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Environment, Recreation, Communications and the Arts Legislation Committee
DEPARTMENT OF COMMUNICATIONS AND THE ARTS
Subprogram 4.3—Telstra Corporation Limited
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Environment, Recreation, Communications and the Arts Legislation Committee
DEPARTMENT OF COMMUNICATIONS AND THE ARTS
ACTING CHAIR (Senator Schacht)
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Subprogram 4.3—Telstra Corporation Limited
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Table Of ContentsPrevious Fragment Next Fragment
Environment, Recreation, Communications and the Arts Legislation Committee
- Start of Business
DEPARTMENT OF COMMUNICATIONS AND THE ARTS
- Program 4—Communications
Program 3—Broadcasting, online and information services
- Subprogram 3.3—Australian Broadcasting Corporation
- Subprogram 3.4—Special Broadcasting Service
- Sub-program 3.5—Australian Broadcasting Authority
- Subprogram 4.2—Australian Postal Corporation
- Subprogram 4.4—Australian Communications Authority
- Subprogram 3.2—National Transmission Authority
Content WindowEnvironment, Recreation, Communications and the Arts Legislation Committee - 11/06/98 - DEPARTMENT OF COMMUNICATIONS AND THE ARTS - Program 4—Communications - Subprogram 4.3—Telstra Corporation Limited
Senator SCHACHT —Welcome, gentlemen. I see that Mr Rizzo has decided to give us a miss again, and Mr Blount has not even considered us at all, I presume.
Mr Ward —I think the team that you see before you, Senator, is the one that we consistently bring to Senate estimates.
Senator SCHACHT —I am not denying that, that is the truth, but I noticed Mr Rizzo deigned to appear before the Telstra full privatisation bill inquiry in Melbourne, which I do not think we should be grateful about. He should have appeared, and he should appear here as the chief finance officer.
Mr Ward —I guess the privatisation bill hearing fits very much into Paul Rizzo's accountability, and for finance matters we have none other than the Director of Finance, John Stanhope.
Senator SCHACHT —I would have thought Mr Rizzo would have had some responsibility as well. Nevertheless, you may remember that at the hearing in Melbourne I raised questions about whether the board of Telstra had approved the submission that the management of Telstra had made in favour of full privatisation. It became clear that Mr Rizzo did not have a clue what I was talking about, and you came to his rescue rather rapidly, Mr Ward, to say that, although there had been no formal decision put to the board, the chief executive's monthly report had pointed out there had been a submission prepared and that that had been acknowledged in the board minutes, which I think you subsequently supplied to the committee.
Mr Ward —In support of the bill.
Senator SCHACHT —In support of the bill.
Mr Ward —Yes.
Senator SCHACHT —The minutes, I have to say, are extraordinarily perfunctory. The minutes show that there had not been any discussion by the board about the content of the report, the nature of the submission, and as this was done on behalf of the board one would have thought it would have been concerned about, above all else, who their shareholder is and who they could be. One would have thought in due diligence the board would have at least had a reasonable discussion about that. The other thing the minutes did not show, which I asked Mr Rizzo about and he could not answer, was whether any of the board members actually, post that board meeting, read your submission and approve it.
Mr Ward —Can I take those points one at a time. I think we said at the sale bill hearing in Melbourne that the support for the full privatisation of the company had been an issue that has been discussed for some time. It builds on a number of discussions at the board and, therefore, it was not surprising to management that the board just noted that management would be preparing a submission in support of the bill. In respect of your second question, the management submission was sent to all board members. There was no formal resolution associated with that; it was for their information.
—I do not claim to be an expert about the due diligence of directors and the requirements of the Australian Securities Commission and the Australian Stock
Exchange, but I would have thought it would have been germane to directors to have actually read the submission before it was released or lodged with this committee in its other form to see whether the directors agreed with the information and the comments being made which are fundamental to the shareholding structure of the company which they represent.
Mr Ward —If you go back to my first comment about the discussions around privatisation, we had submitted of course a submission to Telstra 1, if you like, and that had been fully socialised with the board. Our submission built very much on our first submission, because the arguments essentially for privatisation were put in our first submission and repeated and updated in our second submission.
Senator SCHACHT —So you are telling me, firstly, that the board took a direct decision, and it is recorded in the minutes of the board, that they favoured the one-third privatisation; secondly, that they gave some direction to the management in preparing the submission; and, thirdly, before that submission was lodged it was approved by the board?
Mr Ward —Certainly I know that the board supported the one-third privatisation and certainly the CEO and maybe even the chairman had made public comments around that time. I cannot recall the formalities of the board back in 1996, Senator.
Senator SCHACHT —I will ask you to take that on notice. You supplied me with the minutes early this year on this decision that recorded the CEO's report. I want you to supply me with the minutes from the appropriate meetings during 1996 leading up to the government's decision on one-third. Minister, this is a board which you basically reshaped to your own desires and wishes, I think towards the end of 1996. You asked for, I think, five or six resignations and appointed five or six replacements of the government's choice. Do you think it surprising that, in due diligence, those directors chose not to have any view recorded in the minutes about the full privatisation or even chose not to look at the submission lodged on behalf of the company publicly to this committee about why they supported full privatisation?
Senator Alston —I suppose boards might vary in the extent to which their minutes are expansive, but my understanding of minutes is that they record decisions rather than views or attitudes. That is what transcripts are all about. If you want to get a running assessment of who said what, you do not go to the minutes.
Senator SCHACHT —No, I am not asking for a running assessment, Minister. The minutes I was supplied with as a result of the last hearing only said that there was a CEO's report containing a number of matters, and the CEO's report was noted. There was no resolution to say it was adopted. It was noted.
Mr Ward —That management were putting in a submission in support.
Senator SCHACHT —Yes, and it was noted. It acquiesces, but it does not endorse it, it does not oppose it. It just notes. I have been around writing minutes on various bodies of the Labor Party, and I know—
Senator Alston —Probably rewriting them too!
Senator SCHACHT —No, no. This is why I am a bit surprised that a board with such experienced company directors in the private sector would not show some interest in what is the most fundamental issue: the future shareholding of their company.
Senator Alston —Mr Ward has made the point that it is not as if they would be taken by surprise.
Senator SCHACHT —No, I am surprised that there is no decision formally.
Senator Alston —But his point really is: why do they need to do that? This is pretty much a formality as far as they are concerned. It does not raise a brand-new issue that provokes a full-scale and heated debate. It is probably the culmination of a process that has been in train for a long time.
Senator SCHACHT —I would have thought that in good due diligence, the directors would have at the very least read the report going public in favour of a fundamental change to the shareholding of the company which they represent. I am sure that if BHP released a report fundamentally changing the shareholding structure of that company, the directors would have actually read the report before it was released.
Senator Alston —I am just speculating, but it is possible, for example, that they had discussed it in advance; in other words, been made aware—
Senator SCHACHT —Not according to the minutes we were provided with.
Senator Alston —No, at an earlier meeting or meetings they may well have foreshadowed that such a document was in the course of preparation and had an understanding of its general direction. When it was produced at this board meeting, it may have been said, `This is in line with previous discussions, therefore noted.' I do not know, but I can understand meetings proceeding in that fashion.
Senator SCHACHT —Thank you for that, Minister. I will ask Mr Ward. Are there any minutes of previous meetings, decisions or notings—as the minister has suggested there had been a prior discussion before the meeting—relating to the minutes you provided me with?
Mr Ward —I am not aware of any particular minutes, but I have taken action to look at 1996, and I can assure you that the board have fully discussed privatisation and that privatisation was, in their view, in the interests of the company.
Senator SCHACHT —When?
Mr Ward —Over a period of time since 1996.
Senator SCHACHT —Will you provide me with the minutes, then, showing when those discussions took place?
Senator Alston —If you look at it another way, wouldn't they be derelict in their duty if they had never discussed the implications of privatisation, given that it has been on the public agenda since prior to the last election?
Senator SCHACHT —All I am asking for, Minister, is a record that that actually took place.
Senator Alston —But you are concerned that they did not somehow have a full-scale discussion at this meeting, and what has been put is that they must have discussed this endlessly over a period of years, formally and informally.
Senator SCHACHT —The best I can get is that informally there was a discussion. The best decision I can get from the minutes provided is that the CEO's report was noted, where this was amongst other matters discussed. I would still raise this issue. I am more than a little surprised that once the submission came into this committee fundamentally recommending a change of the shareholding structure of Telstra, it was not endorsed formally or read by the directors before it was lodged and, on the last evidence you gave at the committee in Melbourne, there is no evidence you gave that that in any way was circulated to the directors, even for their own information.
Mr Ward —Well, it has been.
Senator SCHACHT —It has been, because I have now raised it.
Mr Ward —It was going to be circulated in any event, but—
Senator SCHACHT —Sorry, are you now saying it was circulated?
Mr Ward —It was circulated. It has been circulated to the board.
Senator SCHACHT —Just take it on notice. When was it circulated? Was it circulated after I asked the question in the meeting in Melbourne?
Mr Ward —It was circulated after our hearing, yes.
Senator SCHACHT —Yes.
Mr Ward —Yes.
Senator SCHACHT —I find it rather strange that it took me or a committee of the Senate to prod the directors into reading a submission which was lodged on their behalf about the fundamental shareholding restructuring of a company.
Mr Ward —Senator, with respect, that was going to be circulated in any event, and we made the decision to give them a bit of a summary of what happened at the hearing in addition to circulating the report.
Senator SCHACHT —Mr Ward, you are doing a very good job of trying to protect what I would say was a rather lazy attitude of the board. But, anyway, let us move on to other questions. You have taken some on notice for me. I would appreciate getting those answers, and I hope if there are any significant future decisions on Telstra from the present board, they do actually record in the minutes what their view is.
Mr Ward —Just one final comment, Senator: if there had not been full support around the board in support of the bill, that certainly would have been noted in the minutes. Everybody was building on a previous understanding of where things were going.
