CHAPTER 3
TELSTRA AND ITS MANAGEMENT
| Telstra has become, as a result of competition, technological
advancements and improved management, a highly profitable and efficient
national telecommunications company. Partial privatisation would lead
to a lack of accountability to the Parliament and to the people of
Australia, who are the current 'shareholders'. |
3.1 Telstra's origins date from 1901, when the Postmaster-General's Department
(PMG) was established to manage all domestic telephone, telegraph and
postal services. The Overseas Telecommunications Commission (OTC) was
established in 1946 to manage Australia's international telecommunications.
3.2 The Australian Telecommunications Commission, trading as Telecom
Australia, was created as a separate entity in July 1975, following the
break-up of the PMG. The Australian and Overseas Telecommunications Corporation
(AOTC) was formed in February 1992 following a merger of the OTC and Telecom
Australia.
3.3 Telstra Corporation Limited became the legal corporate name of the
merged entity in April 1993. The domestic trading name, Telecom Australia,
was changed to Telstra on 1 July 1995 to distinguish the corporation from
other telecommunications companies in the increasingly competitive and
deregulated market. The corporation has been trading as Telstra internationally
since 1993.
3.4 Telstra is making a transition from a traditional telephone/telecommunications
company to a provider of electronic communication and information services,
within a substantially altered national environment. [1]
The Committee considered that Telstra is the only corporation in Australia
currently available to build the 'information superhighway' to the door
of every Australian.
3.5 Telstra Corporation Limited is, at present, a wholly-owned Commonwealth
company which is limited by shares as follows:
Table 3.1 Telstra's Share Capital
| Telstra's Share Capital |
| Authorised share capital |
20 billion ordinary $1 shares |
| Issued and fully paid shares |
4.933 billion |
| Issued and partly paid shares (to $0.75) |
2 billion [2] |
An ordinary share simply means that it is a standard single vote share.
At the moment, Telstra can only issue its shares to the Commonwealth.
Assuming the current Bill becomes law, the Commonwealth would offer for
sale up to one-third of its shares to the public.
3.6 Telstra is a highly profitable national corporation in public ownership.
Its profit after tax increased by 3 per cent to $ 1,755.5 million
in 1994-95. As noted in its 1995 Annual Report, this result represented
a return on investment of 18.2 per cent, which compares favourably
with leading international telecommunications companies. [3]
Its contributions to governments totalled $ 2,732 million in 1994-95.
Telstra is one of the largest contributors to Australia's wealth, with
a value added contribution of $ 8.78 billion, representing 2.2 per
cent of Gross Domestic Product, distributed as follows:
Table 3.2 Telstra's GDP contribution - distribution
| To employees |
| Wages, superannuation and workers' compensation $3,914.2m
|
| To providers of capital |
Interest $506.4m
Dividends $944m |
| Government taxes |
Income tax $649.6m
Other taxes $288.1m |
| For reinvestment |
| Depreciation and retained earnings $2,475.9m |
3.7 The main reason given for the Government's policy of privatising
Telstra is the belief that a privatised corporation would be more efficient
and productive (refer World Bank discussion in Chapter
4).
3.8 In the past, Telecom, and later, Telstra was considered by some to
be inefficient as a result of its statutory monopoly, and this view has
been encouraged by bodies such as the Bureau of Industry Economics, which
has provided its interpretation to the Industry Commission. [4]
3.9 However, Telstra has changed its corporate image and performance
in recent years. The introduction of competition in 1991, together with
efficiencies achieved, has seen a remarkable improvement in its financial
efficiency. Past, present and future performance is now reviewed and compared
internationally. This increasing efficiency will continue whether or not
Telstra is partly privatised.
3.10 Significant efficiency improvements have been achieved in 1995/96.
Company-wide efficiencies have occurred, and will continue to come from:
(a) restructuring and re-organisation efficiencies;
(b) improving processes and the elimination of lower priority work;new
and/or enhanced computer systems; and new technology. [5]
(c) new and/or enhanced computer systems; and
(d) new technology.
