Chapter 1 - Introduction
Telstra is one of Australia’s largest
corporations. It has about 68.2 per cent of Australia’s telecommunications
In the 1997-98 financial year it had revenue of $17.3 billion, profits after
tax of over $3 billion, and paid dividends of $9 billion.
Telstra is the descendent of Telecom, the public
monopoly telecommunications provider created in 1975 by the break-up of the
former Australian Postmaster General’s Department. Telecom was corporatised in
1989. Telecom merged with the former Overseas Telecommunications Commission
(OTC) in 1992; and it changed its name to Telstra in 1995 (in 1993 overseas).
Full competition in telecommunications was introduced from 1 July 1997 with the
Telecommunications Act 1997 and related acts.
This is the Senate Committee’s third inquiry
into the privatisation of Telstra. In May 1996, the government introduced
legislation to Parliament to sell one-third of the Commonwealth’s equity in
Telstra Corporation by means of a share float. The Bill was subsequently
referred to the Senate Environment, Recreation, Communications and the Arts
References Committee for inquiry. The References Committee conducted an
Australia-wide inquiry between May and September 1996 and tabled its Report in
the Senate on 9 September 1996. The issues relevant to the full privatisation
of Telstra were canvassed extensively in that Report. The Bill was passed, and the
one-third sale proceeded in late 1997. It raised $14.3 billion for the
On 15 March 1998, the Prime Minister, the Hon
John Howard MP, announced that it was the intention of the government to seek a
mandate at the next federal elections to sell the two-thirds share of Telstra
that is currently government-owned. The Prime Minister committed the government to using the bulk
of the proceeds from the sale to retire public debt.
The first Telstra (Transition to Full Private
Ownership) Bill 1998 was introduced in the House of Representatives on 30
March 1998. On 1 April 1998 the Senate referred the Bill to the Environment,
Recreation, Communications and the Arts Legislation Committee for inquiry and
report. The Committee reported to the Senate on 26 May 1998 and made 8
recommendations (see Appendix 3). The Bill was put to the vote in the Senate on
11 July 1998 and was not passed.
Prior to the federal elections of 3 October
1998, the government announced that it was committed to a staged approach to
any further privatisation of Telstra. It would first sell a further 16 per cent
of its equity in Telstra. It committed itself to legislation to provide that
until an independent inquiry certifies that Telstra’s service levels are
adequate, there would be no futter sell down of the government’s 51 per cent
This Committee’s Inquiry
On 2 December 1998 the Senate referred the
present Telstra (Transition to Full Private Ownership Bill) 1998, the Telecommunications
(Consumer Protection and Service Standards) Bill 1998, the Telecommunications
Legislation Amendment Bill 1998, the Telecommunications (Universal
Service Levy) Amendment Bill 1998 and the NRS Levy Imposition Amendment
Bill 1998 to the Environment, Communications, Information Technology and
the Arts Legislation Committee for inquiry and report by 15 February 1999. On
15 February 1999, the reporting date was extended to 18 February 1999 by
resolution of the Senate. The Senate subsequently extended the reporting date
to 8 March 1999.
The inquiry was advertised in all State major
newspapers and in the Week-End Australian of Saturday 12 December 1998.
The inquiry was also advertised on the Internet. The Committee received 27
submissions and these are listed at Appendix 1.
The Committee examined 30 witnesses at two
public hearings in Canberra (3 February 1999 and 16 February 1999). Details of
witnesses who appeared at the public hearings are listed in Appendix 2.
The Committee expresses its appreciation to all
those who made submissions and gave evidence to the inquiry.
There was no substantial opposition in
submissions to the further privatisation of Telstra. The majority of
submissions were not concerned with the issue of ownership. Rather they
concentrated on consumer service issues such as the Universal Service
Obligation, the Customer Service Guarantee and on the level of competition in the
The majority of submissions with a shared
viewpoint (6) came from Telstra’s competitors, Optus, AAPT, Vodafone, Macquarie
Corporate Telecommunications and Hutchison Ltd and from the Australian
Telecommunications Users Group (ATUG). They shared concerns regarding the
regulatory powers of the (Australian Competition and Consumer Commission) ACCC,
particularly in what they perceived to be excessive delay in reaching decisions
about possible anti-competitive conduct by Telstra. They all requested amendments
to Part X1B of the Trade Practices Act 1974 to curb what they see as
Telstra’s anti-competitive behaviour.
They were also concerned about the size of
Telstra’s Universal Service Obligation (USO) claim for 1997/98 ($1.8 billion
compared with $252 million the previous year) and suggested various approaches
to deal with this problem, including amendments to the Telecommunications
(Consumer Protection and Service Standards) Bill 1998 to allow for
“improved” methods of assessment of the USO losses.