Senator SCHACHT —All right. Can I now move on first of all to the answers you gave me to a question I asked at the March hearing—and I want to thank you for the material you finally provided, which has taken me some time to get but is most useful—about the numbers of telephone calls in those areas, for STD, local loop, international, et cetera. That was most useful.
You may remember we had a lengthy discussion on the half-yearly report that was then available, about the revenue and the profitability that is listed in the revenue growth, product revenue section of the report. I asked questions about each of those listed product revenues, in terms of their profitability, and you said that that was commercial-in-confidence. I went back and read the transcript the other day. I did not specifically ask you to take it on notice, but I now will. I would like a formal response from Telstra of what was the profit for those product revenues listed under revenue growth. My photocopy does not have a page number, I am sorry. You know the one I mean, anyway, I think.
Mr Ward —Yes.
Senator SCHACHT —If you are going to use commercial-in-confidence, which I am not automatically sure stands up, but if you are going to use that, would Telstra be willing to provide that to the committee in confidence?
I noticed yesterday or the day before in the press that Mr Rizzo, and it would have been nice for him to have been here, says—on 10 June it is reported in the Financial Review and a couple of other newspapers—that:
Telstra will beat its prospectus net profit forecast of $2.8 billion in the year to June 1998, Mr Rizzo told an investment conference.
Any chance of him telling the estimates the same thing?
Mr Ward —Mr Stanhope can comment on our financial performance.
Senator SCHACHT —So he speaks for Mr Rizzo on this?
Mr Ward —He speaks for the company.
Senator SCHACHT —With the same clout and weight as Mr Rizzo?
Mr Ward —Certainly.
Senator SCHACHT —Thank you.
Mr Stanhope —I think Mr Rizzo's comments at that conference were that Telstra would beat its profit forecast, as forecast in the prospectus, comfortably, and I can confirm to this Senate estimates committee that Telstra is confident of meeting that prospectus forecast for its profit after tax.
Senator SCHACHT —So it will be in excess of $3 billion?
Mr Stanhope —No, the forecast—
Senator SCHACHT —No. Mr Rizzo has probably got a fair idea. Are we looking at a profit for Telstra in excess of $3 billion, which is at least $200 million more than the prospectus?
Mr Stanhope —It is unlikely that it will exceed $3 billion. What I am saying is that it will exceed the $2.8 billion that—
Senator SCHACHT —So it is $2.8 billion to $3 billion?
Mr Stanhope —It may well be.
Senator SCHACHT —We will see how accurate that turns out to be, obviously. I notice that Mr Rizzo goes on the record here in this article, saying that as part of a four-year program of redundancies and sackings, 18,000 of the 25,000 have already gone. He said:
We'll be revisiting the residue of the 25,500 because we are starting a new three[hyphen]year business plan. I don't expect we will reduce that figure as a target.
Do you have any more evidence to give to the estimates that the 25,500 once reached by 1999 will not be revised upwards?
Mr Stanhope —The plan for the three years ending 30 June 2000 is where the 25,500 ends from a starting position of 1996[hyphen]97, and the 25,500 is over a four-year period. We are in the middle of updating that plan, but we have not changed the programmed staff reduction to the end of 30 June 2000. It is still 25,500.
Senator SCHACHT —But will you achieve the 25,500 before 30 June 2000?
Mr Stanhope —No, we are unlikely to.
Senator SCHACHT —If you have got 6,500 to go, will you achieve, say, 24,000 in the next six to 12 months, and the residue of about 500 to 1,000 in the remaining part of the remaining two years?
Mr Stanhope —No. The program was for a 8,000 reduction in 1997[hyphen]98, 4,000 in 1998[hyphen]99 and 2,500 in 1999[hyphen]2000. That is our program.
Senator SCHACHT —And that is still the program?
Mr Stanhope —That is still the program.
Senator SCHACHT —Can you table that to the committee?
Mr Stanhope —The document I have in front of me has an extra year in it.
Senator SCHACHT —Has what?
Mr Stanhope —Has an extra year, and that plan has not yet been—
Senator SCHACHT —So there will be more reductions past 30 June 2000?
Mr Stanhope —There is another year of the plan, and it is likely there will be further staff reductions in that subsequent year.
Senator SCHACHT —So we have got 25,500 by 30 June 2000?
Mr Stanhope —Correct.
Senator SCHACHT —Then in a further year there are going to be more reductions? That is what is on your piece of paper?
Mr Stanhope —Yes, there will be.
Senator SCHACHT —Irrespective of the government's privatisation plans—and the parliament has not decided on that yet and there has got to be an election in between—can you tell the two-thirds shareholders of Australia how many more people will be sacked in that last year?
Mr Stanhope —There is likely to be a similar size reduction as the preceding year.
Senator SCHACHT —Which is about what?
Mr Stanhope —Around 2,000.
Senator SCHACHT —Okay, so the redundancies are now up to 27,500 by 30 June 2001?
Mr Stanhope —That is a plan that is yet to be endorsed by the board of this company. It is work in progress.
Senator SCHACHT —No, I understand that.
CHAIR —Can I just ask a question there. Are some of those people taken up by other telecommunication companies like Optus?
Mr Stanhope —Some are. Some are getting employment in other telecommunications companies. In fact, we have spun off; we have sold our Visionstream company, and in fact a lot of our employees or people who have been made redundant out of Telstra have joined Visionstream. They have joined companies like Skilled Engineering. They have joined companies like Optus and Vodafone.
CHAIR —So it just does not mean the number of people who are shed equals the number of people unemployed?
Mr Stanhope —No, it does not translate into unemployment.
Senator SCHACHT —Seeing as Senator Patterson raised this, can you take on notice and provide us with a reasonable estimation—I cannot ask you to do it to an exact number—of how many of those 18,000 people who have already gone have got jobs, that you know of, in other telecommunications companies? Some might have got jobs mowing lawns or picking up papers or something in a totally unskilled area compared with their training that you have invested many thousands of dollars in over the years.
Mr Stanhope —Senator, we do not track every individual that has left the company but—
Senator SCHACHT —No, I know that.
Mr Stanhope —Let me just finish, please. But we do have a career transition service in the company, and we do know how many have gone through there and how many have got jobs as a result.
Senator SCHACHT —Good.
Mr Stanhope —It is a very high percentage we have been able to find further employment for.
Senator SCHACHT —You will be able to give us those details?
Mr Stanhope —I can tell you those numbers.
Senator SCHACHT —When I visited the national telecommunications operating centre in Brisbane, I stumbled across a coffee drinking area in one of the rooms next to the centre. It was when you were transferring people to Melbourne. There were lots of copies of the Melbourne Age and the Sun Herald real estate sections available to them to look at buying houses in Melbourne. You may say that's a very sensitive way of doing it, but it made the point to those people that unless they went to Melbourne they were out of a job.
Can I go back to the remarks of Mr Rizzo. You said to me about 18 months ago in an estimates hearing that the net savings on costs by this program of redundancies would improve Telstra's bottom line by about $600 million per annum. That was correct, wasn't it?
Mr Stanhope —Yes, that is correct.
Senator SCHACHT —Has that figure been revised? Is that still the figure in management's view?
Mr Stanhope —That figure is being realised—obviously not the whole $600 million yet, because we have not completed the program.
Senator SCHACHT —No.
Mr Stanhope —But given the number of staff who have left, and the average salaries and so on, that number will be realised.
Senator SCHACHT —With a further 2,000 going in the year 2000[hyphen]01, how much further would that saving be increased?
Mr Stanhope —As a rough estimate, you can take 2,000 times $50,000, say—that is labour and labour on[hyphen]costs—and that is another $100 million.
Senator SCHACHT —Another $100 million, so that is $700 million. I suppose that is being given to the scoping studies for the full privatisation germane to the prospectus about cost structures, et cetera?
Mr Stanhope —I know of no scoping studies for full privatisation, and those figures have not been given to anybody, including the board of the company, because the board meets on Monday the 15th to consider the corporate plan.
Senator SCHACHT —To consider the corporate plan?
Mr Stanhope —Nor has it been given to the government. A plan will be submitted to government around the end of June.
Senator SCHACHT —When will this new three[hyphen]year business plan start if it is approved by the board and the minister?
Mr Stanhope —1 July 1998, running through to 30 June 2001.
Senator SCHACHT —So it starts July next year?
Mr Stanhope —It is a three[hyphen]year plan, yes.
Senator SCHACHT —I asked about the previous business plan back in 1996. I never got an answer from the minister as to whether he had actually approved a business plan for that three-year period. Did you actually approve a business plan, Minister?
Senator Alston —I would have to refresh my memory on that. I will find out, if you like.
Senator SCHACHT —Is it a statutory obligation under the act that you have to approve the business plan, or is it a matter of courtesy, representing the shareholders of Australia?
Senator Alston —I think it has to be submitted to the minister but I do not know that—
Senator SCHACHT —Mr Ward, you seem to know the act better than anybody—I hope. What does it say in the act?
Mr Ward —I cannot answer that. I know we certainly have to submit a plan.
Mr Stanhope —We certainly have an obligation under the act.
Mr Ward —I believe we have had correspondence back from the minister subsequent to submitting the plan.
Senator SCHACHT —Is that correspondence wanting to change the plan, or suggesting changes?
Mr Ward —I cannot recall, but it did not change the substance of our plan at all. It made some comments, I think, about certain initiatives and perhaps reporting on certain issues. I cannot recall the correspondence.
Senator SCHACHT —Minister, can you give the estimates committee some idea of what those suggestions that Mr Ward has mentioned were about the three[hyphen]year business plan ending on 1 July next year?
Senator Alston —I will take it on notice. I am not sure whether it is appropriate to disclose private correspondence.
Senator SCHACHT —Well, there is a statutory obligation in some form or another.