3.11 BZW Australia, the investment banking division of Barclays Bank
PLC, said in its submission to the Committee that privatisation will provide
'greater scope for management to focus on established performance targets'.
[6] This appears to the Committee to
have been done without the need for privatisation as Telstra's Chief Executive
Officer, Mr Frank Blount, was paid 'a short term performance bonus relating
to 1994 and a long term performance bonus relating to 1992, 1993 and 1994
all of which totalled $ 400 000'. This was on top of a salary of
between $ 1 200 000 - $ 1 209 999. [7]
International comparisons
3.12 A number of submissions to the inquiry argued that Telstra's performance
fell significantly below that of its overseas peers. The Department of
Finance submission, for instance, stated that comparisons of Telstra's
performance relative to other international telecommunications carriers
indicate that it is still operating below optimal efficiency. [8]
Similarly, the Department of Communications and the Arts stated in its
evidence that:
We believe that Telstra is significantly off world's best practice
… The CEO, Mr Blount, said in a recent speech that their own studies
have shown that they are about 30 per cent off world's best practice,
as measured by operating expenses per access line. [9]
3.13 It emerged in evidence, however, that a number of indices of telecommunications
performance exist and against several of these, Telstra's practice was
at or above world standards. In response to questioning from the Committee,
Mr Ian Martin, BZW Australia, agreed that Telstra's financial performance
was, for a range of ratios, at best practice levels. Return on average
equity, return on sales and debt to equity ratios were all said to be
at least on a par with that of comparable operators internationally (refer
Table 3.1). In the words of Mr Martin:
On a range of benchmarks, Telstra stacks up very well against…
overseas companies. [10]
Table 3.3 Telstra Financial Performance
| Financial ratios |
1993/94 Result |
World's Best Practice |
| Pre-tax return on capital (return on investment) |
22% |
Over 20% |
| Interest Cover |
5.3 % |
Over 5.5 times |
| Debt Ratio |
35.5% |
35% |
| Return on Average Equity |
18% |
Over 17% |
| Profit Margin (return on sales) |
24% |
Over 25% |
Data confirmed by Mr I. Martin, Telecommunications Analyst, BZW Australia,
Official Hansard Report, 3 July 1996, p.152.
3.14 However, both the Department of Finance and the Department of Communications
and the Arts questioned the relevance of financial ratios in assessing
Telstra's efficiency. The latter, for instance, suggested that:
strong financial performance may indicate a degree of market
power … exogenous factors such as interest rates, or that the valuation
estimate of the company's assets is wrong - not high levels of efficiency.
Operational efficiency measures on the other hand, provide an indication
whether resources … are used in the most efficient way to produce
services… [11]
3.15 The Department of Communications and the Arts, in its supplementary
submission to the inquiry, presented evidence of Telstra's performance
against a range of operational indicators. The Department acknowledged
that Telstra performed well on the basis of revenue per line, while noting
several difficulties in interpreting this measure. On the other hand,
it suggested that 'Telstra's high rank on revenue per line is reversed
when revenue is compared to employee numbers.' [12]
3.16 The Committee noted that the Department of Communications and the
Arts estimates are based on the 1995 Bureau of Industry Economics Study,
International Performance Indicators. The OECD's 1995 Commercial Outlook,
on the other hand, ranks Telstra at mid-range (10th out of 26 countries)
on the basis of revenue per employee, when the measure is adjusted for
purchasing power parity. The Committee believed this divergence highlights
the complexity of the methodological issues involved in international
performance comparisons.
3.17 This difficulty aside, the Committee noted that both the Bureau
of Industry Economics and the OECD studies found that Telstra was among
the better performers on this measure on an intertemporal basis. The OECD
showed Telstra's rate of growth of revenue per employee to have been above
the OECD and European Community averages for the period 1982-92. Similarly
the Bureau of Industry Economics noted that, for the period between 1990
and 1993:
The countries showing the largest proportion increase in revenue
per employee…. are, caveats in mind, those with the most rapid
improvements in labour productivity. Australia is among the more rapid
improvers. [13]
The June 1996 Report by the Steering Committee on National Performance
Monitoring of Government Trading Enterprises confirms this view, finding
that Telstra's:
Labour productivity, as measured by real revenue per employee,
continued to increase - doubling between 1990-91 and 1994-95. In 1994-95
it rose by 8.5% despite a marginal increase in employment, the first
in five years.
