 quarter, only 66% of these customers received service within the agreed timeframe.

1.89 Similarly, the percentage of faults cleared within one day of notification declined by 9% over the year at the national level, but by 13% for country customers. In the case of public payphones, the percentage of faults cleared within one day declined by 10% at the national level and 20% for country customers. In the December quarter, less than half of all country payphone faults were rectified within one working day and only 68% within two working days, compared to 88% in metropolitan areas.

1.90 In the case of Directory Assisted Services, the ACA found that only 58% of calls for directory information were being answered within 10 seconds, as opposed to a stated Government target of 90%.

1.91 Telstra, in its response to the ACA, indicated that this deterioration of service was attributable to particular circumstances of weather and changed work practices and did not reflect systemic problems within the company. Similarly, in its evidence to the Inquiry, Telstra argued that reductions in labour resources had not contributed to service delays

I am saying that, across the board, the reduction of those staff numbers have, in many cases, not been customer-serving people but administrative, back-office people and system related people. The reductions in the number of those people have not contributed to any long-term, systematic reduction in service levels for the community. [57]

1.92 The Communications, Electrical and Plumbing Union, on the other hand, contended that

…the underlying cause of service deterioration is the company's failure to invest sufficient resources in the relevant ares of its operations. [58]

1.93 In particular, the union argued that Telstra had over-estimated the labour savings that could be achieved through the introduction of Director, a system which automates the dispatching and recording functions for faults and installations.

On the basis of that equipment being brought in, some 2,000 jobs were made redundant... We told them during trials that the equipment had serious problems. We wanted them to address them. They ignored it. They front-loaded staff out .. before they knew whether the equipment worked. [59]

1.94 In its response to the Australian Communications Authority report, Telstra implied that its service problems were due to the fact that Director was still in its implementation phase. The union pointed out, however, that the system has been being trialed extensively and had been operating in some states for at least two years.

1.95 The Union submitted that:

Even if any remaining problems are resolved in the longer term, the fact remains that Telstra has cut labour resources in advance of its ability to guarantee service standards….

In short, the Union believes that in Consumer and Commercial, Telstra in increasingly managing to headcount targets rather than to staffing levels determined by operational needs. Changes to the Redundancy Agreement introduced in late 1997 have facilitated such a process. [60]

1.96 Figures submitted by Telstra to the Committee indicate that the company has shed 3,503 staff from Commercial and Consumer - the Business Unit, which serves residential and small business customers - in the twelve months to March 1998. This is in addition to the 3,000 Commercial and Consumer positions which Telstra stated it had cut between June 1996 and March 1997, [61] giving a total of some 6,500 fewer full-time employees over a 21 month period. Details of the geographic breakdown of job losses are contained in Appendix A.


1.97 Anecdotal evidence submitted to the Committee, the findings of the Australian Communications Authority and more recent Telstra service statistics submitted by the Communications, Electrical and Plumbing Union all testify to a serious decline in Telstra's quality of service over the last 12-18 months, especially in rural and regional areas. During broadly the same period of time (June 1996 to February 1998) Telstra has shed nearly a quarter of its staff. The Opposition Senators consider that this rapid labour shedding has been a major contributor to Telstra's service problems.

1.98 While technological change and competitive pressures have undoubtedly contributed to a decline in Telstra's staffing levels during this decade, the evidence suggests that the tempo of labour shedding increased markedly during 1996 and 1997, in anticipation of privatisation. Telstra has been under considerable pressure from finance markets to reduce not only its real cost structures, but also its full-time staff levels, to benchmarks regarded as acceptable by investors. In some instances, this appears to have led to resources being lost in advance of the company's ability to offset such losses through new technologies or work systems. An obvious inference from this is that Telstra is allowing customer service - provision of this essential utility service to all Australians - to take second place to maintaining a high share price. By using its market dominance to squeeze service in areas where there is no effective competition, Telstra in effects taxes all telecommunications users for the benefit of the minority of shareholders. And comparison with other telecommunications companies suggests that Telstra's share price is indeed inflated:

The reason for the extraordinary success of the first tranche sale of Telstra is clearly because the market believes that a) cost-cutting measures will be introduced (and this is obvious, because there is still so much to cut), and b) that the extraordinary profit margins will be retained or even increased.

The market currently values Telstra at $65 billion - which, in a supposedly competitive market of 18 million people, is frankly ridiculous. The value lies in the dominance, and the ability to extort monopoly rents, not in the service provided or the technical assets of the company. British telecom, which has a home market of 80 million (and holds about the same dominant position as Telstra) and has global subsidiaries and manifold operations on other countries (including Australia) is only valued by the sharemarket at US$69.8 billion. And the world's largest telephone company, NTT, with a virtual monopoly in Japan and subsidiaries operating worldwide is only valued at US$132.5 - a bit over twice Telstra's current market value.