Senator Alston —There might be a statutory obligation for them to submit a corporate plan and for me to consider it, but that does not mean that it is a public exercise.
Senator SCHACHT —No, I appreciate that, and I understand the dreaded phrase `commercial-in-confidence' will have to be—
Senator Alston —Otherwise I suppose they would put it on the Net and I would reply in kind.
Senator SCHACHT —It does not matter what they put on the Net to you; you do not do anything with it, other than note it. You have never shown any interest in publicly giving any directions to Telstra in the public benefit. So I suppose it is almost useless sending it to you.
Senator Alston —It is always useful to have it on record that that is your intention, if you come to government.
Senator SCHACHT —It is in the prospectus, on the one-third sale, very clearly put there by Mr Beazley.
Senator Alston —Well, you have put shivers down their spines!
Senator SCHACHT —What, your spine?
Senator Alston —Not ours.
Senator SCHACHT —Well, whose spine?
Mr Ward —Mine.
Senator Alston —I do not think investors would be very keen on that proposition, either.
Senator SCHACHT —But, Minister, we made it clear in the prospectus—
Senator Alston —Yes.
Senator SCHACHT —And you are going around skiting about how many people bought shares, so obviously they took that on board.
Senator Alston —They did not think you had any chance of coming to government.
CHAIR —Senator Alston, it was just as clear in the Commonwealth Bank prospectuses.
Senator SCHACHT —The power of direction we made very clear in Telstra. This is about the power of direction to Telstra in the national interest. Mr Ward, how much of the approaching $3 billion profit do you expect would be retained? By the way, is the $3 billion profit before interest and tax, EBIT or what?
Mr Ward —I will just ask Mr Stanhope to put on the record this $3 billion that you are now quoting—
Senator SCHACHT —It is in the paper. It is Mr Rizzo saying it, not me.
Mr Stanhope —Mr Rizzo did not say that the profit would be $3 billion.
Senator SCHACHT —I am just using shorthand now. It is between $2.8 billion and $3 billion, right? Whatever that figure is, in that range, would you tell—
Mr Ward —Right, let's say $2.8 billion.
Senator SCHACHT —For God's sake, I am not holding your feet to the fire over this. I have acknowledged that it is a guesstimate of a range of $200 million. With the revenues you have of $17 billion, I would not blame you if you were $500 million out at the end because of the turnover you have. Can I get this straight about profit and all those accounting phrases like EBIT and so on?
Mr Stanhope —It is profit after tax.
Senator SCHACHT —It is the profit after tax?
Mr Stanhope —Yes.
Senator SCHACHT —What was the tax which you paid last year, in 1996[hyphen]97? Was it $800 million or something like that?
Mr Stanhope —No. It was about $500 million, because there were a number of abnormals.
Senator SCHACHT —Would you expect, with the reduction of abnormals—fewer abnormals in the annual accounts this year—the tax may be higher than $500 million?
Mr Stanhope —Sure. It certainly will be.
Senator SCHACHT —That is good for the taxpayers of Australia first time round. Is this amount of money before the interest payments?
Mr Stanhope —No, after.
Senator SCHACHT —After interest? After tax?
Mr Stanhope —It is after everything. It is profit after tax, from which the dividend is paid.
Senator SCHACHT —Is it after retained earnings that go into capital works and reinvestment in capital works?
Mr Stanhope —What comes out of the profit after tax is dividends, and what is left after dividends is retained earnings. Retained earnings are used for capital expenditure.
Senator SCHACHT —So going on last year's dividend, which was about $1.5 billion or $1.4 billion—what did you pay last year?
Mr Stanhope —With the special dividend—
Senator SCHACHT —Ignore the special dividend.
Mr Stanhope —Okay. I think it was about $1.2 billion.
Senator SCHACHT —So if you pay about the same dividend, but I am sure the government will ask you to pay a bit more if your profit has gone up—
Mr Stanhope —Well, the profit has gone up.
Senator SCHACHT —Let us just say for argument's sake it goes to $1.5 billion. There is a negotiation between you and the government, the total dividend is $1.5 billion of which they get two[hyphen]thirds, and the other third goes out to the shareholders.
Mr Stanhope —When you say a negotiation, it is the stated board policy of a 60 per cent payout ratio. So there would be a 60 per cent payout.
Senator SCHACHT —Is that 60 per cent a board decision?
Mr Stanhope —Yes, it is.
Mr Ward —It is in the prospectus.
Senator SCHACHT —That is 60 per cent of the $3 billion, if it is a $3 billion figure?
Mr Stanhope —If it is.
Senator SCHACHT —I am not holding your feet to the fire. I have qualified myself already. It just makes it easier for the calculation in the Hansard . So that will be $1,500 million to $1,600 million could be paid out in dividends.
Mr Stanhope —Correct.
Senator SCHACHT —Right. Would you anticipate all of the remaining $1,400 million, that is retained as earnings, going into capital works?
Mr Stanhope —Yes.
Senator SCHACHT —So you would have $1,400 million into capital works?
Mr Stanhope —Plus more.
Senator SCHACHT —I am just coming to that. Last year the capital works program, from the information you have provided to me, was well over $3 billion.
Mr Stanhope —Correct.
Senator SCHACHT —How much was it actually?
Mr Stanhope —In 1996[hyphen]97?
Senator SCHACHT —Yes, the last full year. You had a lot of cable running out over the joint, which put it up as well.
Mr Stanhope —Yes. It was about $3[half ] billion. This year, 1997[hyphen]98, it will be around $3.9 billion.
Senator SCHACHT —Around $3.9 billion this year?
Mr Stanhope —Correct.
Senator SCHACHT —So $1,400 million of that will be paid out of retained earnings?
Mr Stanhope —Earned in this year.
Senator SCHACHT —Yes. How much of the $3.9 billion that is capital works this year just ending was paid for out of retained earnings?
Mr Stanhope —The capital program will utilise previous years retained earnings as well, some borrowings—
Senator SCHACHT —What are they?
Mr Stanhope —We have got a net debt of around $7 billion, and we have got about $10 billion of shareholders' funds at the end of 1996[hyphen]97. So the combination of shareholders' funds and debt goes to fund the operations of the company and the capital expenditure program.
Senator SCHACHT —Is there any chance of us getting a breakdown of how the $3.9 billion was raised? You have got some from retained earnings. Some from borrowings?
Mr Stanhope —Yes.
Senator SCHACHT —Some from capital from the shareholders' investment in the company, from the shares?
Mr Stanhope —Yes.
Senator SCHACHT —What is the breakdown of the full figures?
Mr Stanhope —I will have to take that notice because I do not have all that information at my fingertips here.
Senator Alston —It does not follow that these things are earmarked in any event. You do not hypothecate a certain proportion of debt for a particular project. You may simply borrow, have a stand[hyphen]by facility, and you draw it down for a whole range of things.
Senator SCHACHT —I am just trying to get the figures. Because of the substantial profits Telstra make after tax and interest, about half of it, 60 per cent, is going to go in dividends. I am not trying to ambush you.
Mr Stanhope —No, that is okay.
Senator SCHACHT —I am just trying to get the figures.
Mr Stanhope —Let us understand something: profit after tax—
Senator SCHACHT —And interest.
Mr Stanhope —Right—is not the cash flow of the company. It is not the cash flow. The company earns up to about $6 billion, say, in cash flow, and that cash flow is disbursed across tax, dividends, and the capital expenditure program. So it is cash that is more important in trying to do this sum.
Senator SCHACHT —Now that you have given the figure of the cash flow as being about $6 billion, can you break that up for me in the way you have just described?
Mr Stanhope —Into tax?
Senator SCHACHT —Interest, tax and so on.
Mr Stanhope —It is in the balance sheet of the company.
Senator SCHACHT —I have not got a balance sheet.
Mr Stanhope —No. I will give you the 1996[hyphen]97 numbers.
Senator SCHACHT —Right, you will take it on notice.
Mr Stanhope —They are rounded. I can give them to you now.
Senator SCHACHT —1996[hyphen]97.
Mr Stanhope —Internal funds, which is—
Senator SCHACHT —Look, I just—
CHAIR —It is impossible. You keep interrupting Mr Stanhope. Ask him a question, let him finish, and go to the next one.
Senator SCHACHT —I am speeding it up.
CHAIR —It is not for you to speed it up. That is for me to decide as chairman.
Senator SCHACHT —Well, it is for speeding it up.
CHAIR —Mr Stanhope, can you make your answers as quick as possible, or as short as possible, and, Senator Schacht, do not interrupt Mr Stanhope. You are impossible. He does not need your help.
Mr Stanhope —I will be very quick. The cash flow in 1997 was around $6 billion. Nine hundred and ninety[hyphen]five of it was tax paid. Dividends were $4.3 billion.
Senator SCHACHT —Because you had the special?
Mr Stanhope —Sure.
Senator SCHACHT —So you take the $3 billion out. It would have been $1.3 billion?
Mr Stanhope —Okay.
Senator SCHACHT —Right, yes?
Mr Stanhope —That is right. Working capital increase was only $6 million, so it is irrelevant. We got the number wrong for capital expenditure before; we said $3[half ] billion. It was $4.3 billion, and that was because we had to pay the broadband roll-out.
Senator SCHACHT —Yes, right.
Mr Stanhope —In order to fund the special dividend, we had to do a borrowing.
Senator SCHACHT —Yes, and that borrowing now has to be serviced?
Mr Stanhope —Yes, it does.
Senator SCHACHT —At the standard rate. What are you paying? Two hundred and eighty million dollars a year on the interest?
Mr Stanhope —Well, $1 billion of it has already been extinguished.
Senator SCHACHT —You have already paid $1 billion of it off?
Mr Stanhope —Yes.
Senator SCHACHT —So does that mean over another two to three years you will pay off the rest?
Mr Stanhope —No, not necessarily. It depends on the cash flow of the company.