3.18 The Committee also heard evidence from several witnesses on Telstra's
efficiency as measured both by access lines per employee and operating
costs per access line. In relation to the first measure, Telstra's ratio
of 135 was said to compare unfavourably with those of British Telecom
and the Telecommunications Corporation of New Zealand (200) and with the
U.S. Regional Bell Operating Company average of 250. [14]
Similarly, the Department of Communications and the Arts suggested that
Telstra's labour productivity, as gauged by this measure, was below that
of companies operating in similar environments. [15]
3.19 It was acknowledged, however, that this measure was, in the words
of the Finance Department submission, 'fairly simplistic' as it failed
to capture differences in such practices as contracting out, in country
geography/demography and in market structure. [16]
A number of submissions further emphasised this point by drawing attention
to the specifics of Telstra's operating environment. [17]
It was argued that the very low operational density of the Australian
market, together with Telstra's role as sole universal service provider,
needed to be allowed for when considering Telstra's cost structures:
Operations density tends to be a major cost driver in industries
with expensive and widely distributed infrastructure needs such as telecommunications.
Australia has some of the most challenging environmental conditions
for the provision of this infrastructure. For one of the world's largest
networks, the Australian sector has a relatively small number of access
lines (and consumers). [18]
These objections are relevant to both the access lines per employee and
the costs per access lines measures.
3.20 The Committee was informed that several studies had disputed the
significance of geographical factors for Telstra's performance. Nevertheless,
the Committee notes that significant differences in the estimation of
Telstra's efficiency arose from the National Economic Research Association
study cited by the Department of Finance when its results were adjusted
to reflect Australian conditions.
3.21 In its original submission to the inquiry, the Department stated
that Telstra's:
…cost structure, following adjustments to take account of
local conditions, has been measured as some 40% above that of British
Telecom. [19]
In its supplementary evidence, however, the Department of Finance indicated
that the NERA figure had not been normalised for geographical factors
and that after such normalisation:
…the figure could fall probably towards the 30% figure that
Telstra mentioned in its submission and evidence as being its view of
the company's margin above world's best practice and cost structures.
[20]
Telstra, in its evidence to the inquiry, in fact suggested that it believed
itself to be 'at this point of time, 25 per cent off the pace' on the
basis of its own internal benchmarking. [21]
3.22 While the variation in these estimates suggested to the Committee
that benchmarking is not an exact science, the impact of normalisation
for geography would nevertheless appear to be significant. The Committee
believes that it is likely that the particularities of the Australian
market do have an impact on Telstra's performance, as reflected in measures
of both labour and capital productivity.
3.23 The Department of Communications and the Arts further argued that
Telstra's performance was significantly inferior to companies operating
in similarly sparsely populated areas such as U.S. West and the Canadian
carriers. The Committee received evidence, however, suggesting that in
the case of U.S. West, the achievement of relatively low employee levels
(and hence higher labour productivity) had been associated with a deterioration
in service quality. [22]
3.24 The Committee was concerned that the Department of Communications
and the Arts should compare Telstra unfavourably with a company whose
service record they had evidently not bothered to investigate. Such an
omission highlighted the dangers of relying on partial indicators, selected
primarily to support a particular point of view, when analysing Telstra's
performance. Public policy decisions made on the basis of such analysis
may have serious consequences for Australian consumers.
3.25 The unions with coverage of Telstra also claimed that the market
structure in which U.S. West operated was significantly different from
that of Australia, due to the presence of small local exchange carriers
which serviced many rural and remote areas. It is not clear whether the
BZW Australia figures on which the Department of Communications and the
Arts based its evidence have been normalised to take account of such differences
(or for contracting out). The Bureau of Industry Economics evidence on
Canadian carrier performance is based on International Telecommunications
Union figures which do not appear to have been adjusted for contracting
out.
