MINORITY REPORT
CHAPTER 1
INTRODUCTION AND SUMMARY
This Government Senators' Report has been prepared by the Coalition Senators
who participated in the Senate Environment, Recreation, Communications
and the Arts Reference Committee Inquiry into the Telstra (Dilution of
Public Ownership) Bill 1996. We believe that the Majority Report has manifestly
failed to deal appropriately with the important issues presented by this
Inquiry. We have therefore prepared this Government Senators' Report to
set out our findings and conclusions based on our participation in this
Inquiry.
1.1 Our findings
Government Senators who participated in the Inquiry strongly recommend
that the Telstra (Dilution of Public Ownership) Bill 1996 be passed by
the Senate in its present form. We reject the key recommendations of the
combined Opposition Parties (ALP and Australian Democrats) that Telstra
remain in full Government ownership, that the Bill be split and that the
$1 billion environmental package to be funded by the partial sale of Telstra,
come from other sources.
Amid the mass of written and oral evidence presented to the Committee,
(the bulk of which was irrelevant to the central issue of Telstra's partial
privatisation) there was no credible case made against the Government's
proposal to sell one third of Telstra to the public while retaining the
remaining two thirds.
The overwhelming bulk of evidence from those actually involved in the
telecommunications industry, including suppliers and informed users, came
down strongly in favour of Telstra's partial privatisation, in order to
enable Australians to receive the potential benefits of the best possible
telecommunications service.
The evidence demonstrated that Telstra's record as a publicly owned carrier
has been one of consistent underperformance. The lesson of this experience
is clear: that under full public ownership, governments do not have the
means to ensure that a complex, competitive business like Telstra is efficiently
operated. To claim the contrary, as is done in the Majority Report, is
simply to ignore the record: and it is unsurprising, although disappointing,
that those who make this claim provide no indication whatsoever of how
the problem of chronic underperformance could otherwise be resolved.
The reality is, virtually all the evidence which has been presented to
this Inquiry supports the proposition that in an open competitive market,
a part-privatised Telstra would be better equipped to realise efficiencies
and thrive than would a fully public owned Telstra.
Unless partial privatisation, which combines most of the benefits of
a competitive, efficient private sector with the perceived security of
Government ownership and control, were to proceed, the Australian public
would risk being deprived of those benefits.
The Majority Report, in seeking to block this Bill, is a mixture of political
opportunism and blind ideology. It fails to establish why so many total
privatisations of Australian Government assets like Qantas and the Commonwealth
Bank under the Labor Government are socially acceptable but partial privatisation
of Telstra is not; it is a poorly argued rationalisation of the real position
the Opposition parties have taken from the outset, namely that they would
oppose the one third sale of Telstra whatever the merits of the evidence
received by the Inquiry.
Relatively few submissions actually dealt with the legislation. Some
of those that did largely reflected unsubstantiated fears generated by
a dishonest political and industrial campaign of disinformation. The others
were “essentially rhetorical rather than empirical”, with those
from union sources noteworthy in this respect. Many witnesses professing
concern about the Bill admitted not having read it and basing their “evidence”
on what they had been told about it. In nearly every such case there was
no proper basis for their concern. An example of the poor knowledge of
many witnesses is seen in the following exchange between Senator O'Chee
and Ms Stephanie Mayman, Assistant Secretary, Trades and Labour Council
of Western Australia, after Ms Mayman had asserted that the universal
service obligation provisions were inadequate:
Senator O'Chee: Have you read the Bill?
Ms Mayman: In part, yes.
Senator O'Chee: Did you get up to page 47
of the Bill?
Ms Mayman: I do not recall whether I got
up to page 47...
Senator O'Chee: Did you get up to part 2C:
Re-affirmation of universal service obligation?
Ms Mayman: No, I have just finished reading
290 pages of the IR bill. I did not finish all of the Telstra Bill before
I came here.