Senator SCHACHT —Yes, I know, but in the business plan, is there a period of years set down for when you will pay off the rest of the government's conscripted dividend?
Mr Stanhope —No, it is not. It will depend on the cash flow. They have been refinanced, the syndicated bank loan has been refinanced, and it is now a fairly long[hyphen]term debt. It is not prudent financial management to—
Senator SCHACHT —No, but what you have done is you have taken $1 billion of it to pay it off so it is not on your books. So you are now servicing $2 billion of that special fund?
Mr Stanhope —One billion dollars has been refinanced in a recently announced deutschmark issue, and there is still $1 billion that we are looking at refinancing.
Senator SCHACHT —But you have paid off $1 billion?
Mr Stanhope —Yes.
Senator SCHACHT —Well, that just proves again you are a very successful company with the cash flow and the profits you have. Can I now turn to the capital works program and the business plan over the next three years. The capital works program was $4.3 billion in 1996[hyphen]97 and I think you said it will be about $3.9 billion this year just ending. Is there a consistent trend, because major expenditure items have been completed, that the capital works program will be declining?
Mr Stanhope —We expect it to decline over the three years of the plan. We are trying to get to what we call world best practice levels of capital expenditure to revenue ratios. It is generally accepted around the world in telecommunications companies that the appropriate level of capital expenditure is about 20 per cent of revenues. That is what we are aiming to do. We are a bit higher than that now. We have experienced the pay TV broadband roll-out and we are doing a modernisation of the network, as you well know, throughout Australia. When we are over that hump, we will get down to the 20 per cent ratio.
Senator SCHACHT —Yes. In the answers you gave me from the March hearing on capital works where you broke it down for me into metropolitan and regional, I think it came out that the regional figure was about $800 million. I am just trying to find the question and the answer you gave me. Does that sound about right?
Mr Stanhope —That sounds about right to me.
Senator SCHACHT —The $800 million you are spending in regional Australia does make some balance of the government's networking the nation program funding, which is supposedly to improve regional access for telecommunications, which is $250 million over five years or $50 million a year. You alone are spending $800 million in regional Australia. The networking the nation program spends $50 million a year. Isn't that correct? The point I am trying to get to is that the government made a major song and dance about the networking the nation program fund. It was $250 million over five years to secure passage of the partial privatisation of Telstra. Compared with your own budget in capital works in regional Australia, it is a fleabite.
Mr Ward —I do not know if that is a fair comparison. We can only speak for Telstra. We are significant investors in regional Australia.
Senator SCHACHT —I thank God you are.
Mr Ward —I think those figures show that we reinvest 50 per cent more per head in regional Australia than we do in metropolitan Australia. So we are significant investors. We announced yesterday some further investment in regional Australia, and I do not know if that comparison is meaningful.
Senator SCHACHT —I just wanted to confirm a point and I will now put it to the minister. Minister, in view of the fact that Telstra is spending $800 million a year on capital works in regional Australia, doesn't that put well into the shade any impact that you are going to have out of $250 million over five years or $50 million a year on the networking the nation program?
Senator Alston —No, what it really does is highlight how extraordinary it was that you opposed this tooth and nail right through the process, and you still do not support the concept. I just find it amazing, but there is time to repent. So if you want to take the opportunity in the lead[hyphen]up to the election, feel free.
Senator SCHACHT —No, Minister, what is extraordinary is: why we want Telstra in public ownership is because the impact they make in Australia, of $800 million—
Senator Alston —You want to give them a power of direction as to how much you think they should spend in rural Australia. Is that what you have in mind?
Senator SCHACHT —What I have in mind?
Senator Alston —Yes.
Senator SCHACHT —You will have to wait to see at the election campaign. The people of Australia want to find out where Telstra is spending its money because they still two-thirds own it. People in the bush, on a margin of about three to one in every public opinion poll, oppose your full privatisation program. One reason is they know that Telstra is the major investor—$800 million a year—in telecommunications in the bush. You are offering them $50 million a year as though this is the great saviour to them. It is a monstrous distortion.
Senator Alston —Are you suggesting that somehow Telstra is going to withdraw its capital spending program in rural areas? I have to say it has not changed much with the one-third.
Senator SCHACHT —Minister, I have to say that all the published public opinion polls—and you may want to dismiss them as irrelevant—show that overwhelmingly, particularly in regional Australia, people do not believe that if it is fully privatised, that $800 million will consistently be spent to ensure they get equal access to the same level of telecommunications.
Senator Alston —That is in part because you are running around telling them that it will all dry up.
Senator SCHACHT —The figures speak for themselves.
Senator Alston —No, the reason for the criticism about privatisation is because you lot splashed the proceeds up against the wall. You did not use it for capital reinvestment or for paying capital items, you squandered it. That is why there is a bit of scepticism about privatisation. The fact is, you and Mr Beazley are running around saying that further privatisation of Telstra will effectively mean they will withdraw services to the bush. That is the greatest load of nonsense of all time.
Senator SCHACHT —Minister, let me put the figure to you in another way. The cross-subsidy, under the universal service obligation, is about $260 million across all categories, give or take a few million here or there. Is that right, Mr Stanhope?
Mr Stanhope —Yes.
Senator SCHACHT —That is overwhelmingly to subsidise the provision of services for Telstra into the bush to make sure a standard telephone service is provided, et cetera. That is $260 million a year, but Telstra is spending $800 million a year in regional Australia, way above the universal service obligation. I think a lot of people are a bit suspicious that if it is fully privatised, where profit becomes the only motive for the company, the difference between $260 million and $800 million may actually get shaved away over a period of time.
Senator Alston —You mean they just abandon rural customers?
Senator SCHACHT —No, quietly, so this is going to be full cost recovery. Services will be reduced or costs will go up.
—Senator, if I could just make a comment. I think we have said this before. Our corporate plan and business planning process, which sorts out our resource allocation against our revenue predictions in a competitive environment, are ownership neutral plans. They are
based on the competitive and customer environment that we face. We are talking about servicing our customers in an increasingly competitive environment.
Senator SCHACHT —Mr Ward, I must say your consistency is magnificent. You have said this consistently at every estimates hearing I have been at since—
Mr Ward —Because it is true, Senator.
Senator SCHACHT —I admire your consistency. The problem you have is that most people in rural Australia do not believe you, because what do they see under the present plan in the answers you gave to Senator Cooney's question? They see the diminution and the reduction in substantial numbers of jobs in regional Australia. You say those reductions would have all happened, every one of them would have happened, without privatisation.
Senator Alston —Senator Schacht, can I put it to you another way. The universal service obligation is there for a particular purpose. It is there to ensure that otherwise non-commercial or uneconomic activities are nonetheless conducted. By definition it follows that any amount spent over that is done so for commercial reasons. In other words, Telstra makes a profit from any difference between $250 million and $800 million. To the extent that they want to make more profit, they will spend more money.
The RTIF funding has got nothing to do with the roll-out of basic infrastructure by Telstra. It funds a whole series of add-on activities that principally surround the Internet and access to higher speed services, data as well as voice. It has provided the opportunity for things that none of the carriers may well have contemplated doing, like local access points of presence. It is money that is in no way a substitution for the amounts that the carriers are spending. It is a completely new program. That is why I am surprised that you did not endorse it.
Senator SCHACHT —Endorse the RTIF?
Senator Alston —The RTIF.
Senator SCHACHT —You took $3 billion as a special dividend out of Telstra 12 months ago and you gave $250 million back, saying, `This is coming out of the proceeds.'
Senator Alston —Telstra would not have spent that money.
Senator SCHACHT —Whichever way you juggle the money, Minister, you have taken more out of Telstra, out of the $3 billion special dividend, than you have put back through the RTIF and now you have said, `We've got that. That's made available out of the one[hyphen]third sale.' In the meantime you have slipped $3 billion out of Telstra straight into your bottom line for the budget.
Senator Alston —They raised their borrowings to achieve that.
Senator SCHACHT —Yes, they had to go and borrow.
Senator Alston —So? The gearing level was well below commercial levels.
Senator SCHACHT —But you keep saying, Minister, or the Treasurer keeps saying, `Debt is bad. We have got to get the public debt down.' But you jacked Telstra's debt up. That is an extraordinary thing.
Senator Alston —There is a very big difference between private debt and public debt.
Senator SCHACHT —Telstra's debt, two[hyphen]thirds owned by the government, still goes in the capital borrowings, doesn't it, in the issue of public debt? In the debt that is measured in Australia against government, is the Telstra debt written two[hyphen]thirds against publicly owned debt and one[hyphen]third goes into private debt?
Mr Ward —That is a question I guess you would need to ask Finance or Treasury, but my suspicion is that it is not included in there. I am not sure.
Senator SCHACHT —But all of it goes into private debt, then?
Mr Ward —Yes.
Senator SCHACHT —Which this government campaigned on at the last election had to be reduced. They took a decision to jack up Telstra's debt by $3 billion, which increased the total debt of Australia. What you did is hypocritical, Minister.
Senator Alston —Total debt of Australia? Companies borrow all the time.
Senator SCHACHT —Yes, but that goes into the gross debt of Australia.
Senator Alston —I know you did not bother to read it, but the reports that we got actually said that Telstra would be more efficient with a higher level of gearing. That might sound counter[hyphen]intuitive to someone coming from your background, but the fact is—
Senator SCHACHT —Most ordinary Australians would listen to that and say, `Do you mean to say Telstra is made more efficient by increasing the debt?'
Senator Alston —That is right.
Senator SCHACHT —When you are telling everybody else Australia has to reduce its debt to be a more efficient country.
Senator Alston —They operate by deriving revenues from commercial activities, and if they do not, they go broke. Public debt is funded for private taxpayers. If you want to keep lumping it on the taxpayers and raising taxes, you can have as much extra income as you like.