Only three submissions opposed the further sale
of Telstra on the grounds that a fully privatised Telstra will look after
shareholder interests to the detriment of consumers. They came from the
Communications Electrical Plumbing Union (CEPU), the Consumer’s Telecommunications
Network (CTN) and Professor John Quiggin, who referred the Committee to his
submission to the May 1998 inquiry into the full privatisation of Telstra. They
argued that quality of service has already suffered under partial privatisation,
and the CEPU also had concerns about the impact of outsourcing.
The Committee received 4 submissions from
individuals concerned about quality of service issues. Amongst other
submissions, the Telecommunications and Disability Consumer Representation
Project expressed concern about the lack of access to new telecommunications
technologies for people with disabilities.
The Committee notes that over a quarter of the
submissions received came from Western Australia (five submissions, including
one from the Western Australian State government) and South Australia (two
submissions, including one from the South Australian State government). Those
submissions expressed the concern of people in regional and more remote parts
of Australia for equality of access to a reasonable level of telecommunications
services and to new telecommunications technologies.
The Committee supports the process of full
privatisation of Telstra. No substantial arguments to the contrary were
presented to the Committee during its inquiry. The majority of submissions were
not concerned with the issue of ownership of Telstra but concerned with the
issues of the provision of Universal Service Obligation (USO) services and of
the effectiveness of the competitive regime.
The Committee notes that there was support for
the government’s proposal to put the USO to tender from a majority of witnesses
including from the National Farmers’ Federation and from all major industry
players such as Optus, AAPT and Vodafone, Macquarie Corporate and Hutchison Telecommunications.
Benefits of Privatisation
The Department of Communications, Information
Technology and the Arts stated in its submission to the Committee that:
Completing the privatisation of Telstra is a logical extension
of the Government’s policy objectives in privatising one third of the company.
The arguments for selling the rest of the Commonwealth's equity are
substantially the same as those relating to partial privatisation, including
the beneficial effect on Telstra's performance of market disciplines imposed by
investors’ scrutiny and changes in the share price; maximising Telstra’s
capacity to access capital in the private market; moving shareholder risk to
private shareholders; and enabling the retirement of significant amounts of
public debt at the same time providing some funding for communications
infrastructure and environment protection enhancement projects.
In the Explanatory Memorandum to the Telstra
(Transition to Full Private Ownership) Bill 1998, the government made it
clear that, in its view, part privatisation has many drawbacks:
The drawbacks of this arrangement are that the Government would
have to continue to balance both regulatory and shareholder objectives in
addressing telecommunications policy. Telstra would continue to be governed by
a regime which seeks to emphasise competitive neutrality on the regulatory
side, but also requires specific additional governance and reporting
requirements related to public ownership.
...The community, private shareholders, business analysts, Parliamentarians
and Telstra management would continue to have difficulty in discerning the
differences between the roles of Government as a majority owner of Telstra and
regulator of the telecommunications industry. Members of the public, in
particular, would continue to have difficulty in accepting that majority
ownership does to equate to Ministerial control of the management of day-to-day
operations of Telstra.
In short it would tend to maintain the impression that
Commonwealth ownership directly influences the price, quality and range of
services provided. The phased approach to full private ownership is intended
to allay fears that privatisation will lead to service decline by introducing
change on a graduated basis, but the confusion of roles will continue for so
long as the Commonwealth is an owner.
The Explanatory Memorandum also stresses that
continued part government ownership of Telstra would act as a barrier to the
development of the company:
Telstra would be constrained in its ability to raise new capital
through equity (no Government will want to pay two-thirds of a call on
shareholders). It may also be constrained in forming strategic alliances and
may find itself retrained from entering potentially lucrative ventures.
Telstra also picked up on those themes in its
submission, arguing that full privatisation would enable it to move forward
more strongly focused on meeting competition from global communications
companies (for example by raising new capital). Other benefits mentioned
included the resolution of the perceived conflict with the government’s dual
role as part owner of Telstra, and as the telecommunications industry
Further privatisation would allow Telstra to compete more
effectively against the well resourced, global communications companies now
operating in Australia. These companies are experienced operators in a variety
of markets and regulatory regimes all around the world. Further privatisation
would also give us better access to capital, markets and technology, and provide
us with increased opportunity to become a more significant competitor in the
global communications market, including being able to strategically partner
with other companies in pursuit of our commercial objectives.
