Chapter 4 - Other issues
Staged Approach to Sale
The Telstra (Transition to Full Private
Ownership) Bill 1998 provides that up to 49.9 per cent of the government’s
equity in Telstra may be sold when this legislation receives Royal Assent. It
requires the Commonwealth to retain a 50.1 per cent share.
Schedule 3 of the Telstra (Transition to Full
Private Ownership) Bill 1998 sets out the conditions that must be met for
the Commonwealth to sell more than 50 per cent of its original equity interest
in Telstra. Part 2 of Schedule 3 contains provisions that repeal the provisions
in Division 2 of Part 2 of the Telstra Corporation Act 1991 (which
require the Commonwealth to retain two-thirds of the equity in Telstra).
In brief, the Bill provides for the Minister to
arrange for an independent inquiry into whether Telstra has met certain
prescribed performance criteria in relation to customer service. Telstra would
need to meet those criteria for a particular designated period (of at least 6
months). If the person or body conducting the inquiry finds that Telstra has
met the prescribed criteria for the designated period, it must issue a written
certificate to that effect and give it to the Minister. The certificate must be
published in the Gazette and it must be tabled in both Houses of Parliament.
The day on which the certificate is published in the Gazette becomes the inquiry
certificate day and is the day from which the Commonwealth will be able
to sell its remaining 50.1 per cent equity in Telstra.
The Explanatory Memorandum to the Bill states
Subitem 2 (1) (of Schedule 3) empowers the Minister for
Communications, Information Technology and the Arts to arrange for an
independent inquiry to be established into whether Telstra has met certain
prescribed performance criteria for a particular designated period. The role of
the inquiry would be to assess Telstra’s performance against criteria set out
in the regulations relating to service levels to customers in metropolitan,
rural and remote areas.
Subitem 2(10) provides that for the purposes of item 2, the
‘prescribed criteria’ are the criteria specified in the regulations.
The pre-sale inquiry
The Committee noted the comments of the
representatives of the telecommunications industry that any inquiry preceding
the full sale of Telstra (that is the government’s remaining 50.1 per cent
share in the company) should be conducted openly and in a manner that allows
for submissions from interested parties. ATUG’s Alan Horsley told the
We would (be expecting to make a submission) and I think we
would see far better that the public inquiry process and the openness be
followed. We see that as to some degree a characteristic of this industry since
about 1988-a very open approach to
legislative development and issues resolution, and we think that it would be
reasonable to apply to this as well.
His stance was supported by Telstra’s
competitors. Mr Meagher from Optus told the Committee:
Like Mr Horsley, the previous witness, we think public inquiries
are more beneficial than private inquiries and we also believe that,
essentially, the whole of the telecommunications regime as it has developed
since I think Senator Evans was minister-initiated
in 1988-has been one of openness. That
has actually been beneficial.
The Committee notes that in its submission Optus
suggested that the pre-sale inquiry should include an assessment of effective
competition, including matters such as:
- The extent to which
Telstra has complied, or failed to comply, with the competition rule in Part XIB;
- whether Tesltra has met
its costs disclosure obligations under the Amendment Bill;
- whether there is
effective access to services declared under Part XIC and
- other indicators of
competition such as, the availability of local number portability, preselection
on a range of services and other non-price barriers to entry into the market.
Optus’s call for an assessment of effective
competition before the final sale was supported by Mr Havyatt of Hutchison
The Committee was concerned that there appeared to be some confusion on the
part of certain witnesses between the issues of ownership of Telstra and the
competitive regime. The Committee wishes to stress that the two issues are
separate and should not be confused.
The Committee notes that nothing in the
legislation would prevent the pre-sale inquiry from being a public process
where interested parties would be able to put their views. The Committee is not
convinced that the inquiry should look into issues of competitiveness. However
other means of improving the competitive regime should not be ignored.
The Committee recommends that the government seek advice from the
ACCC on any procedural changes it would recommend to improve the effectiveness
of the competitive regime.
The Explanatory Memorandum (EM) to the Telstra
(Transition to Full Private Ownership) Bill 1998 states that:
The provisions for an inquiry and for Telstra to meet certain
performance criteria on quality of service need to set meaningful thresholds
for performance that will provide assurance that acceptable standards of
service will be achieved and sustained. Consultations have been held with a
range of stakeholders, based on a discussion paper issued by the Department but
views were wide and varied.
The evidence before the Committee suggests that
the industry and telecommunications consumer organisations would be anxious to
participate in such a process and to offer suggestions as to what should be
included in the “prescribed criteria”.