This is total madness. [62]

1.99 It may be argued that further privatisation would make no difference to a process that is already well in train. However, as witnesses pointed out in other contexts, continuing Government ownership allows for informal processes and checks which act as a counterbalance to Telstra's commercial imperatives. It is indeed just this constraint on its decision making which Telstra wishes to escape through full privatisation. In the words of Mr. Rizzo:

The Telstra Board and management is required to act in the interests of all shareholders. It is a balancing act to address the interests of 1.6 million shareholders and a majority government owner that represents a range of economic, social and political interests. [63]

1.100 The Opposition Senators on the Committee believe that however difficult such a balancing act may be, it is in the interests of regional and rural Australians that it be attempted.


1.101 Under full privatisation, the total foreign ownership level of Telstra would be capped at 35% per cent, with individual foreign holdings limited to 5%. The Office of Assets Sales and IT Outsourcing considered that under this arrangement and with the legislative provisions in place, effective Australian control would not be compromised.

It has been argued that overseas entities could band together and purchase 5% blocks of shares in order to make changes to the way Telstra is operated. This would clearly contravene the legislation because of the broad associate provisions. [64]

1.102 However, Opposition members of the Committee believe that this ignores the potential for informal collusion between foreign owners, and the capacity for a block of foreign owners to exercise significant influence over Telstra. What some may describe as additional discipline, raises the concern that bottom-line profit considerations will overtake the national interest and the delivery of low profit services to low profit regions.

The discipline they [foreign owners] bring is one that says, `We don't need to own Telstra, and we will not continue to own Telstra if it performs poorly relative to its international peers, because we can happily own France Telecom or Deutsche Telecom.' So having a spread of investments is one aspect, but having good performing telco investments is the other. That is part of the scrutiny, if you like, part of the discipline, that the international investor market brings to the table. [65]

1.103 Foreign owners will have no interest in the development, nurturing or support of an Australian industry that has made an important contribution to Australia's export earnings in recent years – the interests of Australia's manufacturing industry will rate a poor second against profit maximisation.

1.104 Under increased foreign ownership levels, it will also be inevitable that pressure will be placed to weaken regulatory controls and in particular, the level of services provided under the Universal Service Obligation.

1.105 There is also no guarantee that the controls on foreign ownership will not be relaxed at some time in the future – the current Government has already shown its preparedness to release Optus and Vodafone from foreign ownership limitations which were included as carrier licence conditions, and this raises the possibility that a similar relaxation could be extended to Telstra in the future. This possibility was highlighted by the Communications and Electrical Plumbing Union:

As a small economy, dependent on the goodwill of more powerful trading partners, Australia is not well placed to resist these pressures. Protection of the foreign ownership limits, once Telstra is fully privatised, will also be administratively cumbersome. The Union believes that the simplest and most effective means of ensuring majority Australian equity in Telstra is to retain it in majority public ownership. [66]

1.106 Australia's national telecommunications infrastructure is too crucial an element of the economic, industrial and social framework of the nation to allow any further dilution of Australian ownership and control.


1.107 There can be no doubt that the evidence presented to the Committee confirms that there is significant and wide-ranging community and industry concern in relation to the proposed sale of Telstra. These concerns cannot be dismissed as illegitimate or irrelevant: many submissions received from community organisations, industry organisations, telecommunications companies and individuals expressed real fears of the consequences should Telstra be able to stalk the market as an effective private monopoly.

1.108 A number of witnesses were of the view that the regulatory framework was insufficiently effective to justify the removal of the Ministerial Power to Direct – that the Power to Direct provided a protection of last resort until the monopoly power of Telstra could be reined in by a robust competitive and regulatory environment. [67]

1.109 Other witnesses insisted that there needed to be more protections guaranteed for users in rural and regional Australia to diminish the fear in the bush that the privatisation of Telstra would lead to a continual decline of telecommunications services outside the cities. [68]

1.110 Ultimately, the evidence presented to the Committee confirmed that the decision to sell the remainder of Telstra is characterised as being policy made on the run. Beyond a range of ideologically driven generalisations, no compelling evidence was presented to show that selling Telstra would deliver any benefits in the national interest. Further, even if such a policy could be justified, the current competitive and regulatory framework does not have the strength to ensure that a privatised Telstra would not engage in exploitative and monopolistic behaviour.

1.111 The Opposition Senators therefore, do not believe the legislation should be supported.

Senator Chris Schacht ALP Senator for SA

Senator Kate Lundy ALP Senator for the ACT

Senator Kim Carr ALP Senator for Victoria



[1] Transcript of Evidence, p.88 (Mr Perkins)

[2] Submission No.40a (Country Women's Association of Australia), p816

[3] Transcript of Evidence, p.52 (Ms Bun)

[4] Transcript of Evidence, p.89 (Mr Perkins)

[5] Majority report, paragraph 2.23; Transcript of Evidence, p. 213 (Mr Hutchinson)

[6] Submission No. 86 p.728 (Prof. Quiggin)