The Telstra (Transition to Full Private
Ownership) Bill 1998 is part of a package of bills
that have all been referred to the Committee. The Telecommunications
(Universal Service Levy) Amendment Bill 1998 and the (National Relay
Service) NRS Levy Imposition Amendment Bill 1998 are consequential
bills. They make minor amendments to the Telecommunications (Universal
Service Levy) Act 1997 and to the NRS Levy Imposition Act 1998. The
bills make no changes to the delivery or terms of the Universal Service
Obligation (USO) or to the National Relay Service. The provisions contained in
those two bills have not been raised in any submission to this Committee’s
inquiry and they will not be further discussed in this report.
Submissions have concentrated instead on the
provisions contained in the Telstra (Transition to Full Private Ownership)
Bill 1998, the Telecommunications (Consumer Protection and Service
Standards) Bill 1998 and the Telecommunications Legislation Amendment
Bill 1998. A brief outline of the main provisions in each of the 3 bills
that have been the focus of the Committee’s inquiry follows:
Telstra (Transition to Full Private Ownership) Bill 1998
The bill provides for the Commonwealth to sell
up to 49.9 per cent of its equity in Telstra. However it must retain 50.1 per
cent equity until certain conditions have been met.
- Sale of the Commonwealth’s remaining 50.1 per cent equity can
only occur after an independent inquiry into Telstra’s performance finds that
Telstra has met “prescribed criteria” for a designated period of at least 6
months and after the inquiry has given a written certificate to that effect to
the Minister. The certificate is to be published in the Commonwealth Gazette
before sale can occur. It must also be tabled in both Houses of Parliament.
- The “prescribed criteria” against which Telstra’s performance is
to be assessed are to be set out in regulations (disallowable by either House
of Parliament) which are to be made within 18 months of the Bill becoming law.
- The Ministerial power of direction under section 9 of the Telstra
Corporation Act 1991 will be repealed when Commonwealth ownership falls
The proceeds from the sale are to be used to:
- Increase funding (by $250 million) under Natural Heritage
Trust of Australia Act 1997;
- Make $70 million available to establish Rural Transaction Centres
in country towns;
- Allocate $150 million to provide untimed local calls in extended
zones (and abolish Telstra’s pastoral call rate) and upgrade the
telecommunications network in remote Australia.
- An additional $81 million over three years will be provided to
the Regional Telecommunications Infrastructure Fund (RTIF) including enhancing
telecommunications to remote islands such as Cocos, Norfolk, King, Flinders
Kangaroo and other Islands and the Australian Antarctic Territories;
- Provide 100 per cent continuous mobile phone coverage on key
major national highways. ($25 million) and
- Allocate $120 million to a Television Fund which will be used to
extend SBS television transmission to areas with more than 10,000 people.
Telecommunications (Consumer Protection and Service Standards) Bill 1998
This Bill brings together existing consumer
protection measures and, as noted by the Department of Communications,
Information Technology and the Arts in its submission, it also adds new powers
in relation to compliance with consumer safeguards: These are that:
- The Minister will have
the power to direct Telstra to take specific action to ensure that it complies
with the Act (Part 10, clause 159). This power will remain irrespective of the
level of commonwealth ownership in the future.
- The Australian
Communications Authority (ACA) will be given the power (Part 5, clause 118) to
direct a telephone company to redress systemic problems in relation to the
Customer Service Guarantee (penalty for non compliance will be up to $10
million). This will enable the ACA to look proactively into systemic problems
(eg. consistent faults in a particular geographic area) and direct a Carriage
Service Provider (CSP) about the things it should do to ensure those problems
do not recur.
- Subclause 128(3) will make
it clear that there is only one Telecommunications Industry Ombudsman (TIO)
- Subclause 155(3) will
clarify that price control arrangements can include charges for untimed local
calls in regional areas.
- Subclause 155(4) will allow
different price control arrangements to apply to different customers in
relation to one type of Telstra service charge.
- Subclause 155(5) will
require Telstra to comply with any determination setting out price control arrangements.
Part 2 of the Telecommunications (Consumer
Protection and Service Standards) Bill 1998 (the Consumer Bill) re-enacts
Part 7 of the Telecommunications Act 1997 and relates to the universal
service regime designed to ensure that all people in Australia, wherever they
reside or carry on business, have reasonable access to standard telephone
services, payphones and other prescribed services.
Part 3 relates to the National Relay Service and
Part 4 continues the requirement on Carriage Service Providers to give
customers an untimed local call option and adds a scheme to give comparable
benefits to remote customers who do not have that access (in the form of a
rebate of up to $160 per annum).
Part 5 of the Consumer Bill continues the
operation of the Consumer Service Guarantee but expands the powers of the ACA
as described in paragraph 1.27 (b) above.
