Privatization Of Telstra Essay

are the advantages of privatizing Telstra and how does this impact it’s ethical
conduct while striving to satisfy community expectations? I believe that putting
important public assets into select private hands is not in Australia’s
long-term interests, and oppose the partial/full sale of Telstra for the reasons
that the Government has given. The argument the Government has given for the privatization
and corporatisation of Telstra has been a budget conscious one where the
proceeds of Telstra will provide a “one-off” opportunity to: 1)
abolish Telstra’s pastoral call rate and provide untimed local calls in extended
zones in remote Australia; 2) increase funding for Networking the nation; and 3)
pay off foreign debt left over by the previous government However, this is not
true as the Minister, Senator Alston already has the power to direct Telstra to
provide services and upgrade infrastructure (points 1 and 2). If the USO
(Universal Service Obligations Act) or performance standards under the CSG need
changing, then the Minister should invoke his power to direct, and these changes
should be made distinct from any attempts to sell Telstra. Statistics also show
that the sale of the first third netted a total of $0.37 billion loss to the
Commonwealth. By the year 2000, it is estimated that Telstra earnings will
exceed $2 billion annually. The Howard Government estimats an interest saving of
about $2.4 billion per year. This doesn’t take into account the income that will
be lost to the government every year in revenue earnings from Telstra. By 2007,
the sale of Telstra is expected to create a budget black hole of $4 billion. The
government cites that the “Mums and Dads” of Australia will benefit by
purchasing shares in the float, which is true. But eventually the real
beneficiaries will be the multinational companies who will have the controlling
majority, not the Australian public. This can have detrimental effects on
society, especially to the rural regions of Australia. The Democrats and the
Labor Party also disapprove of the privatization of Telstra for the above
reasons. Privatization is when a Government Business Entity (Statutory Body) is
sold to the general public and becomes a public company. There is a belief that
Government run businesses are inefficient because their motive isn’t necessarily
money, although there is no consistent evidence that privatization increases
efficiency. However in the case of Telstra, there have been clear signs of
deterioration in services since it’s partial privatization. Delays are longer on
connection and service times. Recent changes to the charging regime for
community calls will impact on costs, particularly for small business, in rural
and regional areas. (One in three rural customers were denied connections to new
services ~ SMH 5/2/99) Rural and regional customers also suffered the biggest
fall in standards for repairing faults. The Telstra Communications Network is
also set to suffer shutdowns along the lines of the power cuts in Queensland and
Auckland. All these factors can contribute to the downward spiralling of the
essential qualities of life for country families. This deterioration in services
has been a direct consequence of privatization, where the focus of the company
has shifted to profits rather than providing a cheap and efficient service.