Senator SCHACHT —You have lumped the debt onto Telstra, which is two-thirds publicly owned.
Senator Alston —I do not pretend it is publicly owned in the sense that—
Senator SCHACHT —It is two[hyphen]thirds publicly owned. You do not like it being publicly owned, but the law of the land is that it is still two[hyphen]thirds publicly owned.
Senator Alston —Ever since Mr Beazley as communications minister in 1991 required Telstra to operate commercially, it has been no different to any other private sector company.
Senator SCHACHT —Yes, but it is still owned. There is a shareholder and a dividend.
Senator Alston —They just happen to be passive shareholders, that is all. They receive a dividend.
CHAIR —Excuse me.
Senator SCHACHT —Passive? You were not passive. You went and collected a $3 billion special dividend out of it.
CHAIR —Point of order.
Senator TIERNEY —Surely this debate is better carried out in the chamber. Could we return to the estimates?
Senator SCHACHT —It is about the funding of the company.
—This whole exercise this morning may well be a steep learning curve for Senator Schacht, but it is a classic indulgence that is well beyond the reference point of any estimates committee. It has got nothing whatever to do with exploring expenditure. All you had to do was look at the annual reports. If you want to find out about these things and you
have not got the time to go to an accounts 1 class, then you should not be coming in here and wasting the time of the estimates committee.
CHAIR —Now you have had that long discussion, Senator Alston, I am actually going to rule on the point of order. You have now had an hour exactly of this. Senator Cooney has been sitting here very patiently. I am now going to give him the opportunity to ask questions. Senator Cooney.
Senator COONEY —Thanks very much. If I can give a little speech beforehand to put it in context, it is about a matter that I raised last time and it arises out of a discussion I had in Benalla, and I think you know all about it. I have noticed since then that Telstra and the union have carried on a discussion. The fact still remains that there is a perception that what has happened to Mr Renshaw is because of his meeting with me. I am sure you would say that is not so, but that is the perception.
What I am concerned about is whether or not Telstra fully appreciates the law in this situation. What had me concerned was that I did get a letter that the union gave me which was written to Mr Cooper and Mr McLean, dated 24 March 1998. As you know, there had been discussions as to the attitude that the union had taken and a discussion as to whether it properly did so or not.
Mr Barkla, the Director, Industrial Relations, said to the union, the CEPU, that if the union wanted to express its views, that was all right by Telstra but they should remain accurate. Mr Barkla in his letter of 24 March said:
As you should be aware, the Trade Practices Act 1974 and corresponding state legislation (the Fair Trading Acts) prohibits misleading and deceptive conduct and the making of certain false representations.
That is not accurate, because of course that law applies only to trading corporations. What has me concerned, and this is what I ask you: is does Mr Barkla have an appreciation of the law sufficient to allow him to carry on this discussion with the union? I raise that in public because it has been raised with me, and if you have some comments I would be glad to have them. If you want to leave it go, I can give you the letter and you can give it on notice. But the point I want to make is that, if this discussion is going on with someone who does not quite appreciate the law, we are not going to get to the answer.
Mr Ward —Senator, Mr Barkla is here, and can perhaps address your question.
Senator COONEY —I do not want to get into any hostility with Mr Barkla. This is something that I think ought to be properly settled, but it does concern me that you may be conducting these discussions by mail without a full appreciation of the law, and I will give you a look at the letter, if you like. You see where I have marked it in yellow?
Mr Barkla —Yes.
Senator COONEY —I am not sure—other than 45D and E, I think it would be, of section 52 of the Trade Practices legislation that you are thinking about—what relevance that has to the union.
Mr Barkla —Senator, I do remember this letter. I myself am not a lawyer, and so I guess in that regard I could not go into chapter and verse about rights and wrongs for that. That information was provided to us by our corporate solicitors when we ran through the actions that were happening as far as the unions go, and the legal advice we received is represented in the letter that I signed off to the union. I would be happy to take that on board.
Senator COONEY —Would you?
Mr Barkla —Yes, certainly.
Senator COONEY —Just ask your solicitors whether or not the trade practices legislation I think, insofar as misleading conduct goes, does apply to unions—in fact, whether unions are corporations within the meaning of the Trade Practices Act, and whether or not that does not apply to corporations that are in trading—
Mr Barkla —Yes, I understand.
Senator COONEY —It would be a reputable firm of solicitors.
Mr Barkla —Yes, it was.
Senator SCHACHT —That is not automatic, Senator.
Senator COONEY —Yes.
Senator SCHACHT —You know my views about the high cost of justice in this country.
Senator COONEY —I do. The other perception, Mr Barkla, is this: given the provisions of the Workplace Relations Act, there is a specific provision in there—and perhaps you could pass this on to the lawyers—in section 298L, which sets out the prohibited reasons. The prohibited reasons are those reasons why you should not penalise an employee in his or her employment because of things she did or he did, and item 298L(1)M says that you are not to penalise an employee or an independent contractor because he or she absented themselves for the purposes of carrying out their duties or exercising their rights as an officer of an industrial association, as long as he has applied for leave before absenting himself. And I think your solicitors are probably saying, `Well, he didn't apply properly in absenting himself.' If that is the approach, and they are looking at 298L(1)M, that would be consistent with the purpose of the action against the person—and you know who it is—
Mr Barkla —Yes.
Senator COONEY —as he met with me as a union representative, rather than the reason given which was that he did not apply for leave properly. So I wonder whether you could take that on notice and check that. Because the perception is that it is not that his application was not made correctly, but that he was carrying out his duties as a union officer in meeting me and that this is what has brought the fairly heavy burden of the law upon him. You would know the discussion there is about whether or not his counselling should be recorded, and what have you?
Mr Barkla —Yes.
Senator COONEY —What I am saying—and you might want to get legal advice about this—is that if you just look at the approach that the lawyers have advised you to take, their advice seems to be based on a misunderstanding of the trade practices legislation and on an appreciation of the Workplace Relations Act, specifically 298L(1)M. What they have done is to advise a course of conduct that enables this person to be punished for what he did as a union officer, but to disguise that, and I do not say that in any way to demean you, but that is the perception.
That all starts off, of course, with the original letter that was written to Neil Renshaw on 28 January 1998 which took him to task for meeting political people, being me. I do not deny I am a political person. So that is that. But if you build it all up together, it does seem that when the giant union and the giant corporation, being the CEPU and Telecom, go to war, the person that suffers most is the person down the line, and I am sure Telecom would not like to see that to be the situation. The union, of course, does not, and nobody else would.
Mr Ward —Senator, that incident was taken with great seriousness by the company when you raised it with us. We would be very concerned about those perceptions, and I think we undertook, if I can recall, to make sure that we had broadbased management understanding of what was appropriate and what was not.
Senator COONEY —I will not ask you to name the solicitors, but I think there is a perception in the world these days that solicitors and lawyers are tending to advise in terms of what the legal possibilities are, rather than in terms of broad ethical approaches. That is why I did not want to ask the name of the solicitor. But in the coffee halls and on the street corners where lawyers meet and have a talk about these things, we talk about the old days—you are too young to have old days, Mr Ward, and so is Mr Barkla—
Mr Ward —That is the biggest rap I have had today.
Senator COONEY —and one of the things we say is that the idea of ethics and doing the right thing has passed. What solicitors do is advise their clients in terms of what sort of legal manoeuvres they can make rather than what the broad approach is. So if you could take that back to them—
Mr Barkla —Certainly.
Senator COONEY —because clearly there is something personal in this. The union keeps writing me letters saying, `When this man met you,' as if I am the occasioner of all this. There is a bit of evidence to indicate that. So if you could take that up?
Mr Barkla —Sure.
Senator COONEY —The other point which I would like to put to you about this is that there is also a perception that if a person is a member of the union within the service and his or her job can be done by a contractor outside the service, the policy of the corporation is to get the person from outside. So you might say there is an attack, as it were, on union members by ensuring that the job that he or she could do within the corporation, within the organisation, will be given to an outside contractor.
Mr Ward —I would be surprised at any policy along those lines. Geoff, you might want to comment.
Mr Barkla —No, there certainly is not. But if you had any sort of instance or whatever, perhaps I could take that off[hyphen]line and I would be happy to look into that. But certainly there is no such company policy, and nor do we in many cases know if our members are in the union or not anyway.
Senator COONEY —Yes. I asked a whole series of questions, as you know, and I noticed in the answers that you said that in no case had you asked anybody whether or not they were members of the union. I come here, and there are very reasonable people from Telstra, and if I go to the union they are all very reasonable, but there does seem to be a certain unhappiness between you both at the moment, and it would be a bit unfortunate if there were any truth in that, first of all, and if it were allowed to develop. So I just raise those issues.
I see from the correspondence that you think the union is making unreasonable attacks, but there are two things which you have raised. This is the last point I want to develop. I do go to the country, and there has been a reduction in staff. No doubt your answer to that would be, `Well, we've got a business to run,' but there has been that reduction in staff, and there do seem to be some difficulties with the union in the bush. I have heard your answers to Senator Schacht about this, but I do ask, again in the context of the employer[hyphen]employee situation with the union and Telstra itself, what do you say about the withdrawal of personnel
from the bush? Is it motivated by an ambition to see the union reduced? Or is it motivated, as you have said I think already, by trying to make an efficient organisation? I would ask you that again within this context.
Mr Ward —Senator, if I could just assure you, I certainly would not resile from the fact that it is probably a difficult time for the union in the context of the transformation of the company, but what we are facing, I guess, is a bit of a double whammy in terms of the technology impact on labour inputs required, plus from July 1997 we faced a very open marketplace which is increasingly contestable and competitive.
Senator SCHACHT —Not in the bush, though, Mr Ward.
Senator COONEY —Can you just answer.
Senator SCHACHT —I am sorry, Senator Cooney.
