Minority Report by the Australian Democrats
Telstra (Transition to Full Private Ownership Bill 1998,
and related bills
The Australian Democrats do not believe the privatisation of
Telstra – Australia’s universal telecommunications service provider – is in the
public interest. We have consistently argued that Telstra should remain in
public ownership. The experience of the one-third sale of Telstra and evidence
before the Senate Environment, Communications, IT and the Arts Legislation
Committee has not let us to deviate from this position.
Recommendation 1: The remaining two-thirds of Telstra
remain in public ownership.
We recall the Democrats’ minority report submitted to the
Senate Environment, Recreation, Communications and the Arts Legislation Committee
in May 1998, when the Committee considered the previous Telstra (Transition to
Full Private Ownership) Bill 1998, prior to its defeat in the Senate in July
We believe the same issues of concern relate to this package
of bills currently before the Senate and we reiterate our primary concerns
raised in that report.
These concerns included:
- The timing of the presentation of the Bill before the Senate and
the inadequate length of time the Committee has to consider the Bill.
- The lack of hearings held in rural and regional areas, or on
other capital cities of Australia.
- The lack of any long term analysis with clear performance
indicators formulated by the ACA, of Telstra’s ability to meet its obligations
under the Universal Service Obligation and the Customer Service Guarantee
- The deviation of Telstra’s annual dividend from consolidated
revenue (and hence to the benefit of all Australian) into the hands of a
minority of private investors, stockbrokers and large corporations.
- A rejection of the Government’s argument that Telstra should to
be sold in order to:
- increase competition in the telecommunications
- to pay off public debt,
- fund special social programs through a ‘social bonus’ rather than properly
funding programs, services and infrastructure directly through line items in
The Australian Democrats argue
- There is nothing inherently uncompetitive about Telstra being in public
ownership. Efficiencies and profitability are not automatically derived from
the private sector, but come from sound regulation, good policy and
- privatisation will reduce the net income. The sale of Telstra will lead
to an increased debt burden because of the loss of revenue stream that is
returned to the Commonwealth through paid dividends and annual tax returns. The
amount the Government expects to receive is a one off amount from the sale of
its most significant public asset. The Government will never again receive the
revenue stream from Telstra which contributes significantly to consolidated
revenue and provides government funding for all budget appropriations – not
just the “social programs” the Howard Government deems worthy of funding.
Whilst the sale of Telstra would result in an interest
saving of $2 Billion per annum, it would also result in a loss of profits ($1.7
billion) currently paid to the Commonwealth or retained by Telstra, and a loss
of $860 million because private shareholders would be able to claim tax rebates
in respect of franking credits on Telstra dividends. Overall, this represents
a loss of approximately $560 million, rising to $1.8 billion within three
years, if Telstra’s profits continue to grow at their current rate.
It should be noted that the Government has consistently refused
to disclose the estimated future dividend flows used to determine the future
profitability of the company. This information is crucial in assisting the
Parliament in determining the true value of Telstra, and the impact the loss of
dividend stream will have on consolidated revenue – the very revenue the
Government requires to fund social services and maintain a healthy public
sector. The Government continues to maintain that it is not in the financial
interests of the Commonwealth for it to disclose its estimates of expected
future cash flows, both dividends and retained earnings of the company.
- social programs should be funded from recurrent expenditure. Funding
special programs from ‘left over’ revenue after debt retirement is no more than
political pork barrelling, designed to secure support for government policies
rather than a legitimate linkage between asset sales and levels of current
expenditure. It should be recognised as such.
- The significant undervaluing of Telstra’s shares resulted in an issue
price for the instalment receipts which was well below their true value. The
size of the individual windfall gains was proportionate to the number of shares
purchased. Clearly the major beneficiaries from this were institutional
investors and wealthy individuals who were able to subscribe for large numbers
of shares. Those windfall gains should have been shared among all Australians
in their capacity as owners of Telstra, not just those who were in position to
government has again shown contempt for the Parliament in appointing advisers
to commence preparations for the further sale when the Bills which will permit
the sale have not even passed the Senate. Should the Senate reject this
legislation, the government will have wasted over $600,000 of taxpayers’ money.