3.26 The Committee concluded that the evidence submitted to it on Telstra's
performance allowed for a wide range of interpretations. Moreover, given
the inherent difficulty of international comparisons, no one measure was
likely to accurately reflect Telstra's performance relative to its peers.
This was evident from the following exchange between Senator K. Carr and
Mr I. Martin, Telecommunications Analyst, BZW Australia:
Senator Carr - The benchmarkings are difficult
in terms of comparing international experience with that of Australia.
Mr. Martin - That does not mean you should
not do it…
Senator Carr - No. But does this necessarily
lead us to an informed decision making process, given that there are
no international comparisons on a comparable basis with our experience
of Telstra?
Mr. Martin - No. The fact is that there is
no comparable telecommunications carrier to Telstra. There is no other
company that offers the full range of services that Telstra does in
the geographic setting of Telstra. [23]
3.27 The Committee accepts that there would be room for improvement in
Telstra's performance against a range of measures. It noted that Telstra
had itself arrived at such a conclusion. Indeed, Telstra, in the supplementary
submission, indicated significant improvements on a number of indicators
over the last two years.
Table 3.4 Improvements in Telstra's performance
since 1994
| |
1994/95 |
1995/96 |
| Operating Expenses/Access Line |
+7.6% |
+11.6% |
| Total Factor Productivity |
+7.9% |
+10.4% |
| Employee (FTS)/10,000 Access Lines |
-7.6% |
-0.4% |
| Revenue/Employee |
-6.7% |
+5.4% |
| Total Assets/Sales |
-8.4% |
+5.6% |
| Investment/Lines Installed |
+14.1% |
-5.0% [24] |
3.28 The trend of these figures is in line with other evidence submitted
to the Committee as regards the performance of Government Business Enterprises
in the last decade, [25] and with the
recent findings of the Steering Committee on National Performance Monitoring
of Government Trading Enterprises (GTEs). The Steering Committee's June
1996 report found that both State and Commonwealth GTEs were continuing
to improve both labour and total factor productivity.
3.29 The Committee considers that such figures point to Telstra's capacity
to achieve ongoing performance improvements while remaining in full public
ownership. Benchmarking, if used critically, may contribute to the process
of identifying areas where such improvements can be made. However, in
view of the difficulties noted above, the Committee concluded that international
benchmarks could form no sound basis on which to build a case for Telstra's
privatisation.
3.30 The Committee concluded that whilst there is room for improvement
in Telstra's performance, Telstra is a highly profitable company performing
well in public ownership.
Debt Management
3.31 The Bill contains the provisions at new sections 8AM and 8AO required
for the Government's proposed taking over of $ 700 million of explicitly
Government-guaranteed debt which is now carried by Telstra: a move which
would improve the Corporation's balance sheet and increase its value,
as discussed in Chapter 4. [26]
3.32 Some of the advocates of privatising Telstra said that to conform
with world's best practice involved high levels of debt, which would be
foreign debt. The Department of Finance intimated that, with current debt
at $4.74 billion, Telstra's debt should be higher for greater efficiency.
[27] An increase in foreign borrowing
would have an immediate impact on the current account deficit, as interest
repayments were remitted overseas on a regular basis.
Joint ventures and asset sales
3.33 The Committee was concerned at the persistent suggestions from the
current Government, some sections of the press, and, reportedly, from
the CS First Boston team who conducted the privatisation Scoping Study,
that some form of structural break up of Telstra is being entertained.
One purpose of breaking up Telstra would be to increase profitability
prior to and during 'the crucial five-year period after privatisation'.
3.34 Such structural separation could be achieved by keeping non-profitable
divisions in full public ownership (eg. the $ 3.9 billion broadband
network which is proving a short-term financial drain) and partly privatising
the rest. [28] Alternatively it has
been suggested that the highly profitable divisions, such as the Yellow
Pages, be sold off separately, thus increasing the overall sale value.
