Last week in Green Left Weekly, I outlined figures which indicate that the Australian public has so far lost around $13 billion to private capitalists through the privatisation of half of Telstra. This is the case even though shares in the second round of privatisation last year, in which 16.6% of the company was sold, were priced at about $1.20 over their current level.
One of the things holding down the Telstra share price is the lack of prospects for further increases in profits from the Australian market. The domestic telecommunications market is not a large one, and Telstra must now share it with Optus and other competitors.
Telecommunications competition in Australia has large elements of the surreal about it. The government has insisted on introducing competition, at least in name, with the argument that multiple carriers mean greater efficiency. But not even the most ideologically blinded of John Howard's ministers would suggest that the new competitors be required to go the whole hog and install their own network of telephone lines, for example.
Thus Telstra and its competitors both use Telstra's lines. Telstra is required to make its lines available, and its competitors pay a fee which is overseen, not by the "free market", but by the Australian Competition and Consumer Commission. The ACCC in this case is a government regulatory body assigned to create what it presumes would be the result of competition if real competition were practical in this area.
This is why telephone competition consists mostly of advertising campaigns and the promotion of "discount" plans that provide an illusion of better savings than the competitors' plans. (The telephone companies have room for lots of discounting on STD calls, because the real cost of STD is only a small fraction of current charges.)
Where technologically new infrastructure such as cable TV has to be created, the result of competition is equally absurd, but from the opposite end of the spectrum: multiple cables being run down the same street even though one could carry all possible services, while other streets have none.
Overseas profits
The number of fat fish in the small telecommunications pond forces Telstra to look abroad for additional profits. Chief executive Ziggy Switkowski told the September 4 Australian Financial Review: "If you're looking at how Telstra's going to generate another fifty or hundred billion dollars of market value, we can't do it in the domestic market".
On this basis, earlier this year Telstra committed itself to spending $6 billion to form an alliance with a Hong Kong company, Pacific Century CyberWorks, to compete for mobile phone and networking business in the Asia-Pacific region.
The alliance may well end up being as profitable as Switkowski hopes and expects, but investors by and large remain unconvinced, which is one of the reasons Telstra's share price has been languishing.
But there is a more fundamental question than whether Switkowski or the investor sceptics are right: why should the major carrier of Australian telecommunications be trying to drum up business and profits in Asia?
From the standpoint of both Switkowski and the investors, the answer is obvious: Telstra is a company and companies are supposed to make profits — more profits this week/month/year than they did last week/month/year.
But from the standpoint of ordinary Australians, who still, theoretically, own 50.1% of Telstra, things look quite different. While having Telstra profits to pay for government programs might be a nice fringe benefit, the main point of Telstra's existence was not to make money. It was to provide telecommunications services to the population of Australia.
Corporatising and then privatising Telstra makes providing a service at best a distraction from the main game, pursuing profits. At worst, profits and services come into direct conflict.
This is fairly obvious, for example, in terms of things like rural services. People in the bush are rightly worried that Telstra privatisation means declining services for them, because these services are hard to provide at a profit. The government tries to soothe these fears by promising legislation to force Telstra to provide services that it would not provide from profit motives.
That is, the government wants to make Telstra into a fully capitalist company, and then adopt legislation that stops it from behaving like one. It is not hard to foresee that the contradiction would be resolved by removing the "unfair burden" of service obligations from Telstra shareholders.
Telstra's pursuit of profits in Hong Kong is likely to end badly for telecommunications services in Australia, however the investment turns out.
If the investment goes badly, not only will the "mums and dads" who bought in the second round of privatisation continue losing money. As well, Telstra will have less available capital to develop its products, and will try to recoup losses by raising prices and/or reducing costs (sacking people) here.
To the extent that Telstra prospers abroad, its Australian base will become less important: funds that might have been put into developing infrastructure here will instead go to wherever profits are higher.
This dilemma, it should be stressed, is not one that can be solved by insisting that Telstra maintain a "national" focus, even if that were possible. The contradiction is not between national and international interests, but between pursuit of profits and providing a public service.
Power without glory
Another current example provides further evidence that running service providers as businesses contradicts the provision of services. This comes from the electric power industry, which has been increasingly corporatised and privatised over the last decade.
In NSW, the power industry has been split up and corporatised, which means that it is run like a business even though the government hasn't yet been able to transfer ownership into private hands.
In 1997-98, one of these corporatised NSW companies, Pacific Power, negotiated "hedge" contracts with a Victorian company, Powercor. These committed Pacific Power to provide Powercor with electricity at a price of $21 a megawatt hour over the next 10 years. The problem, as Ian Verrender reported in the September 2 Sydney Morning Herald, is that it costs Pacific Power $38 to produce a megawatt hour of power.
When it realised it was losing money at a great rate, Pacific Power tried to break the contract, but lost a court case brought by Powercor. While the mistake may not have been quite as grotesque as it seems — costs are not always obvious, and both costs and prices in the power industry can fluctuate wildly — it was certainly expensive. It is estimated that this contract will cost NSW taxpayers $600 million.
There are other losses to be borne by the state's residents, wrote Verrender: "Earlier this year, Integral Energy's former chief executive, Jeff Allen, claimed his group had lost more than $120 million trading on energy futures during the past three years. Last year, Energy Australia lost a $750 million damages case (settled out of court on confidential terms) over construction of the Redbank power station."
Predictably, these losses are used by the proponents of privatisation to argue that it is too dangerous to leave "valuable assets" like power companies in the hands of government.
But the real lesson is that the value of a power plant is its ability to produce electricity for consumers. The losses came about because Pacific Power got involved in trying to produce profits by playing the hedge market. If it had stuck to providing electricity to NSW users, there would have been no problem. (Selling electricity interstate is a particular inefficiency brought about by corporatisation/privatisation, because there are significant losses in moving electricity long distances.)
Privatised or corporatised services are more "efficient" only if efficiency is judged by how much profit they make for their owners. But profits get in the way of a rational efficiency: providing people with the services they need.
BY ALLEN MYERS