In its submission to both the current and the
previous inquiry into the full privatisation of Telstra, ATUG has argued that
performance criteria for carriers must be set out in legislation. In ATUG’s
view, all carriers (not just Telstra) need to meet required performance
criteria and it suggests that “a broad framework or broad areas of
consideration” should be set out in the legislation to guide the development of
the regulations proposed in the Bill. ATUG also called for an amendment to Schedule
3, part 1, Section 2(10) of the Telstra (Transition to Full Private
Ownership) Bill 1998 mentioning some specific prescribed criteria which it
believed should be in the legislation, including support services such as time
to connect a new service, time to restore a faulty service, time to answer a
call to customer inquiry service, time to dial tone, post dialling delay,
congestion and drop out.
ATUG’s preference would be for the “prescribed
criteria” to be set not simply in the context of a pre-sale inquiry but in the
context of continuing assessment of customer service linked to the carriers’
licence conditions, as is currently the case in the United States:
It is about moving on to ensure that all carriers provide
network performance, service performance, at some defined standards and not
have low quality services marketed as high quality services; that is, not to
have consumers hoodwinked by undefined and underperforming services.
The National Farmers’ Federation, Mr Needham
also argued in relation to access to a 64 kilobits service that unless certain
levels of service are specified in legislation, “there is no result.”
The Committee is of the opinion that it would be
premature to reach a view on the prescribed criteria and that the government
should take into consideration the consultations undertaken on this matter.
The Committee recommends that the government undertake ongoing
consultations with appropriate groups regarding the development of the
The Explanatory Memorandum to the Bill describes
the meaning of “designated period” for the purpose of the inquiry before full
privatisation can proceed. A minimum “designated” period of 6 months is
Subitem 2(9) provides that for the purpose of item 2, a
‘designated period’ is each of one or more specified periods, or each period in
a specified series of periods, of at least 6 months specified in the
regulations. A designated period will be able to begin before or after Royal
The Committee notes that the representative of
the Government of Western Australia, although not opposed to the sale of
Telstra, made a plea for the designated period to be longer than a minimum of 6
The six months mooted in the bill as a period under which a
measured service performance would be a criterion for the government
relinquishing majority ownership would not be acceptable. A period of over 12
months is considered the absolute minimum...an absolute minimum of 12 months in
order to provide for a complete annual cycle, not only of the business cycle
but of the weather cycle. There is a big difference in the difficulty in
executing repairs or providing new services in the wet weather compared to the
dry, for example. It is also in a short period of time of six months possible
for a special effort to be put in, after which that special effort then
collapses because all the resources have been focussed into that six-month period. It is just not long enough to
measure the likely sustainable performance.
Minister’s power to direct Telstra
At present the Minister has a broad power to
direct Telstra (Telstra Corporation Act 1991, section 9). The bills
provide that this power will lapse when public ownership of Telstra falls below
50 per cent. The power has never been used, and the government thinks that it
is insufficiently targeted or defined and is inappropriate in relation to a
privately owned company. Instead, the T(CPSS) Bill 1998 gives the
Minister a power to direct Telstra to comply with the bill. Breaching such a
direction could incur a fine of up to $10 million.
Witnesses who favoured keeping the broader power
to direct argued that the power acts as a brake on Telstra even if it is never
To look at a pattern of
ministerial non-intervention over a period of time I do not think is actually a
valid argument for selling off those remaining shares. The ministerial pressure
acts in a very subtle way. If we look at some of the other policy issues over
the past 18 months or two years, such as 013 directory service charging, price
caps and a whole range of areas, the minister and his office have kept a close
eye on developments and I am sure the minister has actually sent messages
through to Telstra to behave in a certain way. You do not actually see overt
ministerial intervention, but the inclination is still there for the minister
to act when there is a retention of public ownership.
While Telstra argued that ‘hybrid ownership’
creates a regrettable conflict of interest between government as regulator and
government as owner, the Communications, Electrical and Plumbing Union claimed
that such arguments are rarely, if ever, accompanied by concrete examples of
how such conflict has produced unsatisfactory outcomes.
In the Committee’s view, the matter of principle
is that the current power to direct is inappropriate in the case of a privately
owned company. It is also unnecessary in practice providing that the general
regulatory scheme is powerful enough. The Committee is satisfied (particularly
considering the improvements contained in these bills) that the general
regulatory scheme is powerful enough.
It is difficult to estimate the exact effect on
Commonwealth revenues from the sale of the remaining two thirds of Telstra
because of the many variables that need to be assessed. However the Committee
is satisfied that the government’s commitment to use the proceeds of the sale
for the purpose of retiring public debt will ensure that the beneficial impact
of the sale will be felt through all areas of the Australian economy and
benefit all Australians.
The Committee reports to the Senate that it has considered the 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 and recommends that the Bills proceed.
Senator Alan Eggleston
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