[29]
3.35 The Committee is opposed to any form of structural separation of
Telstra, which would result in the loss to Australian industry and Australian
consumers of the efficiencies available through vertical integration.
The Committee noted that the Government's election policy did not involve
structural separation of Telstra. The Committee calls on the Government
to affirm this policy, irrespective of the outcome of the debate on Telstra's
ownership.
| RECOMMENDATION 3:
The Committee recommends that Telstra not be structurally separated.
|
3.36 The Committee was aware of the ongoing public discussion about the
complex distinction between a joint venture and a partial sell-off in
the context of the Government making short term decisions that would make
Telstra 'leaner (and meaner)' and 'more attractive to prospective purchasers'.
[30] The 'non-legislative' route to
privatisation is considered in Chapter 2 of this
report.
3.37 Telstra has a range of subsidiaries. These are separate corporate
entities in which Telstra has control over the composition of the board
of the subsidiary or holds a majority of the voting shares. Telstra is
also associated with a range of companies, which means that Telstra has
financial investment or shares in the company but it does not control
the company. Some of the subsidiaries may be companies which have been
incorporated to allow Telstra to enter into a joint venture with a private
firm.
3.38 All of these subsidiaries, associated companies, joint ventures
and partnership activities by Telstra do not directly affect the ownership
of Telstra itself. For example, if one of the companies with which Telstra
is associated has foreign investment (eg 60 per cent foreign investor
and 40 per cent Telstra) that does not make Telstra a foreign company
because it does not confer any foreign ownership on Telstra shares. The
foreign investor would have had to notify the Foreign Investment Review
Board, assuming that is was originally an Australian business with assets
of more than $ 5 million. If it is a completely new business established
in Australia with foreign investment in which Telstra takes an interest
by way of investment or shareholding then it simply falls within the monitoring
and regulation functions of the Australian Securities Commission.
3.39 Telstra could reduce its active participation by way of transfer,
sale or lease functions to subsidiaries, associated companies or others,
and this option has been given wide coverage in the press. [31]
It can do that now without the current Bill but the Government might feel
obliged to act by way of the section 9 power of Ministerial direction
to stop a wholesale sell-off in the 'public interest'. Telstra can sell
its assets without selling any of its shares.
3.40 Although the Ministerial direction power is removed by the Bill,
the Commonwealth and the private shareholders could exercise their voting
power to curb a major sell-off of assets if that course of action was
construed as not being in the company's best interests. This might also
have a negative effect on the share price and would therefore require
an explanation to the Australian Stock Exchange, as well as to the shareholders.
Also, some of the assets might be encumbered by debt (where a lender had
provided a loan or credit) and the assets were subject to a charge. That
debt would have to be repaid before the assets were sold.
3.41 Commercial sell-offs come at a cost in terms of State and Territory
stamp duties and asset sale costs. As each sell-off occurred, Telstra
would have to inform the Australian Stock Exchange under the continuous
disclosure regime because the transaction might have a material effect
on the price of the shares. In other words, the company could not just
decide to reduce itself to a shell overnight without telling anyone. In
any event, Telstra's Articles of Association provide that it must inform
the Minister when it wants to make any significant change in its commercial
interests.
3.42 One amendment that should be considered, if the Bill proceeds contrary
to the recommendations of this report, is the inclusion of a power of
veto by the Parliament (with full tabling and disallowance requirements)
pertaining to any proposal to amend the Memorandum and Articles of Association
of Telstra so long as it remained a Commonwealth majority-owned company.
The Commonwealth could always vote against the proposed amendment to the
company's Memorandum and Articles using its majority voting power attached
to the shares but the Parliament might prefer to have such matters determined
by it rather than the Government of the day, in the public interest. This
strikes at the commercial freedom of the company and the shareholders
to determine the future of the company and the contents of the Constitution/rules
of the company, but it is a measure analogous to the Commonwealth wanting
to have a privileged position vis-a-vis other shareholders regarding the
special power to obtain financial data from within Telstra.