In relation to the Social Bonus,
the Democrats raise the following:
- Who will manage the fund?
- What public interest tests will underpin the funds to ensure they
are wisely spent and distributed?
- Why will the fund be distributed among states and territories
rather than through regions, or for specific projects, identified thought
- Will there be an imposed timeframe in which the fund should be
exhausted? What restrictions will that impose on the roll out of
infrastructure? Will this encourage unwise spending?
- Relying on Senate Estimates to question the allocation of the
fund is inadequate. Parliament should be provided with ongoing reports
throughout the allocation process, in the same manner that Parliament is able
to scrutinise the Budget. In this way, the fund should act as if these
projects or services were properly funded through line item allocations.
The Government does not have
widespread support for the sale of the remaining two thirds of Telstra. The
Government’s decision to sell Telstra, is a reflection of the Government’s
ideological position that government ownership hampers industry. The Australian
Democrats believe that the greatest impediment to the telecommunications
industry is a dysfunctional regulatory environment.
The Australian Democrats believe
it is essential for retention of the remaining two-thirds of Telstra to be in
public ownership. It is only in full public ownership that Australians will
- access to essential services at affordable and competitive prices
- social benefits deriving from Telstra’s revenues to Government
- ongoing maintenance and extension of infrastructure to all
Australians, regardless of their income levels and geographical location
Customer Service Guarantee
The Democrats welcome the
Government’s resolve to strengthen the Customer Service Guarantee. However, the
Democrats remain concerned that the scheme has not been able to ensure the
maintenance of the existing quality levels provided in legislation following
the sale of the first third of Telstra. This is demonstrated by Telstra’s
declining performance particularly in country areas, which has occurred despite
the introduction of the CSG at the beginning of 1998.
This does not instil confidence
that a fully privatised Telstra will deliver high quality service in accordance
with performance standards, especially for rural and remote areas. The
Democrats are of the opinion that the drop in service standards reflects a
change in corporate ethos from a service provider, to a shareholder / profit
The Democrats have a number of
concerns about the CSG scheme including the services covered, those subject to
performance standards, enforcement provisions, and public information about the
scheme. We believe that the CSG should contain dynamic standards which are
continually reviewed to ensure that carriers are obliged to supply the highest
level of service on an ongoing basis.
Recommendation 2: that the Customer Service Guarantee
performance standards be the subject of constant review by the Australian
Communication Authority and that the ACA be empowered to amend CSG performance
standards without receiving Ministerial direction. This should occur regardless
of Telstra’s ownership status.
Recommendation 3: that service providers provide details
of the CSG to their customers as a matter of course. Service providers should
automatically pay compensation to customers in instances of CSG breaches.
Universal Service Obligation
The Australian Democrats also
welcome the government announcement prior to the most recent general election
that a 64kps ISDN or an equivalent digital service will be available on demand
as part of the USO to 96 per cent of the Australian population and a comparable
satellite service will be made available to the remaining 4 per cent. However,
we recount the concerns of the Communications, Electrical and Plumbing Union
that while a service can be universally available, it can still be priced out
of reach of many customers.
Recommendation 4: That the price of the 64kps ISDN or
equivalent service and the comparable satellite service, supplied as a part of
the USO, be capped at an affordable level.
Recommendation 5: that the definition of the standard
telephone service be broadened to include mobile telephony and Internet
access. This should occur regardless of Telstra’s ownership status.
Recommendation 6: that regular reviews of the Universal
Service Obligation be guaranteed in legislation. This should occur regardless
of Telstra’s ownership status.
Recommendation 7: that a permanent panel of review be
established, comprising industry, consumer, legal and departmental
This panel would report to the Australian Communications
Authority on the working of the universal service obligation and the customer
service guarantee and standards. This would enable longitudinal studies of
systemic failures in telecommunications service provision by Telstra and other
service providers. It would also make recommendations to the ACA on the need
to upgrade the USO and CSG as technological changes and the passage of time
Costing Compliance with the
Whilst we are concerned to
ensure that Telstra is being adequately compensated for provided the USO, we
also believe that it must be forced to fully disclose the basis upon which it
arrives at its USO cost claim. We do not support a cap on the USO cost claim
and don’t necessarily think that tendering out the USO is a complete answer to
the problem, although we support that process.