Another example of this can be seen when according to the Media (ABC), Telstra
reaches an excess of funds of up to $1.5 billion as a result of staff/service
cuts. The Board of Directors are urging for a special dividend to shareholders
or a share buyback (to increase share prices). No one is suggesting the obvious,
strategic investment. Privatization has also made an impact on the working
conditions of employees. One of the first stages of structural reform that
Telstra implemented was downsizing and the cutting of working conditions of over
60 000 workers (formerly) employed by Telstra, after experts claimed that there
is an excessive labour load of about 27000 strong. As Telstra was previously a
GBE, it’s structure was “suboptimal” in a business sense ie: Telstra’s
activities exceed what it would have undertaken in a free market. This has given
it one of the worst staff to phone line ratios in the advanced world. After 15
months of negotiations with the Communications Electrical and Plumbers Union (CEPU),
the standardisation of ordinary hours for full time employees, introduction of 3
main work streams and the extension of shift arrangements to all sections was
agreed upon. Many workers suffered pay losses when they were re-graded. The
Financial review (17/2/99) records that in 1998, Telstra’s labour costs dropped
7.7% (the number of it’s employees fell by 20000), despite a huge increase in
the expansion of Telstra’s business. While cutting costs and restructuring has
seen record profits for Telstra, it also faced increasing national competition
and has been sharply effected by the failure of it’s global ventures, including
mounting losses from investments in Indonesia, India, China and Indo-China. The
increasingly ruthless struggle for market share is driving the deepening assault
on workers’ conditions, which will only accelerate as time goes on. Unlike the
subjects of privatisation in the past, Telstra operates as a monopoly with
extensive community service obligations. Under a new board of directors who
favour privatisation, some of these obligations have also been neglected. To
date, ACCC (The Australian Competition and Consumer Commission) has issued 4
notices against Telstra in respect of the “commercial churn” transfer
process, alleging that Telstra’s conduct is anti-competitive. Telstra’s
competitors have complained that Telstra has used it’s near-monopoly powers to
restrict local and long-distance customers transferring to other providers and
that this inhibits the ability of telecommunications customers to enjoy the
benefits of a more competitive environment. The ACCC instituted proceedings in
respect to 2 of the notices in Federal Court on December 24th. The 3rd
competition notice, received on the 25/1/99 alleged that Telstra discourages
competition by forcing other carriers wanting to transfer customers to Telstra
to use a manual process that is inefficient and Cumbersome. Finally, the 4th
notice alleged that the package of conduct that is continuing, along with the
price charged by Telstra for the churn, is cumulatively a breach of the
competition rule by Telstra. If found to have breached the competition rule,
Telstra is liable for significant penalties of up to $10 million or more for
each offence. In an attempt to prevent a private monopoly and to ensure that
Telstra’s ongoing delivery of new technologies and services can be maintained,
the Government has promised that Telstra will remain in majority public
ownership until an inquiry be conducted (independent of both Telstra and the
Government). When, and only when a set of service requirements (included in the
Telstra Sale Bill) has been “ticked off” by the inquiry would the
process begin to sell any of the 51% remaining in public ownership. “The
object of Privatization is a deregulation which allows the famous hand of the
market to operate.” (the New Australian 29/9/96). This means that all
government direction and other uneconomical operations (sometimes includes USO,
CSO) have to be removed, which in turn implies breaking up the $30 billion
corporation into a dozen bite-size chunks, until companies can afford enter the
market to compete with a reasonable amount of initial investment. Only when Mr
Howard opens up the whole sector to competition will the system function
properly, removing the need for schemes such as the USO. However, on the
contrary, Mr Howard assures us that the privatized Telstra will NOT be broken up
and be strictly regulated. He also says that the Liberals will impose price caps
and give Telstra no freedom to introduce timed local calls. The media states
that the Government will also force Telstra to extend cross-subsidies community
service obligations via the introduction of digital ISDN exchanges in rural
rates. If his plan is for a tightly regulated Telstra, then what’s the point of
privatisation? This is another reason why I am opposed to the sale of Telstra,
as the intent of the PM’s actions do not seem very clear to me. Part privatization,
like the current “part-competition”, I believe, is the worst of all
choices. If open competition is desired, Telstra must be split up and all
services and entrepreneurial ventures privatized. But for the protection of the
common good, the core network should remain in public hands, as Telstra provides
more than a service; it is the infrastructure of which the services of our
country rely on. In fact, if Telstra reduces expenditure on advertising and
sponsorship, remove cross subsidisation of Pay TV, and give up on it’s
international ventures (which are loosing money) to concentrate on giving
Australia a cheap and efficient network; the cost of phone calls would be
considerably reduced. In the United States, local carriers are regulated
monopolies, where price caps are forced down. As technology develops and becomes
more efficient, the cost of distance in telephone calls will continue to
decrease. Perhaps eventually there will be a telecommunications regime where you
pay an annual fee for connection, while all local/long-distance calls are free
and no restrictions are placed on usage; much like how our current sewerage
networks already operate. If we can achieve this, then we will have a leading
edge position in the Age of Information. (NOTE ~ not part of essay: is this
highly unlikely as such changes in operational efficiency would destroy
competitors such as Optus and Vodaphone etc.???) Overall, my preferred position
would be for the commonwealth the buy back to 1/3 of Telstra already sold,
because of the public benefit derived from public ownership. Telstra is in an
effective monopoly position, and taxpayers’ funds have made the
telecommunications giant what it is today. It is not fair to place this public
infrastructure into private hands, which have failed to deliver service merely
for the purposes of profit and shareholder interests.

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