3.43 The Committee was unable to form an opinion on the matter of whether
or not joint ventures confer a competitive advantage, which is covered
by second part of term of reference (g), as it received insufficient evidence.
[32]
3.44 In passing the Bill, the Commonwealth would be yielding its express
power to direct the board of Telstra in terms of the powers and functions
of Telstra. This may have serious consequences for the national interest.
The Commonwealth would still retain the conventional voting power of two-thirds
majority and has accorded itself a special power to monitor the internal
financial operations of the company. However, the Commonwealth would be
required under the Corporations Law to have regard to the rights of the
minority shareholders in exercising its vote. This gives rise to difficult
legal issues as to the rights and remedies of the minority shareholders.
3.45 There is ongoing concern about availability of information on Telstra's
corporate performance. Since the corporatisation of Telstra, the organisation
has been accountable to its owners, the people of Australia, through the
tabling of an Annual Report in the Parliament, and the Senate estimates
process. According to the Department of Finance, the proposed legislation
continues this. The Corporation is still accountable as before:
The existing provisions in the Telstra
Corporation Act 1991 for annual
financial statements...will be retained. The Auditor-General will continue
to have audit responsibility for Telstra. [33]
3.46 Ms Fay Holthuyzen, First Assistant Secretary, Telecommunications
Industry Division, Department of Communications and the Arts, provided
the Committee with a summary of the accountability requirements of the
Bill:
The accountability arrangements which currently apply to Telstra,
except for one element, are essentially unchanged.
3.47 While this may be the case, the Committee has serious concerns.
These are now discussed.
Power of direction by the Minister
3.48 The Bill repeals the power of the Minister to direct the Telstra
Board in the public interest. This power derives from section 9 of the
Telstra Act. Although no section 9 direction has ever been issued, the
Committee is of the view that its very existence exerts an important influence
on the Board's deliberations. The Bill, however, removes this power because
such a situation is incompatible with the operations of a publicly listed
company which must operate in response to the voting power of the shareholders
and under the direction of the Board of Directors in compliance with the
Rules of the Australian Stock Exchange and the provisions of the Corporations
Law. As the Department of Communications and the Arts explained:
The one issue which differs in terms of the accountability arrangements
relates to the power of direction that the minister currently has in
relation to Telstra, which is in the Telstra Corporation
Act. Under that particular power, the minister
is able to direct Telstra in the national interest, but that direction
power is, of course, subject to the operation of other laws. It is proposed
that in the Telstra privatisation bill that particular power will be
deleted from the time of sale. [34]
3.49 Mr Mike Reynolds, Director of the Centre for Social and Welfare
Research at James Cook University, expressed his concern about the implications
of this change as follows:
In the case of full public ownership, the minister and the cabinet
appoint the directors of that particular board and that is the way that
I see it should stay. But as well as that, any taking away of the ministerial
intervention in regard to these bodies could only be seen as a retrograde
step. I think there is a fine line and a fine sensitivity between government
and ministerial intervention and the commercial running and organisation
of a particular board. [35]
| RECOMMENDATION 4:
The Committee recommends that if the Parliament passes the Bill, contrary
to the recommendations of this report, the Section 9 power of the
Minister to direct the Telstra Board in the public interest be retained.
|
Access to financial data
3.50 The Bill provides a new a new subsection (8AD) which empowers the
Minister to give Telstra a written direction to provide specified financial
statements for specified periods. This power could be used, for example,
to require Telstra to provide quarterly financial statements. This power
is over and above the normal obligation which applies to a listed company
(and Telstra will become listed on the Australian Stock Exchange). Listed
companies have obligations of 'continuous disclosure' to the Stock Exchange
and shareholders of any significant event likely to materially affect
the price of the company's shares.
3.51 The Committee was very concerned about who would have access to
such information, in particular whether the Parliament would have such
access or only the Minister.
3.52 The Committee noted that Directors of a company, once their appointment
takes effect, are fiduciaries and must therefore display the utmost good
faith towards the company in their dealings with it or on its behalf.