Given that the non-Telstra
carriers are obliged to build a component into their charges for payment of the
USO levy, we believe that they have the right to fully scrutinise Telstra’s
cost claim as soon as that claim is lodged. We also believe that they should
be given access to assumptions used by Telstra in making its calculations, such
as the weighted average cost of capital.
Ministerial Power of Direction
Section 9 of the Telstra Corporation Act 1991
currently provides the Minister for the Communications, Information Technology
and the Arts with a very wide power to make directions to Telstra in respect of
any matter provided the direction is in the public interest.
The effect of the proposed new power of direction, which
will come into effect on the repeal of the existing power, is to allow the
Minister to direct Telstra to take specific action to ensure that it complies
with the law. This is clearly a watered down power of direction designed to
appease those who are concerned at the abolition of the existing power. The
Department of Communications, Information Technology and the Arts was unable
to give even just one example of a circumstance in which this new power of
direction could usefully be exercised.
It is true that the existing power has not formally been
used by the Minister but clearly, its existence has meant that Telstra has been
much more attentive to statements of concern by the Minister than had the power
The majority report comments that ‘the more general power is
inappropriate in a competitive private telecommunications market.’ Telstra is
and should continue to be subject to regulation which is not necessarily
imposed on the other carriers, for example, the price cap regime and the requirement
that 2 of Telstra’s directors have knowledge of or experience in the
communications needs of regional areas. If, as is argued, the Ministerial power
of direction is inappropriate for a privately owned Telstra, then it would be
logical for the Telstra-specific price cap regime to be abolished too. The
Democrats support neither the removal of the Minister’s power to direct nor the
abolition of the price cap.
Recommendation 8: that the current wide ranging
Ministerial power of direction contained in section 9 of the Telstra
Corporation Act 1991 be retained.
The inquiry – to determine whether more than a total of
49.9% of Telstra is to be privatised – is triggered when the Parliament agrees
to sell the next 16.6% of Telstra.
The Australian Democrats are very concerned that in its
present form the legislation will permit the remaining 50.1% of Telstra to be
sold, without further reference to the Parliament after an inquiry which
requires no public involvement whatsoever. As the legislation presently reads,
the only aspects of the process which will be able to be scrutinised by the
public are the assessment criteria which will be disclosed in regulations and
the final inquiry certificate. There is no requirement that public submissions
be called for or that public hearings be held and very significantly there is
no requirement that the inquiry’s report be tabled in the Parliament.
The Australian public must be given the opportunity to take
part in the inquiry process and they must be allowed to scrutinise and debate
the contents of the final report. This desire was echoed by the Australian
Telecommunications Users Group, Consumers’ Telecommunications Network and the
National Farmers’ Federation.
There are a number of other
issues in relation to the inquiry process the Democrats have concerns about.
- Who is to determine the performance criteria, and how?
- Who is to undertake the inquiry? Will it be one person appointed
by the Minister, or a panel of persons? What qualifications will they have?
- What historical timeframe will the inquiry investigate Telstra’s
- At what level, if less than 100 percent compliance, will the
inquiry accept as a satisfactory level of Telstra’s performance for the sale of
the remaining 50.1 percent to progress?
Generally, the Democrats believe that the performance of
Telstra is only one factor to be taken into account in considering full
privatisation and parliament should determine, by separate legislation, each
proposed tranche of the sale.
Recommendation 9: Any inquiry into Telstra’s performance
must be a public process which must include the calling of submissions from the
public, the conduct of public hearing and the tabling of the inquiry’s report
before the Parliament.
Regulatory and Competition Issues
Telecommunications commentator, Mr Stewart Fist opposes the
‘en bloc’ privatisation and say that this would further entrench Telstra’s
market dominance. He argues that the only way to implement competition is to
divest Telstra of the local loop – the network infrastructure between a
customer’s premises and the local exchange. Mr Fist says:
Telecommunications is not a
standard production industry which can be left to its own devices or regulated
by simple means. It involves interconnection of all players and so competitors
must also be collaborators and have a high dependency on each other. In such
circumstances the incumbent player with control over the key monopoly elements
will always dominate.
