Calling Telstra to Account Lindsay Tanner - Shadow Minister for Communications

Speech

Transcript - Australian Telecommunication Advisory Group - 11 June 2003

Telstra is betraying its majority shareholders, the Australian people. Under the Howard Government it is being allowed to act as if it were already privatised. Telstra is abandoning its broader responsibilities to the Australian community, but still exploiting the competitive advantages it derives from its background of monopoly public ownership.

Telstra is a part-privatised corporation operating in a partly competitive market. Competition in telecommunications is still seriously inadequate, with Telstra completely dominating the market. Yet because of the Howard Government's obsession with privatisation, Telstra is no longer required to fulfil its broader obligations of national development and social inclusion. The Australian people do not receive the full benefits available from majority government ownership and open competition.

The blame for this mess belongs largely to the majority shareholder. Telstra management must be called to account for particular decisions, but the broad framework which they operate within is determined by the Howard Government.

And what are the outcomes being delivered under this framework? The overall report card is a rather bleak one:

• a deteriorating network crippled by major investment reductions and staff cut-backs
• enormous losses on investments in Asia
• rapidly escalating line rental fees which are not adequately compensated for by reductions in call prices
• inadequate competition because of Telstra's market dominance and control of the fixed line network
• poor rollout and takeup of broadband compared with equivalent countries
• an emerging Telstra focus on moving into other sectors such as media and information technology management at the expense of its traditional responsibilities

These deficiencies have been compounded by inappropriate corporate behaviour, such as providing free plasma TVs to the Prime Minister and Communications Minister and offering CEO Ziggy Switkowski a $1 million plus golden handshake if he is sacked.

Telstra's capital expenditure has fallen from a peak of $4,705 million in 1999-00 to an estimated $3,250 million in 2002-03, according to answers given in recent Senate Estimates hearings. Over that period full-time staff numbers have fallen from 50,761 to an estimated 37,627. A very substantial proportion of these staff cuts have come from employees involved in direct customer service and network maintenance activities, particularly in regional Australia.

In March this year Telstra wrote down its $965 million investment in Reach to zero. This came in the wake of a $1 billion write-down of its investment in Hong Kong mobile phone operator CSL in 2001. Telstra has also suffered major losses on other investments such as its stake in electronic payments company Keycorp.

Telstra's line rental receipts for the second half of 2002 increased by $124 million or 10 per cent, as a result of the regressive changes in the Howard Government's new price control regime. Over the same period, total fixed line call revenue fell by only $43 million. In other words, the first five months of the new price control regime (which commenced on August 1, 2002) delivered a net gain to Telstra of $81 million. The Government's claim that the overall impact of these changes would be neutral has been exposed as totally false. John Howard has unleashed Telstra on consumers and it has taken full advantage, reaping many millions of dollars of additional revenue. This is effectively a regressive tax which hits lower income Australians particularly hard.

Australia's broadband takeup rate is languishing because of Telstra indifference and inadequate competition. Over the past two years Australia has fallen from 13^th to 19^th in the OECD table of broadband access. 1.9% of Australian households had broadband as at the end of 2002, compared with 11.7% in Canada, 8.5% in Belgium and 6.96% in the USA. Whereas Australians have generally been at the forefront of new technology adoption, in broadband we are falling further and further behind.

Inadequate competition is still a serious problem throughout the telecommunications sector. The ACCC is currently considering issues such as bundling, Internet peering, and fixed–to-mobile termination rates. Labor believes that further competition reform is required in telecommunications. The Australian Telecommunications Users Group analysis of the fixed-to-mobile issue, for example, suggests that termination rates are too high and the deregulation of mobile phone pricing by the Howard Government is premature. The 7 per cent increase in Telstra's fixed-to-mobile revenue for the first half of 2002-03 tends to support this assessment.

Labor is committed to reforming and strengthening the Telstra accounting separation regime, and will support the ACCC's efforts to ensure genuine competition in telecommunications. Where experience shows that further legislative reform is required, Labor will act accordingly.

The Howard Government is now totally paralysed on telecommunications policy. It is unable to even introduce the legislation to fully privatise Telstra, let alone get it through the Parliament. Seven months have passed since the Estens Inquiry made very modest recommendations to improve regional telecommunications, and there is still no response from the Government. The collapse in the Telstra share price has rendered it hostage to short term fluctuations in the share market, and unable to pursue serious reform because of its fear of further losses.