It is worth noting that while some submissions questioned some arguments
advanced in favour of part-privatisation or were critical of some of the
empirical evidence quoted, there was a paucity of empirical evidence to
establish that:
- part-privatisation of Telstra was likely to have negative outcomes;
or
- public ownership could convey substantive benefit.
In fact, if legislation were required to maintain Telstra in public ownership,
it would be very difficult to find empirical evidence to support the case
for that legislation.
As a result, the Government Members of the Committee conclude, on the
evidence, that the passage of the Bill for the sale of one third of the
equity of Telstra to the public, is in the best interests of Australians
because it will:
- make Telstra more efficient, which will improve the quality and reduce
the cost of telecommunications services, leading to significant improvements
in Australian economic activity;
- have positive impacts on employment in the telecommunications industry
and other user and supplier industries, which is likely to more than
offset the effects of the employment rationalisation which is required
before Telstra can become fully competitive and efficient in line with
world's best practice;
- boost economic activity and employment levels in rural and regional
Australia by reducing the cost of non-metropolitan communications;
- stimulate the development of the Australian telecommunications service
and equipment industries;
- provide an increase in public sector savings by allowing the redemption
of $7 billion of public debt and removing a yearly interest bill of
around $660 million (ie $7 billion at 9.4% a year) while retaining two
thirds of Telstra dividends which last year totalled just under $1 billion
(out of a total Telstra contribution to Government by way of taxes,
interest and dividends of $2.5 billion);
- improve the level of consumer protection safeguards, with the Australian
Telecommunications Users Group submission saying the Bill “forms
the most significant element of consumer protection that has ever been
provided for this industry” [1];
- reaffirm the Government's commitment to the universal service obligation,
an obligation which is given legislative effect under the Telecommunications
Act and which is in not diminished or affected in any way by this Bill;
there is no sound reason for delaying this Bill pending completion of
the distinctly separate examination of the extension of USOs beyond
telephony to other telecommunications services;
- not in any way affect the existing legislative and other protection
of directory assistance, untimed local calls and the provision of public
telephones, all of which remains unaffected by this Bill;
- increase the level of Telstra's accountability to and scrutiny by
the public while maintaining to the full its obligation to report to
Parliament, including Senate committees; the only change is removal
of the never-used power of the Minister himself to “direct”
the company, a change which has no practical significance; and
- maintain Australian ownership and control of Telstra of at least 88.3
per cent by restricting foreign ownership to maximum individual holdings
of 1.7 per cent and to a total of 11.7 per cent while ensuring Telstra's
Chairman and the majority of its Directors are Australian Citizens.
In the main the Committee's submissions and hearings had little to do
with the Government's legislation for the partial privatisation of Telstra;
the great bulk of evidence dealt with other telecommunications issues
unrelated to and unaffected by the legislation. In many instances the
issues raised have existed for years: for example, the exclusion of telecommunications
carriers from the operation of various state, territory and local Government
laws. In other instances, the issues raised arise from the policies and
actions of the previous Labor Government: for example, the duplication
of infrastructure.
There is significant community concern on these matters, to which we
direct the Government's attention, even though the costs of correcting
the previous Government's decisions appear prohibitive.
Whatever the merits of these matters, it is admitted in the Majority
Report that:
a significant proportion of the 650 submissions were concerned
mainly with the adverse affects on the urban environment of overhead
cabling and mobile telephone towers ...... many individual citizens,
local Government and community organisations took advantage of the existence
of the Committee's inquiry to voice their deep concern about these issues.
[2]
As a result the inquiry was effectively hijacked by matters not directly
relevant to the issue of the partial privatisation of Telstra; the politically-motivated
decision to refer the Bill to an Opposition-dominated Reference Committee
instead of to the appropriate Legislation Committee represented an abuse
of process resulting in proceedings that were largely irrelevant to the
main recommendations in both the Majority Report and this Government Senators'
Report, and led to a Majority Report that lacks both substance and integrity.