Mr Ward —As I said earlier to Senator Schacht, and I am sure Mr Stanhope would concur, our business planning takes into account the revenues, volumes and margins that we expect to receive as our market share is declining. We are of course fortunate to be in a growth industry, which helps that, but it is an increasingly competitive environment, and both our operational expenses and our capital have to be tailored to meet what we can afford and how we can compete in this marketplace. The duality, I guess, of the technology impact plus an open marketplace has led to the sorts of business plans that the company has to adopt and, I am quite sure, has made some of the Telstra[hyphen]union relationship more difficult as a result.
Senator COONEY —If I can put it in this context, it is not an anti[hyphen]union approach behind it or a feeling that the union ought to butt out in certain things?
Mr Ward —Certainly not. That just does not play a role in the resource allocation that we have to determine in the environment that we are in.
Senator FORSHAW —Can I turn to another issue. I imagine you are aware of information that became public knowledge in the Senate Community Affairs Committee last week regarding the decision by the Department of Health and Family Services to no longer have published in the White Pages what I think is commonly called the easy guide to community services. Are you aware of that?
Mr Ward —Yes, Senator, but not in all its detail. I do have the statement that I think Pacific Access put out about the issue here, but I am not briefed in any further detail. I am happy to read some of that into the Hansard if you wish, or to follow up on more detail.
Senator FORSHAW —The position of the department as it was put to us, and this is in the Hansard , is that:
We took the decision in March or April of this year to discontinue sponsorship. The department's sponsorship cost about $200,000 a year, and in working with Telstra looking at those pages they advised us that they were redesigning and the sponsorship cost would potentially triple, so it would be between $600,000 and $800,000 a year for sponsorship.
Their position is that as a result of that situation, they have decided from the next set of phone books they will not publish this community page. Firstly, is that the correct reflection of the position? Secondly, if it is—and I assume it is—why is it going to cost between $600,000 and $800,000 for a government department to have inserted into the White Pages community information that in many cases could well be lifesaving information?
Mr Ward —Could I just feed back to you that the statement that Pacific Access has made public is as a result of the feedback—
Senator FORSHAW —Who has made public?
Mr Ward —Pacific Access, which is the entity which we have a 75 per cent interest in. It does our White Pages and Yellow Pages . As a result of feedback from users about the information pages in which this information was contained, Pacific Access has improved the layout and design of the information pages in the 1998 White Pages directories, making them easier to use and easier to find. As part of that effort, Senator, the spacing and word size were increased. Because of the amount of information contained on the Department of Health and Family Services community and welfare services page, which I believe was page 19 of last year's directories—and I think I did see that it is a very busy page—extra space was required to fit all the information in the new format.
Following discussions with the Department of Health and Family Services, Pacific Access offered to provide this extra space at no charge—I assume that is `no extra charge'—for this year's White Pages directories while the department considered its options, which included maintaining information in the new format or condensing the information. The Department of Health and Family Services decided to withdraw its page. That decision was not taken by Pacific Access. That is the information I have. I am happy to provide more detail.
Senator FORSHAW —I understand there is another page, page 18, which is `Age page'. That is also inserted as a community service by the Commonwealth Department of Health and Family Services. Was the total cost to the department of those two pages $200,000 a year or was it $200,000 just for page 19?
Mr Ward —I would have to take that on notice, Senator. I do not have anyone from the directories business here. I am sorry.
Senator FORSHAW —I think that is a bit of a shame—well, more than a shame. I would have thought that, given there was some publicity to this issue when it arose on Thursday and then there was publicity on radio and in newspapers on Friday and over the weekend, you would have come armed, as it were, with a defence; certainly, if not a defence—I am not sure if there is one to this—at least information on, for instance—
Mr Ward —I am sorry. I will just undertake to get as much detail as I can from your questions.
Senator FORSHAW —Let us pursue it a bit further. This is published in every White Pages throughout the country, is it, or is it just capital cities? What is the source?
Mr Ward —I do not personally know. I do not know if any of my colleagues know. I suspect it is.
Senator SCHACHT —When people pick up the White Pages they turn to the front of the document because historically they know at the front there is a whole range of service telephone numbers which, if they are in distress and need help or whatever, are quickly attainable. Could you claim the cost of doing that is a universal service obligation?
Mr Ward —Certainly not in the current definition of the universal service obligation by government.
Senator SCHACHT —I know that currently the view is that you have to have a telephone connected, basically, with dial tone. Maybe some of us old traditionals look to the front of the White Pages when we have got a problem in community welfare, pensions, emergency services, et cetera. You are jacking the price up because it is a cost to print the White Pages , et cetera. That is the reason why?
Mr Ward —I presume it is partly the pricing structure.
Senator SCHACHT —What I want you to take on notice is whether Telstra would be willing to put a submission into the present inquiry about—
Mr Ward —Standard telephone services.
Senator SCHACHT —Putting 64 kilobits per second as the standard telephone definition in the USO. Maybe you could take it on notice and let us know whether you would be willing to put a suggestion as to what the community sees as a decent community service in the White Pages . I agree that Telstra should not bear all the cost of that because in the competitive telephone market there are other competitors who say, `Well, that's Telstra's job to print the White Pages , and they bear it.' But perhaps you would be willing to consider putting a submission either to that inquiry or directly to the government that the cost of doing this ought to go into community service obligation.
Mr Ward —I can certainly take that on board, Senator.
Senator SCHACHT —I think that is the only way in the long run. This fight is going to go on every year. Your managers, who are commercially driven, under your lashing and keeping the whips on them, Mr Ward, to make bigger profit, are going to be driven to do this all the time. The community is not going to accept it. Therefore, there is going to have to be another solution.
Mr Ward —I will take that on board.
Senator FORSHAW —What I would also like you to take on notice—I doubt if you would have the information to hand today—is an explanation as to why, if there is an increase, that increase is of the order of 300 per cent to 400 per cent just to redesign a page. I have the pages here and this is not lavish high art or something you could say needed to be designed by some exclusive agency.
Mr Ward —I certainly will.
Senator FORSHAW —That certainly is the major argument from the department.
Mr Ward —The scale of the increase.
Senator FORSHAW —The other question: as a general rule, are you aware as to whether or not any of the information that is provided in the White Pages is provided at no charge to the agency concerned? For instance, what happens with fire brigade and police and those emergency numbers?
Mr Ward —Geoff was, in another life, the manager of directories, so he may be able to make a comment.
Mr Barkla —I was two or three years ago. Generally, the rules were that certain information that was deemed as absolutely necessary to be in there for public health or safety reasons, like 000 and the fire brigade, was all provided pretty much at Telstra's cost. But then there were specially sponsored pages by a lot of the government agencies, probably similar to the two that you are quoting there, that were over and above what the minimum obligations were seen as being. They were there more to help people, and they are really a form of advertising.
—The difficulty here is that one of the answers put to me by the department is, `These numbers appear elsewhere in the telephone book.' That may well be the case, but they appear under their particular name, and of course a person in a crisis situation does not want to have to look up every page. That is the first point. The second point is that presumably the cost of the publication of the number elsewhere in the White Pages is the same as it is for any other subscriber, which is effectively that you do not pay because
it is built into the rate that you are charged for having the service. I am not sure if I can take it any further, but I have to say—if I may be permitted to repeat some comments I made at the Community Affairs Committee—I just find this outrageous, I really do.
Here we have a majority government owned enterprise. If you are going to have a telephone number, or if an agency is going to have a telephone number and service in order to provide assistance to people in need, then people have to be able to access the telephone number in an easy and quick manner. It is no solution, as was put to us by the department—this is not necessarily Telstra's fault—to say, `Well, we're looking at putting it on the Internet,' because at the end of the day people do not carry laptops around with them in emergency situations and, secondly, if you want access to the Internet you have got to have a telephone connection anyway. So I would appreciate as much information as I can on this.
The other point is whether or not this is consistent with the attitude that is being adopted for what could be classed as a similar type of service that appears in the White Pages , because there are other entries in the front of the White Pages which are there for ease of access, such as government departments, local government, et cetera.
Mr Ward —Senator, I understand the sensitivity of the issue. It is a pity that we could not have at least got it in this year's White Pages and tried to resolve it in the way Senator Schacht describes, or some other way. But we will make sure we give you a fulsome brief.
Senator SCHACHT —My solution is long term.
Mr Ward —I understand.
Senator SCHACHT —I agree with Senator Forshaw. A 300 per cent increase, if that is correct, is a hell of a big whack to put on someone for community service numbers in an emergency situation. Telstra ought to understand that I think you are just being penny wise and pound foolish. You might save yourself $600,000 or raise the revenue and do yourselves millions of dollars of bad public relations in the community accordingly, and I think that sometimes you are penny wise and pound foolish on some of those things. But you will take those things on notice.
Mr Ward —Certainly.
Senator LUNDY —I have some questions relating to Internet pricing packages offered by Telstra's Big Pond product in both the home and business area. With respect to Big Pond Home in rural and regional Australia, is there a price differential for those customers?
Mr Ward —I will have to rely on Mr Frueh to assist.
Mr Frueh —I will try and address this, Senator. I am not familiar to the umpteenth detail on this, but I have been briefed on it to some extent. Yes, we have a number of different pricing options to suit different users, and we have quite an extensive range of points of presence where customers can dial in from. There are 63 Big Pond Home access points around the country now, and that is counting Melbourne and Sydney as one each, if you know what I mean, so those are widely distributed in regional areas now.
For people who are beyond those areas, in remote areas, we have a special price of $7 per hour, and local call access. In other words, they do not have to pay STD rates to access. That is a rate of $7 per hour.
Senator LUNDY —They are people who do not have point of presence access?
Mr Frueh —Yes, that is right. They are not in a local call area.
Senator LUNDY —For home Big Pond customers?
Mr Frueh —Yes. This is generally outside of those regional areas so that they do not pay STD prices per se. In fact, in some cases, depending on the usage, if their hours of usage are in the evening period when we have our $3 STD rate, a better option is to use the STD rate and use that $3 capped call, if you like, that we have.
