April 23rd 2005

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Articles from this issue:


EDITORIAL: Telstra: the latest push for privatisation

CANBERRA OBSERVED: Howard to use Canberra power against states

EDUCATION: Cutting university places in the not-so-clever country

TRADE: Where do we go next with Japan?

FAMILY LAW: 'No-fault' principle undermines marriage

HISTORY: The Vietnam War - 30 years on

STRAWS IN THE WIND: A society of hoons? / The Nobel committee's Syllabus of Errors / The triumph of Roma

ASIA: China's burgeoning naval power

ECONOMIC DEVELOPMENT: Taiwan's high-tech industry: lessons for Australia

INDONESIA: Obstacles to an Indonesian partnership

CLIMATE: Kyoto: why we should be sceptical

BOOKS: FORGOTTEN ARMIES: The Fall of British Asia, 1941-1945

BOOKS: Despite the Barking Dogs, by Stanislaw Gotowicz

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Telstra: the latest push for privatisation

News Weekly, April 23, 2005
If the Federal Coalition succeeds in securing the full privatisation of Telstra, it will be even less capable of protecting Australian consumers from the telecommunication giant's anti-competitive conduct.

The Federal Coalition, which secures control of the Senate from July 1, has launched a new inquiry into competition in the telecommunications industry, at the same time that Telstra has hired Merrill Lynch and Co., the world's largest securities firm, to advise it on how to sell off the Government's remaining 51 per cent stake, estimated to be worth about $30 billion.

The Swiss-based UBS AG, the largest corporate adviser on share issues in Australia, was appointed last month to recommend on the structure and timing of the Government's sale of its stake in Telstra. Caliburn Partnership, which provides merger and acquisition advice to companies in Australia and New Zealand, was named as the Government's business adviser.

The new inquiry being conducted by the Department of Communications has strictly limited terms of reference.

The Federal Government has closed off the possibility that this inquiry could recommend the physical separation of Telstra into two entities: the infrastructure continuing to be a publicly-owned utility, while a privatised retail company would run things such as Telstra Broadband, Telstra's mobile phone business, and its TV interests - which already operate in competition with the private sector.


The Government stand is based on its long-standing ideological commitment to Telstra's total privatisation, and its desire to get its hands on the full $30 billion which will come from the sale of the company.

The problem it faces, however, is highlighted in its Discussion Paper. In March last year - following an outcry from Telstra BigPond's competitors - the competition watchdog, the Australian Competition and Consumer Commission (ACCC), issued a formal notice to Telstra, to warn it against using its monopoly power to cripple competitors of its internet services.

ACCC Chairman Graeme Samuel said at the time: "The ACCC believes that Telstra has engaged, or is engaging, in anti-competitive conduct in relation to Telstra's wholesale pricing of high-speed internet."

Since its partial privatisation, Telstra has attracted strong criticism from other communications companies, including Optus, as well as end-users, for its pricing policies.

In 2001, the ACCC issued a notice against Telstra, alleging that it had engaged in anti-competitive behaviour. Telstra aggressively contested the claim, and called for the Trade Practices Act to be amended to "call off the dogs". It was later supported by the free-market-oriented Productivity Commission which conducted its own inquiry into telecommunications industry regulation.

Separately, the Estens Inquiry in 2002 received hundreds of submissions which showed that many Australians living outside the capital cities had a second-class telecommunications system.

It said: "Concerns have been expressed, through submissions to the Inquiry, about the reliability of Telstra's telephone network, and the speed of available Internet services in regional, rural and remote areas. The Inquiry finds that there are particular areas in rural Australia where improvements need to be made to network reliability."

The Federal Government responded to these concerns by allocating more than $1 billion to improve existing telecommunications services, particularly in regional, rural and remote areas.

If, however, Telstra is fully privatised, the existing restraint on the abuse of Telstra's monopoly powers - mainly government pressure -will be removed.

Once it has been sold off at the highest price, shareholders will expect - and the sharemarkets will demand - that Telstra maximise its dividends. Market forces, which in recent years have been seen to be inadequate to protect Telstra's competitors and consumers, will be even less effective in the future.

What is to be done? It is extremely important that people who use Telstra's services, including users of Telstra's fixed line, mobile and internet services, make contributions to the current inquiry.

In the absence of a full separation of Telstra's retail business from its infrastructure network, it is important to support the ACCC's submission that there be an internal separation of Telstra between its "retail business" supplying services to end-users, and its "network business". This is necessary for both consumers and for other communications companies so that they can compete on a transparent and fair basis with Telstra.

Additionally, there should be operational separation of Telstra's infrastructure business from its retail business, not only with regard to existing technologies, but also new services such as optical-fibre networks.

It should be said that an accounting separation, even when fully implemented, is unlikely to adequately detect and prevent anti-competitive conduct, because Telstra itself determines the notional rather than actual allocation of costs, revenues and assets across its various commercial units.

Until Telstra is actually privatised, only public pressure can hold both Telstra, and the Government, accountable.

  • Peter Westmore is president of the National Civic Council

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