While legislation, such as the Corporations Law, has to some extent extended
and clarified the ambit of those duties, in the main these duties are
still determined by extensive and complex care-law, which does not find
expression in the Corporations Law. The provisions contained in Schedule
1, Part 2, Division 5 - Miscellaneous of the Bill set a
dangerous precedent insofar that the Commonwealth, the Minister and officers
or employees of the Australian Public Service ('associated persons') are
provided with immunity notwithstanding that they have or may have breached
the duties and sanctions provided under the Corporations Law.
3.53 The Department of Communications and the Arts informed the Committee
that:
Parliament would continue to have access to the information to
which clauses 8AW and 8 AX apply. [36]
3.54 The Committee noted that these provisions apply only to information
concerning the Telstra sale scheme, and are quite separate from the continuing
obligations in relation to financial statements and significant events.
The power to access such financial information is a discretionary power
available only to the Minister. There is no provision in the Bill for
this information to be made available to the Parliament. An increasing
amount of information provided to the Senate Environment, Recreation,
Communications and the Arts Legislation Committee by Telstra at Annual
Report hearings is marked Commercial in Confidence, as was information
about Project Mercury provided to this Committee on 19 August 1996. This
lack of availability of material is widely recognised in the commercial
and academic communities:
As this process of corporatisation and privatisation has proceeded
in Telstra, and in many other cases, the theory of commercial confidentiality
has been used to justify withholding information that was previously
published. In terms of such things as the analysis that Senator O'Chee
was referring to, it is much more difficult to do that on current data
than it is on the data for 1985-86. [37]
3.55 Mr Stevens' response to questioning from the Committee on a question
relating to commercial-in-confidence issues confirmed that, in his view,
there had been 'some concern' in regard to commercial-in-confidence information
which had been an issue 'regardless of the ownership of Telstra'. Mr Stevens
assured the Committee that under the legislative provisions, commercial-in-confidence
evidence would still be available to Senate legislation committees under
partially privatised arrangements for Telstra. [38]
Under the proposed legislation, however, this direct accountability would
be restricted under Division 3 of the proposed new Part 2 of the Telstra
Act.
3.56 The Committee notes that there are mechanisms for the Parliament
through its Committee structure to take commercial-in-confidence evidence.
These mechanisms will still be available if Telstra is partially privatised
in the manner proposed. However, the Committee is concerned that these
mechanisms are unwieldy and time consuming.
3.57 The Government argued that the listing of Telstra on the Australian
Stock Exchange would provide an important measure of accountability to
the public. However, in response to a question on notice from Senator
Wheelwright, it was revealed that "many of the disclosures made to
Ministers under the Bill's reporting requirements" would be exempt
from disclosure to the Australian Stock Exchange.
It is likely that information in Telstra's corporate plan would
be exempt under Listing Rules 3.1.1 and/or 3.1.2. [39]
3.58 The Committee is concerned that a partially privatised Telstra would
not be fully accountable to either the Parliament or the stock exchange.
3.59 The Government has established a Scoping study the aim of which
is to provide it with the legal, technical, commercial, policy, public
communications and management advice needed to enable it to proceed promptly
with the sale of one third of its equity in Telstra. The study is being
conducted by a task group of officials from the Department of Communications
and the Arts and Finance. In response to a Question on Notice by Senators
Schacht and Lees, the estimated costs of the Scoping study were revealed.
[40] The study has an estimated cost
of $1 469 233 over four months with CS First Boston as Business
Adviser at a cost of $ 275 000 to assist the Government in its
planning of the partial sale of Telstra.
3.60 The terms of reference of the Scoping Study were considered confidential
by the Government, but were released by the Department of Finance as a
result of this Committee's inquiry. [41]
3.61 The results of the Scoping Study were not available to this Committee
for consideration in this report. It is a matter of very serious concern
to the Committee that it was not able to obtain such vital information
about the management of the proposed sale.
Telstra Scoping Study - Terms of Reference
Footnotes
[1] Telstra, Annual Report 1995; A. Brown,
(1996), Reform and Regulation of Australian Telecommunications, Griffith
University School of Economics Working Paper No 5, pp.28.