Senator LUNDY —Is that still available if you have a modem line installed and it is identified as such?
Mr Frueh —Yes. Calls that are made through a modem are not identified in the network in any way.
Senator LUNDY —But you can identify them?
Mr Frueh —It is technically possible to put something across, but we have no capability as such built into our network at this point.
Senator LUNDY —Can you provide a map showing the location of the current points of presence, and also a geographical description of who that means gets access to points of presence?
Mr Frueh —Yes. I can certainly take that on notice.
Senator LUNDY —Thank you. With the Big Pond Home customers outside those areas of point of presence, can you provide a description of your continuing plan to establish more points of presence and approximate dates of when that is likely to be delivered?
Mr Frueh —I will certainly look to what we can provide there, Senator. Obviously some of these things may be considered commercial-in-confidence over extended periods and also have degrees of uncertainty. There may be a plan to provide it, but it would always depend on demand in particular areas. But as much as we can, I will provide information along that line.
Senator LUNDY —If you are claiming commercial-in-confidence, that implies that there is a competitor in that market.
Mr Frueh —There definitely are.
Senator LUNDY —There are lots of competitors in that regional and rural Internet market?
Mr Frueh —There certainly are. In fact there are competitors in various ways, some of which have their own points of presence in places we do not have them, and there is another product we have called Dial Connect which provides access to other ISPs using Telstra's infrastructure. We have 97 points of presence with Dial Connect, so there is a wider access of other ISPs that may be using the Dial Connect access as a means of provision.
Senator LUNDY —Telstra provides both retail and wholesale bandwidths. Is there any other provider of that wholesale bandwidth to regional ISPs?
Mr Frueh —There certainly is. There is a highly competitive situation in the wholesale market.
Senator LUNDY —Can you take on notice the provision of what wholesale competitors you have in regional Australia in providing Internet bandwidth?
Mr Frueh —We will take that on notice certainly.
Senator LUNDY —Thank you. With respect to a recent announcement by Telstra to provide flat rate Internet access for Telstra Big Pond Home customers, the press release states that this new flat rate plan is available only to Sydney, Melbourne and Brisbane access numbers. Is it Telstra's intention to extend the flat rate plan to regional customers of Big Pond Home?
Mr Frueh —It is being considered. Telstra Big Pond was not the first ISP to introduce flat rate charges and, as you are probably aware, in other countries there is a move for heavy users to move to flat rate charges which cap their total expenditure. It does for the provider of those services introduce some risk factors in regard to how long those calls are held up and, as the committee is well aware from prior investigations on this, we certainly would have some reservations about widespread take[hyphen]up in remote cities which may have limited infrastructure access where this may cross[hyphen]impact on other services. So I will certainly take it on notice in terms of what we can say in regard to a progressive roll[hyphen]out, but there is a potential, and maybe we will establish this as we get more experience, for widespread increases in network capability that we have to maintain for all of our existing customers.
Senator LUNDY —There seems to be a structural barrier, if you like, to regional customers having access to the same standard of product as in the centres.
Mr Frueh —Yes, we understand the issue of rural access to the Internet as being a key issue, and the company is certainly moving to address that. We had a launch of a new capability in Canberra last week which demonstrated a satellite based technology which we will apply, which by nature is not location specific and which could provide a real boost. That is a little bit down the track. We have got the commercial development of that into a product to take place. But I certainly think there are moves down that path which will provide that sort of equity of access people are looking for. Of course, the STS investigations will also address the issue of infrastructure access.
Senator LUNDY —Will you be providing a flat rate product for that service for rural and regional customers?
Mr Frueh —As I say, the promotion that was made of the capability there has not yet been converted into a commercial product.
Mr Ward —It was a technology launch as opposed to a product launch. I think the product planning is only a couple of months away, though.
Mr Frueh —That is right. We will be in a situation, I would hope, by the next hearing of the committee to have that well established. If not, we will certainly provide information on the timing of that as a follow[hyphen]up from this meeting, if you would like that.
Senator LUNDY —Yes, please. Currently your Big Pond business product has a distinct pricing differential between rural, regional, and metropolitan customers. From your web site it is impossible to ascertain the geographical relationship with your classifications and any particular relevance to points of presence or other methods which Telstra applies. Can you explain how you distinguish between those customers?
Mr Frueh —Yes, certainly. I can deal with this very quickly now. We have in the business area rates for, as you say, metropolitan, regional, and rural. The definition of `regional' is within 85 kilometres radially from the nearest Big Pond business point of presence, as we discussed before. Rural is beyond that.
Senator SCHACHT —So if you had a point of presence in Rockhampton, it would be 85 kilometres outside of Rockhampton?
Mr Frueh —That is correct, Senator, yes.
Senator LUNDY —Sorry, can you just run that by me again? Eighty-five kilometres from a point of presence is classified as rural?
Mr Frueh —Beyond that is rural. Within that is classified as regional.
Senator SCHACHT —There is a differentiation between regional and metropolitan, is there? If within 85 kilometres of Rockhampton is regional, what is Brisbane? Metropolitan? Is that a different rate for a different definition?
Mr Frueh —I think you have got me on that one, Senator. I will have to take that on notice. It is not in my briefing note here. I am sorry, I have not got that information.
Senator SCHACHT —Will you take that on notice?
Mr Frueh —We will certainly clarify that.
Senator LUNDY —Can you provide a geographical representation of how that breaks up? Perhaps you could just overlay the 85-kilometre radius on the other map that you are going to provide to us relating to points of presence.
Mr Frueh —Yes, certainly we will do that in geographic terms, and perhaps we will also try to give an estimate of population coverage as well.
Senator LUNDY —Yes, that would be good. So everyone who has access to a point of presence is classified as metropolitan under your Big Pond business—
Mr Frueh —Everybody who is within 85 kilometres of a point of presence, where that is in a regional zone, is a regional zone customer. There are different rates, I believe, for the metropolitan defined areas.
Senator LUNDY —Say we are talking about Orange. Is there a point of presence in Orange? Let's just say there is.
Mr Frueh —Say there is, yes.
Senator LUNDY —Let's say there is a point of presence in Orange. Are those people classified as metropolitan or regional?
Mr Frueh —No, they would be regional access.
Senator LUNDY —Why, if there is a point of presence there?
Mr Frueh —Because they still have some infrastructure tails that have to be provided and remote support for that equipment and so on. So the cost structure to support those points of presence is higher than in the metropolitan area. They would have long-distance transmission elements, et cetera.
Senator LUNDY —So the loading that those regional customers pay over and above metropolitan customers who also only have access to their respective points of presence is a loading that Telstra impose because of the long distance between the point of presence and the major centre?
Mr Frueh —The total cost of support of those has been factored into the way the product has been priced. We have to do that because, as you would understand, say, for an ISP who is competitive only in metropolitan areas, Big Pond as a service would be uncommercial if it did not offer competitive prices in those areas. So it does have to reflect its cost structure.
Senator LUNDY —But your justification for that price differential, I understood, was specific, and I have been advised previously by officers of Telstra that the classification related specifically to the existence of a point of presence or not, because the pricing structure increases almost exponentially between metropolitan customers and regional customers and then it increases again between regional and rural customers.
Mr Frueh —Yes.
Senator LUNDY —So in terms of pricing, it is worked out in an almost arbitrary basis on this 85 kilometres. How do you justify making those customers pay more on that arbitrary basis without any sort of technological justification for the pricing, unless you can demonstrate, firstly, what your costs are between a regional point of presence and the major centre, quite specifically? We have never been able to get information out of Telstra previously about how you charge across those links.
Mr Frueh —I think perhaps we need to be very clear on one point here. Big Pond as a retail offering, if you like, has to pay Telstra charges just like every other ISP, so they have to reflect all of the underlying retail tariffs. So when I was talking about their cost structure, their cost structure is not related to underlying transmission bandwith capability.
Senator SCHACHT —So Big Pond is unbundled, to use that phrase? The charges are unbundled and you charge them exactly the same as you charge other service providers?
Mr Frueh —Yes, that is right, they are charged—
Senator SCHACHT —And within the industry, the phrase is you have unbundled your cost and charged them accordingly.
Mr Frueh —That is what I am saying. They are sort of unbundled because they are using retail pricing from us, as other ISPs do.
Senator SCHACHT —And does the ACCC accept that in their present inquiry and the competition notice they have launched on you at the moment?
Mr Ward —Senator, I do not think the retail price structure, which this discussion concerns, on Big Pond is the issue for the current ACCC—
Senator SCHACHT —That is what I was coming to. You are telling me that this area is not within the ACCC's investigation?
Mr Frueh —That is correct.
Mr Ward —That is my understanding, and I think what Mr Frueh is saying is what we have to do, for any of our upstream products, if you like, is reflect the BCS tariffs that have to go to other service providers.
Senator LUNDY —On the Big Pond business product to the regions, why is it that you do not disclose these details on your web site?
Mr Frueh —I was not aware that it was not on the web site. I certainly think it should be, if it is not. I am happy to put that forward because, I agree with you, that information should be available.
Senator LUNDY —Certainly on the application form that is on the web site, for new Big Pond business customers who plug in their postcodes, that determines their classification.
Mr Frueh —Right.
Senator LUNDY —You said 85 kilometres is what determines the distinction between regional and rural. If the only way I, as a potential Big Pond business customer, get automatically classified by your web site as to what my pricing will be is to put in my postcode, how does that work?
Mr Frueh —I would have to take that on notice, but I would expect that it would be based on the centre of the postcode area whether it was in that category. We are not going to know geographically the physical location of every customer to establish a radial distance.
Senator LUNDY —But according to what you have just told me, it is that radial distance that determines whether you charge them rural or regional rates, and there is a big difference.