We recommend that the Senate examine the procedures under which this inappropriate
reference took place, as the main outcome of this “reference”
inquiry clearly deals with legislation before the Parliament.
Even many of those submissions that gave the appearance of being relevant
to the Bill, in fact were not; instead, they engaged in an attack on total
privatisation of Telstra rather than deal with the present Bill for partial
privatisation. Because of the ill-informed politically-orchestrated scare
campaign that was evident from so many irrational submissions, Government
Senators who participated in the Inquiry wish to draw attention to the
fact that it is firm Coalition policy not to change the ownership of Telstra
beyond the present proposals without seeking a further electoral mandate.
On the many other matters raised by the Majority Report that bear no
relevance to the Bill, Government Senators who participated in the Inquiry
agree that the Government should give careful consideration to public
concerns in determining the powers and immunities carriers will operate
under when the post-1997 telecommunications regulatory regime is introduced.
Despite irrational claims in the Majority Report, there is no need to
amend the Bill to accommodate the entirely separate post-1997 telecommunications
regulatory regime which will be unaffected by the level of Government
ownership of Telstra.
There is no merit in splitting the Bill into two or more separate pieces
of legislation.
1.2 Some interesting facts and figures
This Inquiry received a comprehensive range of evidence supporting the
case for part privatisation. Among the interesting facts and figures which
emerged were the following:
- In Europe, the national carriers of Belgium, the Czech Republic, Denmark,
France, Germany, Greece, Hungary, Latvia, the Netherlands, Ireland,
Italy, Portugal, Spain, Sweden, Turkey and the United Kingdom have been,
or are proposed to be, privatised or partially privatised; [3]
- The major Latin American telecommunications companies in Argentina,
Chile and Peru have been privatised; [4]
- Within the Asia-Pacific region, the governments of Singapore, Malaysia,
Japan, Korea and New Zealand have privatised or partially privatised
State-owned carriers; [5]
- compelling evidence of Telstra's relative inefficiency is its performance
on a widely used performance benchmark for telephone companies, access
lines per employee: Telstra has around 135, whereas the two privatised
carriers, British Telecom and Telecommunications Corporation New Zealand
(TCNZ), are both significantly more efficient at around 200 lines per
employee; [6]
- Telstra believes it is 25% below world's best practice, and as its
competitors improve their performance that could rise to 40%; [7]
- Telstra efficiency gains of 30% would realise savings of $1.6 billion;
[8]
- The benefit Telstra could receive from being able to offer share ownership
to employees is demonstrated by a survey showing that Australian listed
companies with employee share plans delivered 88% higher total realisable
returns to shareholders over a half decade period than companies without
a share plan; [9]
- A World Bank study found that the benefits to British consumers of
the sale of British Telecom amounted to 4,150 million pounds; [10]
- An academic study of New Zealand telecommunications deregulation and
privatisation found that the bulk of the gains accrued to consumers,
through price reductions which led to an increase in consumer welfare
valued at NZ$575 million per year; [11]
- New Zealand Federated Farmers believe the privatisation of New Zealand
Telecom has led to better service delivery, with the waiting time for
new lines down from six weeks to three days; [12]
- According to Industry Commission analysis, adoption of Hilmer-type
competition reforms in the telecommunications sector was estimated to
achieve significant improvements in GDP of the order of $2.7 billion;
[13]
- Economic modelling commissioned by the Department of Communications
and the Arts found that improvements in Telstra's efficiency, likely
to result from part privatisation, would lead to a gain in economy-wide
GDP peaking at 0.5% ($2.4 billion) in 2002/3 moderating to 0.35% ($1.7
billion) in the long run; [14]
- Part privatisation will have a positive effect on the cash side of
the budget of $345 million a year, calculated as the net effect of losing
one third of the Telstra dividend (which last year was $944 million,
so that one third of this was $315 million) and of saving interest on
$7 billion of debt (which, at the average interest rate paid on the
Commonwealth's stock of debt in 1994-95 of around 9.4%, comes to $660
million); [15]