Part 6 continues the operation of the
Telecommunications Industry Ombudsman (TIO) scheme and Part 7 provides
protection to residential customers from losing pre-paid monies if their
Carriage Service provider becomes insolvent or fails to provide a service.
Part 8 provides for reliable telephone access to
Emergency Calls Services which is currently guaranteed under Part 12 of the Telecommunications
Act 1997. Telstra is the “emergency call person” designated by the ACA.
However, multiple operators may be necessary to manage calls from
teletypewriter machines and the ACA is revising arrangements made under
subordinate legislation to this effect.
Part 9 covers the Price Control regime. At
present, the cap on untimed local calls extends to 30 June 1999 and is
currently being reviewed.
- The cap on main services (connection & line
rental charges, charges for mobile services, trunk & international calls)
also extends to 30 June 1999. Telstra is required to reduce its standard price
for rental services and trunk and international calls by 1 per cent in real
terms each year. It is also required to reduce prices for main services by 7.5
per cent each year in real terms. 
As mentioned earlier, Part 10 of the Consumer
Bill deals with various matters including giving the Minister a power to direct
Telstra to comply with this Bill.
Telecommunications Legislation Amendment Bill 1998
This Bill adjusts the telecommunications specific
competition regulation provisions contained in parts X1B and X1C of the Trade
Practices Act 1974, and provisions of the Telecommunications Act 1997. It
strengthens the ACCC’s powers to regulate and enhance competition and the ACA’s
powers to enhance consumer safeguards.
In response to this Senate Committee’s
recommendations on the earlier Telstra sale bill (May 1998), the Bill provides
for the ACA to make a determination to require Carriage Service providers to
give customers specified information about the terms and conditions on which
goods and services are supplied and information about the Customer Service
The Bill enables the ACCC to disclose or require
disclosure of information it requires to be kept under record keeping rules made
under Division 6 of Part X1B of the Trade Practices Act 1974. The Bill
also enables parties other than the ACCC to seek injunctive relief in regard to
a breach of the competition rule contained in Part X1B of the Trade
Practices Act 1974 whether or not a competition notice has been issued in
regard to the conduct (proposed item 26 of Schedule 1 to the Bill).
It provides persons with the right to initiate
court action for a breach of the competition rule where the person disagrees
with an ACCC decision not to issue a notice or where the ACCC is taking too
much time in the person’s view.
The Bill contains an amendment to extend the
ACCC’s information gathering powers. The amendment is designed to ensure that
information obtained under the rules is treated as “protected Part X1B and X1C
information” for the purposes of s. 155 (proposed item 40 of Schedule 1).
Under the current legislation, the ACCC is also
able to make record-keeping rules for specified carriers and CSPs (Part 5,
Division 5). The Amendment Bill contains significant amendments (proposed items
6 to 25, 27 and 28 of Schedule 1 to the Bill) to the legislation which broaden
the scope of the current record-keeping rule provisions by enabling
rules to relate to the operation of Parts XIB and XIC of the Trade Practices
Act 1974 and Part 6 of the Telstra Corporation Act 1991 rather than
simply in relation to the performance of an ACCC function or an exercise of an
ACCC power conferred under those provisions.
Other amendments enable the ACCC to require carriers
or carriage service providers to prepare reports on information kept pursuant
to the record keeping rules and to disclose information provided in reports
prepared pursuant to record-keeping rules to the public or specified persons.
The legislation clarifies that Telstra is
required to comply with any price control arrangements determined by the
Minister. Compliance with the Telecommunications Act 1997 and with the
amendments in this Bill (including subclause 158(4)) is a standard carrier
licence condition. In addition, the Bill requires the ACCC to monitor and
report on compliance by Telstra and universal service providers with price
control arrangements applying to them, in addition to its general function of
monitoring and reporting of charges paid by consumers (proposed item 29 of
Schedule 1 to the Bill).
The Committee notes that the Telecommunications
Legislation Amendment Bill 1998 includes the following provisions
recommended by the Committee, in its May 1998 report into the earlier Telstra
(Transition to Full Private Ownership) Bill 1998. These include:
- greater transparency of Telstra’s costs in
relation to negotiations over cost based pricing of access to
telecommunications infrastructure and
- the right to initiate court action for a breach
of the competition rule where the person disagrees with an ACCC decision not to
issue a notice or where the ACCC is taking too much time in the person’s view.
The Telecommunications (Consumer Protection
and Service Standards) Bill 1998 provides for the opportunity for the
Australian Communications Commission (ACA) to make a determination to require
Carriage Service providers to give customers specified information about the
terms and conditions on which goods and services are supplied and information
about the customer service guarantee. This provision also stems from a
recommendation of the Committee in its earlier report on this issue (see
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