July 22, 2004 | Graham

Two good reasons for investors and governments to sell Telstra

I’m not monomaniacal about it, and I think it’s bad politics, but the government should sell Telstra,and Mark Latham should agree to it. Every day the case for doing so gets stronger and stronger, as two recent pieces of evidence show.
The first piece of evidence is contained in the Australian Communications Authority March Quarter Telecommunications Performance Monitoring Bulletin . If you don’t feel like reading the report you can read the press release .
I wouldn’t recommend reading the news media on it because they all basically get it wrong. To check this assertion, read The Age or the SMH . Both Fairfax newspapers (and News, but their links die after this period of time) run the line that “Telephone companies were increasingly using bad weather as an excuse for failing to meet fault repair and line connection time targets….” (Age). The report doesn’t say that on my reading. What it does say is that performance deteriorated over the previous period because of bad weather. However, the report also says that the performance is pretty similar to the same period last year when presumably the weather was much the same. So the newspaper headlines are beat-ups – on Telstra more than Optus.
What is interesting is that none of the Telcos meet the government’s Customer Service Guarantee (CSG) Standard timeframes. Surely the question ought to be why they never have in any quarter to date, not whether it was a problem with the weather? Another question ought to be why privately owned Optus does better than publicly owned Telstra.
Predictably the anti-privatisation lobby used this report to call for abandonment of privitasation plans. In fact, the evidence points in the opposite direction. If Telstra, which is still in public hands, can’t meet the standards, and performs less well than the privately owned companies, then it is obvious that the public ownership experiment has failed.
No doubt that is why Australia is one of the few countries in the world to still have a publicly owned telecommuncations carrier.
The other piece of evidence can be found on this website – www.skype.com.
Telstra has abandoned its grandiose cross-media convergence based plans to concentrate on being a simple, well-managed utility providing telephony services. The theory is that this should provide a steady, if unexciting, income stream to investors who will reward the company by pushing its share price up. Returns could also be enhanced by some fancy financial engineering, aka gearing. All of this is predicated on the assumption that Telstra can continue to gouge the consumer on telephony costs because of its near monopoly on the infrastructure.
Skype should make Telstra, investors, financiers, politicians and voters think again. It offers telephone calls via your internet connected computer for 2c per minute to anywhere in the world. If you are talking to someone else also on a computer, it can be less than that. In fact it can be free (apart from your internet costs). Not only that, but if you and your contact have webcams you can see the person you are talking to as well, something you can’t do on a normal handset.
What the combination of Voice over Internet Protocols (VoIP) and Peer to Peer (P2P) connections offer is a radically cheaper and better way of long-distance verbal communication where Telstra’s domestic monopoly is exposed to competition from the cheapest pipes on the globe. With a significant percentage of Telstra’s business being telephony, and a premium attaching to long distance and international calls, Skype, and other products like it, mean that rather than Telstra having access to a utility stream of profits which will increase in line with GDP, it is sitting on a gold mine that is rapidly running down.
It’s time for the government to get out of our investment now, so that it can redirect the funds to infrastructure and social services before the market realises that Telstra is a wasting, rather than appreciating, asset and Mark Latham should be on board.
It would represent a once in a political lifetime bonanza to fund a number of worthwhile projects without resorting to debt, a la Liverpool City Council.

Posted by Graham at 12:47 pm | Comments (5) |
Filed under: Australian Politics


  1. This article provides NO good reasons for governments to sell Telstra; think about the key points made: 1. None of the Telcos meet the CSG timeframes; 2. Optus does better than Telstra.
    Telstra operates some 95% of this country’s customer access network (CAN) and by far the lions share of backbone telecommunications infrastructure. If Optus ‘does better’, the reason could be more likely that smaller operations may be more manageable than larger ones!
    If no Telcos meet the government’s Customer Service Guarantee, the reason could well be that there is no incentive to do so, or in other words, no administrative ‘stick’ with which to beat a defaulting carrier!
    I agree that voice over Internnet Protocol (VoIP) is threatening to Telstra, and any other carrier of significance, however the threat is greatly lessened once an IP call has to interconnect with the public switched telephony network (PSTN). By now Telstra has a long history of monopolistic pricing of interconnection fees – and unfortunaetly seems to be immune from any regulatory ‘stick’.
    A fully privatised Telstra is more likely to become an even more shameless profiteer, and hire even more lawyers to confront competitors and the ACCC.

    Comment by Ross Kelso — July 27, 2004 @ 2:22 pm

  2. Ross
    To my mind the problem as I see it at the moment is that the single largest shareholder of Telstra happens to also be the people that regulate the industry. Surely there is a conflict in how the government deals with the industry.
    Perhaps part of the reason that the regulatory stick isn’t very effective is for these very reasons.

    Comment by Michael J Lee — July 27, 2004 @ 3:45 pm

  3. Ross, it’s a better argument than the one that runs that because Telstra is not doing as good a job as it should it should be left in public hands!
    Do I take it from your comments about smaller operators being better than larger operators that you would be happy to see Telstra split into baby Telstras?

    Comment by Graham Young — July 29, 2004 @ 1:25 pm

  4. Michael
    I fear you are confusing the largest shareholder of Telstra, in effect the executive arm of the federal government, with the industry regulator, primarily the ACCC. Yes, the government of the day does set the regulatory scene through the Telecommunications Act and the Trade Practices Act for example, which can then tie the hands of the regulator. And yes, there is also scope for conflict of interest. However, if you analyse the industry since about 1992, you can conclude that government ownership of Telstra isn’t necessarily the prime indicator of bad or inadequate outcomes; the latter can just as easily be achieved with a fully privatised operation!
    I see the main problem as being the promotion of ‘competition’ as the end game, rather than the interests of consumers and SMEs as end users. Too many regulatory or legislated adjustments have been made to protect existing interests, whether privatised or not, in the hope that they will invest (or at least to ward off threats of dis-investment). Australian telecommunications are now witnessing the Microsoft phenomenon – the courts can’t effectively restrain MS in its monopolistic practices as MS can always employ more lawyers and incur never-ending litigation delay, and easily afford to pay hefty court fines! Here we are seeing that Telstra can afford far more legal clout than the ACCC, funding never-ending litigation. A fully privatised Telstra will be even more rampant!
    However, I digress; the nub of the problem is the overwhelming focus (by governments of both persuasions) on ‘competition’ as the means of achieving certain social and national goals. The main corruption here of so-called competitive market forces is that of favourable regulatory treatment and application of competition law directed to encourage replicated network and service investment at the expense of the long term interests of end users.

    Comment by Ross Kelso — July 29, 2004 @ 10:20 pm

  5. Graham
    My comment about Optus apparently achieving better network performance was raising the issue that they operate a far smaller customer access network than does Telstra. Only Telstra delivers the full spectrum of nationwide services, so comparisons with other carriers aren’t necessarily valid.
    If Telstra were ever to be split up, for starters I’d at least hive off the (telephony/ADSL and pay telvision) customer access networks as well as Sensis, all to be held in public trust, and certainly sell off their share of Foxtel to a new player.

    Comment by Ross Kelso — July 29, 2004 @ 10:43 pm

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