There is no evidence to suggest that Telstra’s market
position is likely to decrease in the near future. Should any more of Telstra
be privatised, market share and competition issues require careful analysis and
Other issues relate to local call costing, disclosure provisions,
and other anti-competitive measures.
Recommendation 10: that any proposal for the further
sale of any pat of Telstra, regardless of the outcome of an inquiry, be the
subject of legislation to be passed by the Parliament.
The Australian Democrats oppose the sale of the remaining
two thirds of Telstra. The Democrats believe that government has a significant
role to play in the supply of telecommunications infrastructure because it is
an essential service. We do not see government ownership (or part ownership)
and regulation of a telecommunications company as incompatible or illogical.
The Parliament is the maker of the laws and regulations under which the company
operates not the Government of the day. To suggest otherwise underplays the
power and role of the Parliament. It assumes the Government has a direct role
in regulation and control, rather than the public sector.
The Democrats oppose the sale of
the remaining two thirds of Telstra because:
- it is policy driven by ideology rather than sound public sector
- it will have negative consequences for public sector debt. The
sale means that only wealthy Australians and large businesses will enjoy
sharing in Telstra’s profits, to the detriment of programs requiring funding through
- linking the proceeds of the sale of Telstra to the retirement of
debt and a ‘social bonus’ is no more than political pork barrelling designed to
secure support for the Government and its policies rather than a legitimate
linkage between the sale and levels of current expenditure. The question of
whether the retirement of debt and the funding of social programs are desirable
is independent of the sale of Telstra, and should remain so.
- The one-third sale of Telstra resulted in substantial job losses
and reduction of services, particularly in rural areas.
The Democrats believe that
customer service guarantees should be strengthened including those which relate
- universal service obligation (including legislative reviews);
- empowerment of the ACA to make and enforce codes and standards;
- empowerment of the ACA to determine the definition of the
standard telephone service, and amend it as required;
- placement in legislation, the requirement that every customer
must be informed of their entitlements under the CSG, prices, terms, conditions
and performance conditions.
- protection and expansion of untimed local calls
- provision of payphones and free directory assistance
- universal service obligation waiver provisions and appropriate
- building into the CSG performance monitoring criteria for all
telecommunications service providers. It has to relate to more than
connections and faults
- reviews of expenditure of telecommunications carriers on capital
The Democrats make the following
Recommendation 1: The
remaining two-thirds of Telstra remain in public ownership.
Recommendation 2: that the
Customer Service Guarantee performance standards be the subject of constant
review by the Australian Communication Authority and that the ACA be empowered
to amend CSG performance standards without receiving Ministerial direction.
This should occur regardless of Telstra’s ownership status.
Recommendation 3: that
service providers provide details of the CSG to their customers as a matter of
course. Service providers should automatically pay compensation to customers
in instances of CSG breaches.
Recommendation 4: that the
price of the 64kps ISDN or equivalent service and the comparable satellite
service, supplied as a part of the USO, be capped at an affordable level.
Recommendation 5: that the
definition of the standard telephone service be broadened to include mobile
telephony and Internet access. This should occur regardless of Telstra’s
Recommendation 6: that
regular reviews of the USO be guaranteed in legislation. This should occur
regardless of Telstra’s ownership status.
Recommendation 7: that a
permanent panel of review be established, comprising industry, consumer, legal
and departmental representation to conduct regular reviews of the USO.
Recommendation 8: that the
current wide ranging Ministerial power of direction contained in section 9 of
the Telstra Corporation Act 1991 be retained.
Recommendation 9: Any
inquiry into Telstra’s performance must be a public process which must include
the calling of submissions from the public, the conduct of public hearing and
the tabling of the inquiry’s report before the Parliament.
Recommendation 10: that any
proposal for the further sale of any pat of Telstra, regardless of the outcome
of an inquiry, be the subject of legislation to be passed by the Parliament.
Senator Lyn Allison
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