[7] Submission No.86 (Prof J Quiggin), p 715

[8] Transcript of Evidence p.207 (Prof. J Quiggin)

[9] Submission No.67 (Department of Finance and Administration), p.550

[10] Submission No.39 (Telstra) p.276

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

[12] Senate Hansard, 9 December 1996, p.6977

[13] Submission No.89, p.780

[14] Submission No 55a, p.823

[15] Transcript of Evidence p.136

[16] Transcript of Evidence, p.246 (Mr Watson)

[17] Transcript of Evidence, p.81 (Mrs Smith)

[18] Submission No.80, p.685

[19] Transcript of Evidence, p.140 (Mr Skelton)

[20] Submission No.63a, p.659

[21] Submission No. 51, p363 (AAPT Ltd)

[22] Their summaries of declining prices for various services pass over the price of local calls in silence. Telstra, Submission No. 39, p.285; Department of Communications and the Arts, Submission No. 30, p.148-151

[23] Submission No. 30, p. 151 (Department of Communications and the Arts); Transcript of Evidence p.62 (A. Horsley, Australian Telecommunications Users Group Ltd)

[24] Part XIC, Trade Practices Act 1974

[25] Submission No. 69 (Optus Communications), p. 571.

[26] Transcript of Evidence, p. 90 (Mr Perkins)

[27] Submission No. 81 (BT Asia Pacific), p.689.

[28] For example, Submission No. 53 (Global One Communications Ltd), p. 383.

[29] Transcript of Evidence p.234 (R. Shogren, Australian Competition and Consumer Commission)

[30] Submission No. 51 (AAPT Telecommunications), p. 369.

[31] For example, Submission No. 59 (Macquarie Corporate Telecommunications Pty Ltd), p. 459.

[32] Submission No. 51 (AAPT Telecommunications), p. 372.

[33] Submission No. 59 (Macquarie Corporate Telecommunications), p. 458. See also Submission No. 51 (AAPT Telecommunications), p. 368.

[34] Submission No. 51 (AAPT Telecommunications). See also Submission No. 81, p. 689 (BT Asia Pacific); Submission No. 59 p. 457 (Macquarie Corporate Telecommunications Pty Ltd)

[35] Submission No. 51, p.363-4 (AAPT Telecommunications)

[36] Submission No.39, p.301 (Telstra)

[37] Hansard, 5th May, 1998, p.117 (Mr. Rizzo, Telstra)

[38] Submission No. 47a p.6 (Communications, Electrical and Plumbing Union).

[39] Hansard, 5th May, 1998, p.150 (Mr. Colin Cooper, CEPU).

[40] Hansard, 5th May, 1998, p.154

[41] Submission No 32, p 251 (Government of Western Australia, Commerce and Trade).

[42] Submission No. 97, p.854 (Government of South Australia)

[43] Submission No. 103, p.9 (Queensland Government)

[44] Hansard, 5th May, 1998, p.116 ( Mr. Shore, Telstra).

[45] Submission No.47a, p. (Communications, Electrical and Plumbing Union).

[46] See Appendix A

[47] Submission No. 17, p. 064 ( Mr. Peter Sidebottom).

[48] Submission No. 32, p. 251 (Government of Western Australia, Commerce and Trade).

[49] Submission No. 97, p851 (Government of South Australia)

[50] Submission No. 103, p.4 (Government of Queensland)

[51] Submission No. 47 a, p. ( Communications, Electrical and Plumbing Union).

[52] Submission No. 57a, p.759 (Communications, Electrical and Plumbing Union)

[53] Hansard, 5 May, 1998, p.154 (Mr. Colin Cooper, CEPU)

[54] Submission No. 68, p.555 (Coolah Shire Council). See also, for example, City of Broken Hill, Submission No. 96 p,847; Huon Valley Council, Submission No. 35 p. 262; Flinders Council, Submission No. 49 p.356; District Council of Kimba, Submission No. 82, p695

[55] Submission No. 80, p685 (Local Government and Shires Associations of NSW)

[56] Hansard, 29th April, 1998, p.97 (Ms Helen Campbell, Consumers Telecommunications Network).

[57] Hansard, 5 May, 1998, p.116 (Mr. Peter Shore, Telstra)

[58] Submission No.47a (Communications, Electrical and Plumbing Union).

[59] Hansard 5 May, 1998, p. 151 (Mr. Colin Cooper, CEPU)

[60] Submission No. 47a (Communications, Electrical and Plumbing Union).

[61] ibid,

[62] Submission No. 56, p.432 (Mr S. Fist)

[63] Hansard, 5th May, 1998, p. 101 (Mr. Paul Rizzo, Telstra)

[64] Submission No.75 (OASITO), p.5

[65] Transcript of Evidence, p.49 (Mr Chipton)

[66] Submission No.47 (CEPU), p.3

[67] for instance, Transcript of Evidence p.89 (Mr Perkins) and p.59 (Mr Horsley)

[68] for instance, Transcript of Evidence p.83 (Mrs Smith)