In May last year I released a major discussion paper, Reforming Telstra, which canvassed a range of policy options to address these serious problems.

After receiving a report from corporate governance consultants Institutional Analysis which highlighted the enormous legal and regulatory obstacles, Labor has chosen not to pursue the most radical of these options, full structural separation of Telstra into two organisations, an infrastructure company and a services company. Although this approach has a number of major attractions, the cost of implementing it would be out of proportion to the likely benefit.

Labor has chosen instead to pursue a four point reform strategy designed to bring Telstra back to its primary role and maximise the benefits of telecommunications competition. The key features of Labor's strategy are:

• Telstra will be required to intensify its focus on its core responsibilities to the Australian community, and reduce its emphasis on foreign ventures and media investments
• Telstra will be asked to intensify its focus on the provision of affordable and accessible broadband services available for all Australians
• the competition regime will be strengthened by requiring much stricter internal separation of Telstra's wholesale and retail activities, and the Minister for Communications will be removed from the process of ACCC scrutiny and regulation of accounting separation within Telstra to ensure the process is genuinely independent and rigorous
• consumers will be given stronger protection from sharp practices by telecommunications companies and the price control regime will be made fairer

While Telstra remains majority publicly-owned, there is absolutely no justification for its attempts to buy a commercial television network. Scarce taxpayers' funds would be channelled into an activity which appropriately belongs in the private sector. The role of the ABC would be undermined, and the Government would assume direct control of one of our major commercial media companies, without the protections inherent in the ABC's charter of independence. The integrity of competition in the commercial media would be seriously compromised.

Telstra's ambitions in the broader world of content are also hard to justify. Its role in the Foxtel pay television consortium is dubious, both because it is hard to justify public ownership of a luxury product like pay TV and because it has an anti-competitive impact. The European Union has put enormous pressure on member governments to ensure that their incumbent telecommunications giants are not also in cable, for straight-forward competition reasons. Cable provides a critical source of competition for the established fixed line network. Australia's tardy broadband rollout is largely a product of inadequate competition, which in part reflects Telstra's control of Foxtel.

Although there is a role for some overseas investment by a publicly-owned Telstra, this should be focused largely on enhancing the value and quality of Telstra's Australian operations. Big risky investments in search of regional or global scale are an inappropriate use of scarce taxpayers' funds. Telstra's enormous overseas losses are a timely reminder that such investments can carry a major cost for Australian taxpayers. As a government-owned organisation, Telstra has a primary responsibility to provide high quality telecommunications services which are accessible to all Australians. It does not exist to enable Australian Governments to earn money from risky foreign investments.

Under the Howard Government Telstra has put in place a strategy to outsource the vast bulk of its information technology operations to India. If this approach is allowed to occur, the engine-room of Australia's information technology sector will be decimated. Opportunities for high skilled employment in the sector will shrink substantially.

Telstra is a government-owned organisation which still has monopoly characteristics. Although it is appropriate for Telstra to outsource some activities, it has responsibilities to the Australian community which are greater than those carried by private corporations. By arranging to send its information technology activities overseas, Telstra is ignoring those responsibilities. Reports that Telstra has been employing foreign workers doing work in Australia at rates well below those required under Australian law are particularly disturbing. Telstra's denials of those reports have been rather unconvincing.

A Labor Government will bring Telstra back to its primary responsibilities. It will be required to operate in a more transparent and accountable way, in order to maximise opportunities for genuine competition. It will focus its energies on maintaining its network at a high standard and accelerating the rollout of broadband services. It will be prevented from continuing to increase line rental fees without returning those increases in lower call prices. Along with all other telecommunications companies it will be subject to stricter consumer protection regulations to ensure that consumers are not subject to unfair practices.

Labor believes in public ownership of Telstra because telecommunications services are essential services. A privately owned Telstra would be a giant private monopoly too powerful for any government to effectively regulate. It would focus on the more lucrative markets in the bigger cities and neglect the interests of lower-income and regional Australians, just like the banks. It would use its muscle to squash effective competition and spread its monopoly power into other sectors like media and information.

Under a Labor Government Telstra will deliver high quality telecommunications services for all Australians, and decent returns for its shareholders. Telstra will be responsive to the needs of the entire Australian community.