September 10th 2005

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Articles from this issue:

CANBERRA OBSERVED: The Telstra sale and economic ideology

EDITORIAL: Telstra: a better way forward . . .

SPECIAL FEATURE: The human cost of sexual exploitation (Part 1)

BIOETHICS: Review of cloning and embryo research laws

ECONOMICS: What future for globalism?

PRIMARY INDUSTRY: Pork farmers under attack on two fronts

STRAWS IN THE WIND: Revolting students / Precondition for education / Drugs and Asia / Swallow insult / Waldheimer's disease / Warning shadows

INTERNATIONAL AFFAIRS: China frustrates Taiwan's bid to play bigger role

TAIWAN: Fostering democracies on the Pacific Rim

VIETNAM: Remembering the battle of Long Tan

CINEMA: Romantic comedy 'Wedding Crashers' lauds boys behaving badly

Competition Policy killing cane-farmers (letter)

Cornelia Rau not Australian (letter)

Elephant in the room (letter)

Profits for the people (letter)

Rights deprivation syndrome (letter)

BOOKS: The Criminalization of Christianity, by Janet L. Folger


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Telstra: a better way forward . . .

by Peter Westmore

News Weekly, September 10, 2005
To "future proof" Australian telecommunications, the Federal Government should keep Telstra's infrastructure as a public utility.

Has the Government taken the wrong track by pushing for Telstra's full privatisation?

What Australians want is a reliable, low-cost communications system, providing equality of access for all Australians. The simplest way to do this would be to retain Telstra's infrastructure as a public utility, while splitting off its retail businesses.

The Howard Government has three choice for the future of Telstra:

  • It could fully privatise Telstra and let market forces sort out what services should be provided and where. This faces massive opposition from the National Party and most Australians, 70 per cent of whom do not want Telstra privatised. While the Government's free marketeers may have preferred this option, the Prime Minister and most of his Liberal colleagues do not have a death wish.

  • Alternatively, it could separate Telstra's retail business (e.g. mobile and fixed phones, internet) from its infrastructure (a natural monopoly), sell the retail arm and retain the infrastructure to ensure all Australians have roughly equal access to modern communications.

  • Or it could privatise the whole company to maximise government revenue, then try to put in place a range of laws and regulations to minimise the inevitable problems created: to provide for effective retail competition, control monopolistic behaviour, and subsidise adequate rural communications which would clearly not be provided by "market forces".

John Howard has chosen the third option, but it needs to be seen in its historical context. The pursuit of free market policies commenced in the Hawke/Keating period, and remains a key plank of Labor's policy today.

As Kim Beazley stated in an address to the Melbourne Institute last April, Labor floated the Australian dollar, deregulated the financial system, deregulated aviation and telecommunications, ended protectionism, privatised government businesses like Qantas, Australian Airlines and the Commonwealth Bank, and introduced national competition policy.

The Liberals have extended Labor's policy. Paradoxically, the Howard Government's policy on Telstra will require far more regulation, over a much longer time, than a more pragmatic policy of retaining Telstra's infrastructure as a public utility.

Minister for Communications, Senator Helen Coonan, indicated as much in her plan to "future-proof" telecommunications, called Connect Australia.

Her plan envisages "a more robust regulatory framework for the telecommunications industry, while maintaining strong safeguards to protect consumers".

Natural monopoly

A key part of the Government plan is what Senator Coonan calls "operational separation of Telstra's internal structure", effectively separating its retail operations from its infrastructure which is a natural monopoly.

This separation should be implemented to maintain Telstra's infrastructure as a public utility. This would automatically ensure that all other telcos were treated equally.

However, by refusing to separate Telstra, the Government is now obliged to attempt to enforce equal treatment through the Australian Competition and Consumer Commission (ACCC) and the Minister for Communications who will control licensing arrangements.

The Minister has said that "operational separation will ensure and demonstrate that Telstra treats its wholesale customers fairly. The new arrangements include internal wholesale pricing mechanisms for Telstra which will ensure its retail businesses receive no more favourable treatment than its wholesale customers.

"Telstra will be required to maintain separate retail, wholesale and network business units and to publish internal contracts setting out non-price terms and conditions.

"The model for operational separation was developed on expert advice in consultation with Telstra and the ACCC. The details of price equivalence arrangements under this model will be determined though a working group under the Minister's direction."

This will be an administrative nightmare.

According to Senator Coonan, the new legislation will also include "tougher consumer protection measures and other regulatory reforms to promote competition in the telecommunications market".

This would be unnecessary if Telstra's retail operation were simply to operate as one company among many in the communications field.

While the Government's planned $3 billion fund to "future-proof" telecommunications looks substantial, the first $1 billion - to be spent immediately - will simply improve existing services in the bush, while recurrent income from the $2 billion invested in the "future fund" will be only about $100 million a year, a drop in the ocean given the rapidity of technological change.

The Government should re-examine its plan, and keep Telstra's infrastructure as a public utility for the benefit of all Australians. That is how to "future proof" telecommunications.

  • Peter Westmore is national president of the National Civic Council.

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