- Telstra increased its spend on Australian products and services in
1994/95 by $794 million to $4,252 million, and there is no evidence
to suggest that the spend on Australian products and services will be
reduced after part privatisation; [16]
- Under the industry plans which are currently in place - and which
will not be affected by the part privatisation of Telstra, as they are
a condition of each carrier's license - Telstra and the other carriers
source approximately 70% of their telecommunications equipment and software
locally; [17]
- Industry groups such as the Australian Telecommunications Users Group
face a desperate shortage of suitably qualified employees; [18]
- A survey of farmers across Australia found that 66.4% answered yes
when asked, “Do you think that partial privatisation of Telstra
is a good idea?” [19]
- The only change from the current arrangements for Telstra's accountability
to government is that the Minister's general power of direction of the
Company under the Telstra Corporation Act, which has never been used,
will be removed - all other existing accountability requirements will
remain unchanged; [20]
- Telecommunications carriers have been subject to special planning
and land use regimes ever since Federation, and indeed the powers and
immunities which apply to the carriers under the current Telecommunications
Act are narrower than those which applied to Telecom prior to the introduction
of competition in 1991; [21]
- The Optus intercity fibre link between Sydney and Melbourne crosses
approximately thirty local council areas, and opposition from any one
of those councils could have jeopardised or substantially delayed the
completion of the end-to-end connection between Sydney and Melbourne.
[22]
1.3 What this Government Senators' Report covers
1.3.1 The economic case for part privatisation of Telstra
This report summarises the weight of empirical evidence submitted to
the Committee about international experience of privatisation, the potential
for Telstra to become more efficient, the benefits for Telstra, for the
Government and for consumers of realising that efficiency and the reasons
why part-privatisation is likely to assist in realising that efficiency.
We are satisfied that this evidence demonstrates that there is a compelling
case for Telstra to be part privatised.
1.3.2 Improved community and consumer safeguards
Despite various wild claims, we find that the Government is clearly delivering
on its undertakings to put in place a world class consumer protection
framework prior to part-privatisation. Public ownership is no longer necessary
to ensure all Australians obtain adequate access to telecommunications
services. The Universal Service Obligation is firmly entrenched in legislation
and applies to all carriers whether publicly or privately-owned; and the
same will be the case with the Government's new Consumer Service Guarantee
once the Bill is passed into law. Telstra's obligations will not be diluted
by part-privatisation.
1.3.3 Provision of telecommunications infrastructure
This issue (terms of reference (j) and (k)) is of course quite irrelevant
to the question of whether Telstra should be part privatised, and these
two terms of reference were included for purely political reasons. We
note that witnesses generally agreed that the tensions which presently
exist over the dual rollout of cable, some of which is overhead cable,
arise as a result of the regime introduced by the previous Labor Government.
The present Government is working to resolve these tensions, by addressing
seriously the issues relating to carriers' powers and immunities and by
redrafting the Telecommunications National Code and Land Access Code through
processes of public consultation.
1.3.4 Technical issues concerning the form of the legislation
No convincing evidence was offered as to why the present form of the
Telstra (Dilution of Public Ownership) Bill should be altered. Some witnesses
raised concerns about whether the legislation establishing the post-1997
telecommunications regime will be in place before the partial privatisation
of Telstra occurs. We are satisfied on the basis of the evidence put to
the Committee that the post-1997 legislation will be in place, and known
to potential investors in Telstra, before they are required to make their
investment decisions.
1.4 The integrity of this Inquiry
From the start, this Inquiry has been compromised by the fact that it
was sent to a References Committee rather than to a Legislation Committee
as would have been appropriate. This was done for purely political reasons,
as the Opposition Parties have a majority on the relevant References Committee
but not the Legislation Committee.
