Telstra privatisation: a corporate handout

By Jennifer Thompson The debate over privatisation — never far from the surface, especially in Victoria — has risen again in the federal election campaign over the proposed sale of Telstra by a Coalition government, and over Labor's own record of deception about privatisation. The public debate over Telstra has gone three ways: a discussion in the business media about Howard's proposed sell-off of a third of the organisation; a discussion of Labor's real intentions towards Telstra post-elections; and discussion of the "political" factor of the privatisation — that a majority of Australians, theoretically the "shareholders", want to keep Telstra public. The unions, Greens, Democratic Socialists and other progressive community organisations are the only voices publicly opposing the privatisation in principle. Business Council president Ian Salmon registered support for privatisation in general terms: "Business Council members would favour private ownership rather than public ownership of assets such as Telstra". Howard's plan to float one-third of the utility is less popular with business, however, than selling it all in one go. Some business writers have also argued that it should be a lower priority than establishing full deregulation in the telecommunications sector — due to begin in 1997 under current Labor plans. The advantages of introducing full competition first, as argued by the Sydney Morning Herald's Ross Gittins, is that all of the "anti-competitive privileges" of a utility with a natural monopoly (the national network of telephone lines) like Telstra can first be removed, to improve efficiency. To privatise first, he warns, might tempt the government to maximise the sale price by leaving Telstra's "privileges" in place. Others, including the Financial Review's Helen Meredith, believe that a partial privatisation will jeopardise eventual full privatisation — especially if the government maintains profit restrictions like cross-subsidisation of loss-making community services, untimed local calls and limitations on foreign ownership. Other commentators have argued for the separation of Telstra's natural monopolistic elements from its commercial elements, which would be "unbundled" and sold off to give private operators a chance of a slice of the action. This sort of discussion outlines the corporate world's plans for Telstra; they see cross-subsidisation and other community service obligations as a mere annoyance, not to be taken seriously. This point was reinforced by finance minister Kim Beazley on February 6, when he noted that a Coalition [or Labor] government could not guarantee that a privatised Telstra would continue to provide subsidised services in remote areas because Australian corporate law would prevent a company being forced to act uncommercially. There is bemusement in the financial markets about Howard's undertaking to limit foreign ownership to 35%, with no more than 5% for each foreign corporation. Why is he doing it? asks Meredith. The answer lies in the mistaken public perception, reflected by the Democrats, that foreign control of Telstra would reduce Telstra's interest in community service obligations. The reality is that community service will go out the window and a privatised Telstra will be run on a ruthlessly commercial basis, regardless of the nationality of the owner. Another communications writer, the Australian's Deborah Brewster, pointed out that the debate between Labor and the Coalition over privatisation is artificial anyway. She writes that privatisation of Telstra was decided in 1991, when Labor announced the partial deregulation of telecommunications, and later full deregulation from July 1997. Deregulation — to allow other companies to come in and compete with a corporatised national utility — would logically end in privatisation. Meredith notes the same progression in banking: eight years after deregulating the banking sector in 1983, Labor began selling the Commonwealth Bank, despite earlier assurances to the contrary. Labor has already moved to privatise Telstra's Information Technology Group through a proposed joint venture with IBM-Lend Lease that would involve the transfer of key Telstra assets. It had earlier tried to sell-off Telstra's 51% stake in the highly profitable Yellow Pages. The linkage between privatisation and deregulation — or the introduction of "competition" — is found in corporatisation. Writing in the Australia Institute's newsletter, Clive Hamilton explains, "... enterprises need to be thoroughly overhauled to prepare them for sale, a process that generally sees the efficiency gains that private ownership are believed to achieve delivered while the enterprises are still in public hands". In order to achieve "efficiency" and "competition", public utilities are forced to act like for-profit corporations. This is the meaning of the recommendations of aspects of this process, sold to the public most recently in the Hilmer Report on competition policy and the Industry Commission report on Hilmer-type reforms. The results are presented as a windfall for the public, through lower prices and better customer service. The reality is somewhat different, depending on who you are and where you live. The Consumers' Telecommunications Network — a community lobby group aiming at access and equity for residential consumers in telecommunications — has conducted research into the results since the partial deregulation of telecommunications in 1991. In a 1995 report, For whom the phone rings: residential consumers and telecommunications competition, researcher John Quiggan noted that price reductions achieved were not above the underlying worldwide trend of 4-5% annually arising from structural reform in telecommunications rather than changes in the organisation of the industry. The report also noted the unequal distribution of price decreases. CTN's March newsletter says that "... large business customers have fared better than residential consumers, and some residential consumers better than others". One of the other damaging aspects of corporatisation is the accompanying loss of jobs. Telstra, then AOTC and before that Telecom, cut 16,000 jobs in the early years of the '90s to knock itself into corporate shape. Workers' numbers crept up again as Telstra's managers realised they'd cut too deep to operate. Last September, however, the day after announcement of a $1.75 billion profit for the last financial year, news emerged that a further 12,000 were expected to be cut before full deregulation in 1997. The same process accompanied the privatisation of the Commonwealth Bank, which between 1991 and the 1995 announcement of its full privatisation, cut its staff by 10,000 and significantly reduced branch numbers. News of the final sell-off sparked executive director Ian Payne to comment that bank management had "been working very aggressively to re-position the bank to compete on an equal [corporate] footing" — reflected in the bank's adoption of the user pays principle, including charges on accounts of low income users. At the point of privatisation, regardless of politicians' promises, any commitment to provide cheap, effective and equitable service to the community is quickly abolished in the interests of maximising profit. It is often at this point too that the government will add injury to injury and give the new private owner of the public utility a helping hand, by offering to lease or buy back its services at a vastly inflated price. The most recent case was that of the Commonwealth Serum Laboratories, sold by Labor in 1994. CSL — Australia's principal supplier of vaccines and anti-venenes and sole manufacturer of blood products — was sold to private investors for $299 million. For this outlay, the investors got a new state-of-the-art blood plasma fractionation facility completed in the same year at a cost of $209 million plus an extra $42 million commissioning costs. The government, which was then the monopoly purchaser of CSL's blood products and pharmaceuticals, signed a 10-year contract to buy blood products for an annual fee more than twice as high as in previous years and indemnified the new owners against HIV/AIDS-related claims arising from the use of CSL blood products manufactured previously. Instances like these illustrate what governments — both Labor and Liberal — mean by fiscal irresponsibility. "Fiscal irresponsibility" is when governments spend too much on public services and welfare. "Fiscal responsibility" is selling public assets to private investors, often giving them large chunks of money, waiving requirements to meet community service obligations and spending the proceeds to plug up budget deficits caused by a failure to tax this same class of people.