[2] Telstra, Annual Report 1995, pp.63.
[3] Communications, Electrical and Plumbing
Union/Community and Public Sector Union, Submission No.296, Vol.10, p.1871.
[4] Mr J. Rice, Australian Centre in Strategic
Management, Submission No.267, Vol.9, p.1758.
[5] Telstra, Submission No.366, Vol.15, p.2898-99.
[6] BZW Australia, Submission No. 295, Vol.
9, p.1850.
[7] Telstra, Annual Report 1995,
p.76.
[8] Department of Finance, Submission No.188,
Vol.7, p.1271.
[9] Mr Stevens, Secretary, Department of Communications
and the Arts, Official Hansard Report, 25 June 1996, p.11.
[10] Mr I Martin, BZW Australia, Official
Hansard Report, 30 July 1996, p.153.
[11] Department of Communications and the Arts,
Submission No.131A, Vol.16, p.3139.
[12] Department of Communications and the Arts,
Submission No.131A, Vol.16, p.3140.
[13] Bureau of Industry Economics, 1995
International Performance Indicators, p.113.
[14] Department of Finance, Submission No.131,
Vol.4, p.694.
[15] Department of Finance, Submission No.131,
Vol.4, p.695.
[16] Department of Finance, Submission No.188,
Vol.7, p.1271.
[17] Communications, Electrical and Plumbing
Union/Community and Public Sector Union, Submission No.296, Vol.10, p.1863.
Mr J. Rice, Australian Centre in Strategic Management, Submission No.267,
Vol.9, pp.1755-1767.
[18] Mr J. Rice, Australian Centre in Strategic
Management, Submission No.267, Vol.9, p.1762.
[19] Department of Finance, Submission No.188,
Vol.7, p.1271.
[20] Mr M. Hutchinson, Deputy Secretary, Department
of Finance, Official Hansard Report, 26 July 1996, p.743.
[21] Mr P. Shore, Managing Director, Commercial
and Consumer, Telstra, Official Hansard Report, 3 July 1996,
p.110.
[22] Communications, Electrical and Plumbing
Union/Community and Public Sector Union, Submission No.296, Vol.10, p.1884
and Appendix 3.
[23] Mr I. Martin, Telecommunications Analyst,
BZW Australia, Official Hansard Report, 3 July 1996,
p.151.
[24] Telstra, Submission No.366, Vol.15, p.2898-2900.
[25] Communications, Electrical and Plumbing
Union/Community and Public Sector Union, Submission No.296, Vol.10, p.1863.
[26] Telstra (Dilution of Public Ownership)
Bill 1996, Explanatory Memorandum, Financial Impact Statement, p.4.
[27] Department of Finance, Submission
No.188B, Vol.14, p.2649.
[28] S. Lewis, New Telstra sale strategy, Australian
Financial Review, 1 July 1996.
[29] Australian Financial Review, 19
August 1996.
[30] Canberra Times, 1 July 1996, p.17.
[31] Government defends plan to strip Telstra
assets, Australian Financial Review, 27 May 1996; and
Australian Financial Review, 19 August 1996.
[32] Australian Photonics Co-operative Research
Centre, Submission No.332, Vol.12, p.2403; BZW Australia, Submission No.295,
Vol.9, p.1854.
[33] Department of Communications and the Arts,
Submission No.131A, Vol.16, p.3157.
[34] Official Hansard Report, 25 June
1996, p.40.
[35] Mr M. Reynolds, Official Hansard Report,
10 July 1996, p.336.
[36] Department of Communications and the Arts,
Submission No.131A, Vol.16, p.3153.
[37] Professor J. Quiggin, Official Hansard
Report, 10 July 1996, p.359.
[38] Official Hansard Report, 25 June
1996, pp.46-47.
[39] Department of Finance, Submission No.188B,
Vol.14, p.2653.
[40] Department of Finance, Submission No.188B,
Vol.14, p.2652.
[41] Department of Finance, Submission No.188A,
Vol.8, pp.1675-1681.