June 15th 2002


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Articles from this issue:

COVER STORY: The future of Telstra

Has the PM been misled on stem cell research?

Nationals' survival depends on new agenda

EUTHANASIA: Nancy Crick - what is the real story?

TRADE: Philippines bananas could cost Australian Government millions

STRAWS IN THE WIND: Insider dopesters / Democracy at work / The new lonely crowd

MEDIA: ABC's left-liberal Twilight Zone

Handling the boat people issue (letter)

Small business and superannuation (letter)

Drug summit in Port Macquarie(letter)

Going to war over trade

LAW: ICC report tabled in Parliament

DRUGS: WA to go ahead with cannabis toleration

DOCUMENTATION: Archbishop George Pell rebuts '60 Minutes' allegations

CLONING: truth and the middle ground

OPINION: Can the GST be wound back?

EAST TIMOR: After the celebrations, reality dawns

ASIA: China convulses but won't collapse

BOOKS: 'American Muslims: The New Generation'

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COVER STORY: The future of Telstra

by Peter Westmore

News Weekly, June 15, 2002

Speculation about the full privatisation of Telstra has been fuelled by former National Party leader, Tim Fischer, and leader of the National Party in the Senate, Senator Ron Boswell, both of whom have praised the improved standard of Telstra's services to rural and regional Australia. An ALP report, Reforming Telstra, released last month, rejected privatisation.

Telstra's performance has undoubtedly improved since a report on services to rural Australia - conducted by Tim Besley, formerly chairman of the Commonwealth Bank, Ray Braithwaite, a former National Party MP from Queensland, and Jane Bennett, a country business woman - issued their report in September 2000.

Frustration

The report, Connecting Australia, said: "The Inquiry heard the frustration of many consumers, particularly concentrated in rural and remote Australia, in getting basic and reliable telephone services connected quickly and repaired in a timely manner ...

"A substantial number of those who contributed to the Inquiry pointed to the problems they experienced as a result of service reliability, dated network capabilities or issues regarding the infrastructure available in their area.

"Many consumers, again with a greater concentration in rural and remote Australia, experience slow data speeds when accessing the Internet. These people are sometimes further disadvantaged in lacking access to the Internet at local call rates."

The report added, "It is important from a national perspective that the existing telecommunications disadvantage experienced by many Australians in rural and remote areas is addressed.

"The rural industries (farm, forestry and fisheries and mining sectors collectively) account for nearly 60 per cent of Australia's total exports. If those sectors are to continue to contribute to the wealth of the nation they must be capable of operating online - whether to manage relationships with suppliers and customers, or to monitor the weather or markets.

"Similarly, if rural and remote communities are to grow and prosper, their citizens need to have access to effective telecommunications services not just to communicate for social and emergency reasons, but increasingly to access a range of vital community services."

The Inquiry's preferred method of improving telecommunications services was through increased competition, rather than government regulation: "Where regulation seeks to predict the outcomes that a fully competitive market would otherwise achieve, intervention represents a second best solution ...".

However, Telstra's operations cover a range of activities, in some of which it operates in a competitive market (e.g., mobile phones, internet access, telephone hire and service), and in others, it is a monopoly service provider (for example, the copper wire network, telephone exchanges, satellite links, and so on).

Model

The competition model is undoubtedly relevant to Telstra's retail services; but it is irrelevant to those parts of its business where there is no competition.

In these areas, Telstra sells access to private companies which compete with Telstra's retail operation.

The Federal Government is clearly unhappy with Telstra's level of public accountability, as the Minister for Communications, Senator Alston, has required Telstra to separate the cost of providing its competitive services from its monopoly services.

However, the Government is emphatic that Telstra should be completely privatised, as a single entity. This would satisfy the ideologues within the Government who would dispose of any Government-run enterprise, and at the same time, maximise Government income.

The problem here is that the recent improvements in Telstra's performance have only been achieved under the spotlight of incessant demands for accountability of a majority government-owned entity, and Telstra's own desire for full privatisation.

The way ahead

Once the corporation is fully privatised, much of the incentive for improved performance - particularly in regional and rural Australia - will disappear. What is the best way forward?

For the reasons outlined by the Besley Inquiry, Telstra's retail services, which operate in a competitive environment, should be privately-run, even though the company would still be the largest supplier of telecommunications services.

But Telstra's monopoly services - the infrastructure of cables, microwave, and satellite links - should remain as a public utility, whose function is to produce income which can be invested in improved services for the nation.

Its operations would be transparent, so that all telecommunications retailers would be treated equally, and it would be required, where necessary, to cross-subsidise services to people in rural areas, who suffer the tyranny of distance, or to invest in new technology, even if at the moment unprofitable.

The separation of Telstra into wholesale and retail arms is no more difficult, conceptually, than the separation of the old Postmaster General's Department into the Australian Postal Commission (now Australia Post) and the Australian Telecommunications Commission (now Telstra), over 20 years ago.

  • Peter Westmore is President of the National Civic Council




























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