The integrity of this Inquiry was also compromised by the grab-bag of
issues thrown into the terms of reference by the Opposition Parties, many
of which bore no relevance to the purported rationale for the Inquiry,
ie to consider the Government's part privatisation legislation. It must
therefore be highly embarrassing for the Opposition Parties that the Majority
Report concedes that it is impossible to reach a conclusion on many of
these issues. [23] The majority could
not decide, for example, on terms of reference (g) (whether joint ventures
by Telstra are “de facto' privatisation and whether they confer unfair
competitive advantages on Telstra's partners) or (m) (whether proposed
foreign investment restrictions on Telstra and other telecommunications
carriers are appropriate or adequate, and take account of regulation and
monitoring of financial transactions and currency flows.) One might well
ask, if they cannot reach a conclusion, why did they bother to raise the
issue in the first place?
1.5 The quality of the Majority Report
We were disappointed, but not surprised, at the poor quality of the Majority
Report, which is notable for the extent to which it simply does not reflect
the weight of the evidence received by the Inquiry. For example, it states:
It has become clear to the Committee during its Inquiry that
there is great unease in the Australian community about the whole question
of privatisation. [24]
In reality, the Inquiry discovered that there is no significant concern
about the core issues raised by the partial privatisation of Telstra:
- there were a number of one page submissions resisting privatisation,
almost all of which came from Telstra employees as a result of a scare
campaign whipped up by the Telstra unions
- as the Majority Report notes at paragraph 1.7, a significant proportion
of the 650 submissions (an earlier draft revealed that the “significant
proportion” was in fact over half) concerned the issue of overhead
cabling in the rollout of broadband cable - a very important issue,
to be sure, but irrelevant to the central question before this Inquiry
of whether or not Telstra should be part privatised
- a substantial number of submissions expressly supported the part privatisation
of Telstra, with submissions from rural Australians particularly noteworthy
on this point
- the expert evidence as to the consequences for the efficiency and
competitiveness of Telstra overwhelmingly supported Telstra being part
privatised.
The Majority Report's response to the extensive and detailed economic
data presented to the Inquiry, and referred to in this Government Senators'
Report, is woeful. Rather than engaging with that data, the Majority Report
simply pretends that it does not exist:
No persuasive empirical evidence was presented to support the
contention that privatisation or partial privatisation of Telstra would
produce productivity improvements over and above those produced by competition.
[25]
There are numerous examples of the poor quality of the Majority Report,
and the lack of integrity displayed by those who have written it. We highlight
several here. First, the Majority Report denigrates the informed evidence
of experts in this area. For example, the Majority Report asserts that:
...the majority of those who supported partial privatisation,
such as Telstra management and market analysts, had strong vested interests
in seeing it happen. [26]
This statement is wrong; it ignores the many user organisations including
rural and women's groups whose only vested interest is a need for a better
service. It would be equally open to the Government Senators to dismiss
the large number of submissions received from unions or their affiliates
on grounds of self-interest.
A second example of the poor quality of the Majority Report is its assertion
that:
...those expected to pay for the privatisation are the 24,000
Telstra employees identified in Project Mercury, many of whom are to
be sacked in order to make Telstra's prospectus more attractive to potential
investors. [27]
This assertion ignores Telstra's long acknowledged need to reduce its
significant overstaffing to become competitive - a need which is quite
unrelated to privatisation.
Thirdly, the Majority Report makes baseless claims about the consumer
safeguards contained in the Bill and elsewhere:
In fact, the matters to which the Committee is referring (untimed local
calls, the universal service obligation, free emergency call services
and the like) have been in place for years and are not affected by this
Bill. These claims in the Majority Report are merely politically motivated
scare-mongering with no factual evidence to back them up.
A fourth issue concerning the integrity of the Majority Report is the
remarkable selectivity of quotations from sources to suit the argument
rather than to inform the Senate. This is seen in the exclusion of “unhelpful”
remarks from the otherwise much quoted Australian Consumers' Association.
