September 24th 2005

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Articles from this issue:

EDITORIAL: Telstra sale: not a 'done deal'

NATIONAL AFFAIRS: Could Australia cope with a natural disaster?

CANBERRA OBSERVED: Are new anti-terror laws good for Australia?

INTELLIGENCE: Past espionage failure spooks US partnership

STRAWS IN THE WIND: New Orleans - a cracked society / Unemployment / Costello's new constituency / Liberal leadership / Potemkin politics

TAIWAN: Taiwan's tax system keeps money in the family

UNITED STATES: Judge Roberts impresses at US Senate hearing

AGRICULTURE: Unbridled globalism harms poorer nations

SPECIAL FEATURE: How the sex industry destroys society (Part 2)

THEATRE: Play's one-sided slant on Bush and the Iraq War

Who is to blame for New Orleans tragedy? (letter)

Tony Blair and the Iraq War (letter)

Family Law's five-fold disaster (letter)

OBITUARY: Frank Rooney - R.I.P.

BOOKS: UNSPEAKABLE: Facing Up To Evil in an Age of Genocide and Terror, by Os Guinness

MAKING 'BLACK HARVEST': Warfare, film-making and living dangerously in the Highlands of Papua New Guinea

Books promotion page

Telstra sale: not a 'done deal'

by Peter Westmore

News Weekly, September 24, 2005
Uncertainty over Telstra's future has seen the telco giant's share price plummet.

At the time of writing, legislation for the full sale of Telstra was being pushed through Parliament, only a matter of days after being introduced.

The five bills will give effect to the Government's commitment to sell off its remaining 50.8 per cent of Telstra. They would also put in place a regulatory régime to avert anti-competitive behaviour, including operational separation of Telstra's wholesale and retail arms, and to provide a long-term guarantee of services to rural and regional Australia.

The legislation is complex, yet the Government insisted that a Senate inquiry would last just one day, instead of the weeks or months that are usually taken.

No effective scrutiny

In its submission to the Senate review, one of Australia's largest telecommunications companies, AAPT, commented that under the procedures adopted by the Government, the legislation "is exposed to virtually no effective scrutiny".

AAPT pointed out that earlier attempts to secure some of the same objectives set down in the bills - for example, operational separation of Telstra's wholesale and retail arms - had not been successful.

Others pointed out that the objective of industry self-regulation, set out in the Telecommunications Act 1997, had not been achieved.

One unresolved problem is that attempts to set prices for competitors' access to the Telstra network of copper wire, exchanges and coaxial cable, depend upon which economic theory one subscribes to.

In many countries, regulators have adopted an approximation of the long-run marginal cost on the total service, to determine the appropriate access price. However, Telstra has suggested that this does not adequately compensate it for its infrastructure, and has proposed an alternative which would yield higher returns.

One study suggested that the difference in access pricing would range between 35 per cent and 135 per cent.

The Australian Telecommunications Users Group (ATUG) believes that "Telstra would use the introduction of its price-setting powers under Operational Separation to increase significantly wholesale prices to competitors, and hence prices for end users would rise substantially".

ATUG added, "Operational Separation should not allow Telstra to effectively wind back years of competition and consumer safeguard reform or to transfer Telstra's view of costs to consumers. The way the Bill is currently drafted, that will be the effect."

These concerns were reflected in other submissions.

Yet, even if the legislation is carried, the matter is not finally resolved. The Federal Government has said it will not sell Telstra until the price is right, and it has indicated a figure of around $5.60 per share.

The new American management of Telstra, led by newly-appointed CEO, Sol Trujillo, is totally opposed to the regulatory régime which the Federal Government has been obliged to impose to get its legislation through Parliament. He is clearly supported by the Government-appointed Telstra Board, led by former National Farmers' Federation president, Donald McGauchie.

Mr Trujillo brought with him from America his so-called "three amigos" - Phil Burgess, Telstra's group managing director and head of regulation; chief operating officer Greg Win; and head of marketing, Bill Stewart.

Mr Trujillo set the ball rolling in August when, in a confidential briefing to the Government, he said that Telstra had massively under-funded the maintenance of its infrastructure, and $2 billion to $3 billion should have been invested in the company over the past five years in new infrastructure.

As a result, almost 14 per cent of Telstra's 10 million fixed lines had problems, and the company received over 14 million complaints last year.

Further, he pointed out that recent dividends had been paid partly from borrowings, and therefore both the nominated profit ($4.4 billion) and dividends were unsustainable.

Mr Trujillo's comments were followed by statements by one of the "three amigos", self-styled scrapper Phil Burgess, who told reporters the Government was forcing Telstra to provide unprofitable services to the bush under a regulatory environment which was damaging to the company. He added, for good measure, that he wouldn't recommend the stock to his mother.

Since these revelations, Telstra's share price has slumped, and is now around $4.30, far below the Government sale price.

As things stand at the moment, the Telstra leadership is clearly willing to push down the price of Telstra's shares to force the Government to relax the regulatory environment.

The Government is now in danger of being caught with legislation permitting the sale of Telstra, but without a suitable sale price.

If that happens, the Government may eventually be forced to look at better alternatives, including selling off the retail arm of Telstra, but maintaining the infrastructure, a natural monopoly, as a public utility - like Australia Post.

  • Peter Westmore is national president of the National Civic Council

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