March 25th 2000

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Articles from this issue:

EDITORIAL: Telstra - is there another way forward?

COVER STORY: Aged Care: where to from here?

BOOKS: 'The High Price of Heaven', by David Marr

TAIWAN: Taiwan election presents new challenge for Beijing

ECONOMICS: World economy: the rhetoric, the reality

PAKISTAN: Feudalism: root cause of Pakistan’s malaise

BUSINESS: Innovation, technology and the forces of change

Letter: Free trade and predatory policies


AGRICULTURE: How government kick-started land settlement

LAW: No Native Title on mining leases: Federal Court

POLITICS: SA swings away from major parties

FAMILY: Mr Howard’s "forgotten people": Australia’s families

JUSTICE: The facts behind the furore on mandatory sentencing

COMMENT: The war against drugs is not lost it was never started

CANBERRA OBSERVED: Immigration policy: whose view will prevail?

Letter: Federal control of resource development

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Telstra - is there another way forward?

by Peter Westmore

News Weekly, March 25, 2000
The announcement by Telstra CEO, Dr Ziggy Switkowski, that the government-owned telecommunications giant would embark on a further round of massive job cuts to lift its profit level above the current $4 billion a year, is likely to end any prospects of Senate approval for full privatisation.

Currently, Telstra is 50.1 per cent government-owned.

The Federal Minister for Communications, Senator Alston, has already produced the Telstra (Transition to Full Private Ownership) Bill, but is dependent on the support of the Australian Democrats, to get it through the Senate.

The protests from the Opposition parties, including the Democrats, at the latest announced round of job cuts, as well as widespread concern in the National Party, have made the full privatisation of Telstra politically impossible.

The government-owned company is, however, extremely profitable. On revenue of $9.7 billion in the last half year, it earned over $2 billion in net profit, over half of which was in high technology areas of mobile telephones, data, text and internet services.

Dr Switkowski said he expected internet and data revenues to jump from $1 billion in 1998 to $3 billion in the year 2001.

The cutbacks in its workforce will, on Dr Switkowski's estimate, increase profit by at least $500 million.

This is just the latest in a long process of cuts to the corporation's workforce. In 1991, Telstra employed about 92,000 people. By 1996, it had fallen to 77,000, and is now around 52,000.

In a little over two years time, if Telstra's network design and construction section is sold, its workforce will be slashed to just 36,000.

However, further job cutbacks, and the anticipated fall in services in rural areas, is meeting strenuous opposition from nervous Government MPs, particularly National Party MPs.

Bob Katter from North Queensland said:

"Clearly if you want to maximise profits, you remove jobs that generate the least revenue, and those are in country areas."

Paul Neville, the National Party MP who heads the Government's backbench communications committee, said that any further cuts to services would be "intolerable".

Another National Party MP, De-Anne Kelly, warned Telstra executives that despite Telstra's Customer Service Guarantee, complaints about poor service continue to pour into her office, despite Telstra's claims that services are improving.

"All of the evidence I see suggests far too many people are suffering long delays and are getting either no real satisfaction or, in some cases, no response at all from Telstra," she said. "This is simply not good enough. As the Deputy Prime Minister, Mr Anderson said today, there is a lot of anger in regional and rural Australia towards Telstra."

Yet both Telstra's Board, management and the Government remain completely committed to full privatisation.

The Federal Minister for Communications, Senator Richard Alston, suggested that most job cuts would not occur in rural and provincial Australia, and that rural services had not declined since the partial privatisation of Telstra - a claim disputed by rural MPs. He argued that Telstra's service level was guaranteed by legislation.

He also said that full privatisation would give Australians a further chance to own a stake in Telstra, deliver the social bonus to rural Australia, and cause Telstra to perform better through the discipline of being a fully listed public company, unfettered by government ownership.

Telstra's chairman, Mr Bob Mansfield, said that full privatisation was fundamental to Telstra's long-term growth and success - a sentiment echoed by Dr Switkowski.

But with no chance of the sale going through the Senate, Telstra may embark on a process of back-door privatisation - which does not require parliamentary approval.

It could follow the example of Japan's Nippon Telegraph and Telephone company, NTT, which sold off its mobile communications business, known as DoCoMo, back in 1992.

DoCoMo is still 67 per cent owned by Nippon Telegraph and Telephone, but its market capitalisation is over 40 per cent above that of its parent company.

DoCoMo is now Japan's largest Internet Service Provider, and is expected to have more subscribers than America Online some time next year.

One way forward is for Telstra to sell off part or all of its profitable mobile telephone, data and internet services, while maintaining local and long distance telephone networks, which are natural monopolies and provide essential public services, in government hands.

In light of the fact that there is genuine competition in digital services, with many companies providing mobile phone and internet services - and no clear reason for the government to run businesses in these areas - this might be a good solution.

It would, however, require a fundamental rethink by both the Federal Government and Telstra, both of which want to retain the company as a virtual communications monopoly.

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