For the sake of completeness, we point out that the ACA also said the
following things, which are nowhere to be found in the Majority Report:
ACA...does not support or oppose the privatisation of Telstra...Overseas
experience suggests that there is a link between the efficiency of carriers
and their capacity to deliver benefits to consumers...ACA argues that
Telstra is only a mid range performer in terms of efficiency... [29]
Fifthly, the Majority Report continually sets up “straw men”
so that it can attack them. Here is a good example:
Moreover, concern was raised that if Telstra were taken over
by a foreign based transnational telecommunications company, this could
result in great pressure from the company to keep Telstra from expanding
into Asian markets and competing against it. [30]
There is no possibility of such a “takeover”, since the total
stake for sale under the Bill is one third of Telstra, the total available
for foreigners is less than 12%, and the total available to an individual
foreigner is around 1.7%. So while this makes for a good scare story,
it is quite impossible under the Bill.
Another straw man is the continual references to full privatisation,
when the Bill before the Senate concerns part privatisation. For example,
the Majority Report asserts at paragraph 1.18 that:
Privatisation would result in reduced Parliamentary scrutiny
because management would not be subject to Parliamentary committees.
That may or may not be the case; but as the current Bill deals only with
part privatisation, where there will clearly be no reduction in Parliamentary
scrutiny, this point is quite irrelevant to the question before the Senate.
A sixth issue is the comment at paragraph 1.27 of the Majority Report
about the funding of the Natural Heritage Trust Fund. The assumption that
the $300 million remaining in the fund will generate real interest of
only $10 to $18 million a year is wrong. The Natural Heritage Trust Bill
provides for the $300 million to be indexed annually, and so after five
years its real value will have kept up with inflation. Accordingly, the
Department of Finance estimates that the annual interest, in real terms,
will be around $24 million.
As these and other instances demonstrate, the quality of the Majority
Report, and the degree of integrity demonstrated in its preparation, is
lamentably low.
Footnotes
[1] Australian Telecommunications Users' Group,
Submission No. 202, Vol 8, p. 1485
[2] Majority Report, para 1.7
[3] Telstra, Submission No. 189, Vol 7, p. 1298
[4] Telstra, Submission No. 189, Vol 7, p. 1298
[5] Telstra, Submission No. 189, Vol 7, p. 1298
[6] Department of Finance, Submission No. 188,
Vol 7, p 1271
[7] Official Hansard Report, 3 July 1996,
p 108
[8] Telstra, Submission No. 189, Vol 7, p 1308
[9] Telstra, Submission No. 189, Vol 7, p. 1304
[10] Department of Communications and the Arts,
Submission No. 131, Vol. 4, p.699
[11] Telstra, Submission No. 366, Vol 15, p.
2907
[12] Official Hansard Report, 26 July
1996, p. 800
[13] Telstra, Submission No. 189, Vol 7, p.
1313
[14] Department of Communications and the Arts,
Submission No. 131, Vol. 4, p. 697
[15] Official Hansard Report, 26 July
1996, p. 746
[16] Telstra, Submission No. 189, Vol 7, p.
1311
[17] Department of Communications and the Arts,
Submission No. 131, Vol. 4, p. 723
[18] Official Hansard Report, 12 July
1996, p. 210
[19] National Farmers' Federation, Submission
No. 133, Vol. 4, p 777.
[20] Department of Finance, Submission No.
188, Vol. 7, p 1281
[21] Department of Communications and the Arts,
Submission No. 131, Vol. 4, p. 717
[22] Optus Communications/Optus Vision, Submission
No. 134, Vol. 4, p 804
[23] Majority Report, para 3.43 and para 4.77
[24] Majority Report, para 1.20
[25] Majority Report, para 1.11
[26] Majority Report, para 1.6
[27] Majority Report, para 1.18
[28] Majority Report, para 1.26
[29] Australian Consumers Association, Submission
No. 340, Vol. 13, pp 2516-2517.
[30] Majority Report, para 4.75