Mr Frueh —Yes, there is a big difference, and I am sure they have addressed that issue and the definition. It just may be not in the notes that I have here, but what I am saying is I think that could be another level down.
Senator LUNDY —Right.
Mr Frueh —It is 85 kilometres to the centre of the postcode.
Senator LUNDY —If you take on notice an explanation as to the way in which your Web site makes the analysis of the classification of the potential customer between metropolitan, rural and regional using postcodes, and if it is distinct from what you have already described, please provide a graphical representation of how that works and how the two can be reconciled.
Mr Frueh —We will definitely do that, and I will also undertake to have a look to see that that information is available as best as possible in the Web site itself.
Senator LUNDY —I actually want to ask a few questions about Telstra's Big Pond Home product. The current pricing regime works on the basis of a main usage for hours per month, and then additional costs for every additional hour, and that is generally the model of most of the Big Pond product plan in both home and business. You have one pricing plan called the regular user plan which has a particular rate, with a particular rate for additional hours—it is seven hours per month. I am just concerned with inexperienced customers coming in and thinking, `Regular use. Is that daily?' and signing up for a seven-hour-a-month plan and then getting burnt. I suppose the question is: how do you determine how you badge some of these products in relation to usage? Do you have a database of usage patterns of your customers and things like that?
Mr Frueh —Yes. Perhaps I could address a couple of points here. This is an issue, as you know, for the industry as a whole, as to how to structure pricing plans so that people can gain entry without having to pay large up[hyphen]front fixed amounts, like joining a health club or something and not getting the benefits. That is the other extreme, I guess. So what we try to have is a range of those. Quite often people are testing out and do not really know what is there and do not want to pay too much up-front; so, as you say, there is a casual and a frequent rate. As people start getting experienced with that, they then make a choice. They understand their usage patterns, then they can make an informed change. They make that themselves.
I am a Big Pond Home user myself. I started on the casual, went to the regular and I am now on the frequent, and you get interim billing so you do not have to wait till the end of the month to know if you have gone over the amount. They send you an e[hyphen]mail saying, `This is what your account is now due.' So there is a sort of a mechanism there triggered by the credit amount that is in the usage, if you like, which triggers an e[hyphen]mail to you saying that you are now being billed. So that is used both as a credit and an information to customer type of situation. But I agree with you. It is like everything. There is choice, and sometimes people make choices that they may want to change, but they can do that electronically without even talking to Telstra.
Senator LUNDY —Are you automatically transferring any of your current Big Pond Home customers onto flat rate?
Mr Frueh —No. We certainly do not automatically. Like everything, we provide a choice to customers, and that is a new service that has been introduced. For heavy users on the frequent use plans, obviously it becomes attractive for them, and they select. There are some conditions applied to the frequent use service, in the sense that we have to provide a mechanism so somebody just does not make a call and then holds it up for the whole day, I guess in a scenario we have discussed in the past, and not have any penalty whatsoever in the use of that. So the service is disconnected after 25 minutes or something of non-use and so on. So there are certain conditions applying to those services. It depends on the need of the customer as to whether they go to those.
Senator LUNDY —Thank you.
Mr Frueh —We are finding, though, that there are some customers who just would prefer to know where they stand and just take a flat rate per month and then use it as much as they like, because it encourages use, rather than then paying above a flat rate.
Senator SCHACHT —Can I ask just a simple question on this issue of Big Pond. Regarding the answer to question 127 you gave that I put on notice last time, under the revenue in the annual half[hyphen]yearly report, it said that other sales and services for the half-year 1997 were $932 million, an increase of 58 per cent. I asked you how much of that came from your Internet, and Big Pond Direct was $28 million, Big Pond Home was $18 million, which is $47[half ] million altogether.
Mr Frueh —Yes.
Senator SCHACHT —Can you take on notice if you cannot give it to me now: if that was other sales and services, if Internet only was $47 million out of $932 million, where were the other revenues, what were the other products, what were the other customers that gave you the 58 per cent increase? Which other areas are they in?
Mr Frueh —There is a range of other services, and to say that list is not incredibly long—you can imagine—Telstra has over 600 products in 200 families, so there is always going to be another category. As you say, there has been growth. I would suggest, Senator, we take that up with the prior question you raised in regard to briefing of—
Senator SCHACHT —Yes, if you could. I was expecting, I have to say, the way we were talking about the Internet, that it would have been a substantial part of the revenue of the $932 million, and I just want to get a better grip on it. I do not want a list three pages long, but I want to get an understanding of where the growth rates are in these new products and which ones are giving you the biggest growth rate increase.
Mr Frueh —We could certainly list the top five or 10 in that other category.
Senator SCHACHT —Give us 10 or 12.
Mr Frueh —Yes.
Senator SCHACHT —But, if the miscellaneous line still looks like $600 million, you had better drop it down a bit.
Mr Ward —We know what you are searching for. We will sort that out.
Senator CALVERT —I have one or two questions on a proverbial subject that I seem to have brought up at every hearing for the last five years.
Senator SCHACHT —You are not on a retainer, are you?
—I wish I was. It reverts back to a matter called Operation Echo that followed on from, I think, Operation Saddler. Mr Ward would remember this, I think. I have
had questions on notice from time to time. I am just wondering to what extent Operation Echo resulted in improvement in the internal and external management of employees, particularly in regard to alleged travel allowance paid. I realise that since then, of course, there have been some changes in that area, but does Telstra consider that the allowance abuses and cover[hyphen]ups and breaches of occupational health and safety that were uncovered by Operation Echo have been adequately dealt with?
Mr Stanhope —We believe everything that came out of Operation Echo, which was primarily focused on what were called TA rorts at the time, has been adequately covered. We have attempted to have the involvement of the prosecutor in New South Wales. We have been through a whole process of having all those cases reviewed. We have also gone through a whole process of changing our travel allowance systems and having controls put in place, having samples done and so on, of people staying at various locations throughout the country, to ensure that what came out of Operation Echo is addressed.
Senator CALVERT —So there have been a lot of changes made. Talking about network design and construction in New South Wales, were any changes made to people occupying middle and high level management positions as a result of Echo?
Mr Stanhope —I cannot answer that specifically. There may well have been at middle management level. There has been a fairly significant change in personnel right throughout the company since Echo. As you say, it is nearly five years old, so no doubt there have been some changes in those management levels.
Senator CALVERT —One of the things that has been coming up continually is the allegation that there were staff employed working within the New South Wales group of the network design construction but having a base address in Queensland and virtually being on full[hyphen]time travel allowance while they worked in New South Wales. Do you have anybody physically checking the accuracy of those people who are alleged to have an address in one state and move to another and claim full[hyphen]time travel allowance?
Mr Stanhope —As I said earlier, the travel allowance and travel approval process has been upgraded as a result of Project Echo and Saddler before it. The supervisors are required to check the bona fides of the extension away from home, where they are staying, the expenses incurred and so on.
Senator CALVERT —The Australian National Audit Office from time to time conducts performance audits on Telstra or have outsourced their—
Mr Stanhope —The Australian National Audit Office is our auditor but they do subcontract Price Waterhouse.
Senator CALVERT —Would those performance audits include an examination of alleged travel allowance rorts?
Mr Stanhope —Yes, they have. On a number of occasions the ANAO, as part of their performance audits, have reviewed the improvements Telstra said it would make to the travel allowance and travel approval system. They have reported on that and obviously they have reported it, through their responsibilities in the Australian National Audit Office, to whom they are required, including ourselves. We have had satisfactory reports with respect to what we have done in response to the criticisms that were made and all the actions have been taken.
Senator CALVERT —Who was the officer responsible for providing the information to the auditors about Echo and Saddler and those alleged travel rorts?
Mr Stanhope —There would have been various officers. I was involved myself in terms of some procedural changes. There would have been people in our employee relations area as well, with respect to travel approvals, and obviously some of the line managers in the network construction group you mentioned before. As to the actual operation, it is one thing to write the procedures and another one to have them followed. Part of the audit role was to check that the new requirements of the line supervisors were actually being undertaken. The Australian National Audit Office satisfied themselves, according to their report to us, that the new procedures were being followed.
Senator CALVERT —So they were satisfied that all related material was supplied for audit purposes?
Mr Stanhope —All related material? I said all the processes and procedures were being followed, which would include correct submission of expense vouchers, the right sampling of people being away and correctly staying in motels, et cetera, if they say they are, and so on.
Senator CALVERT —There is another matter I referred to earlier, a certain AAT matter that is being conducted at the moment and has been going on for quite some time concerning a Mr Edward Saul from Port Macquarie, whom I have never met. I have had plenty of correspondence with him over the last five years, as you have, Senator Schacht.
You would have to say to yourself, `What the hell would an invalid pensioner from Port Macquarie be doing contacting a senator from Tasmania?' I guess it is as the result of a whistleblower inquiry I was involved in a few years. Anyway, I have to ask myself and ask Telstra why, for instance, you would employ a Melbourne based legal practitioner to represent Telstra in what would seem to be a reasonably simple AAT matter in Sydney? It seems to me that Telstra is throwing hundreds and hundreds of thousands of dollars at this particular case when perhaps a bit of decent mediation and a bit of commonsense would have solved matters quite some time ago. It would have saved me a lot of time, and perhaps some of my colleagues.
Mr Ward —I cannot answer the question about the location of the lawyer because I am not aware of that.
Senator SCHACHT —You will take it on notice, though, won't you?
Mr Ward —I will do that. I think it has been a very frustrating case, probably for us as well as you and for the person involved. My understanding is that we are close to a resolution of the matter. I agree with you; it has gone on for seemingly a long time. There have been AAT issues and other issues that have made it difficult to reach resolution, but the advice to me is that we are fairly close to a resolution of the matter, which would be a relief.
Senator CALVERT —I would hope that would be the case. I do not think it does Telstra's corporate image any good. You have a guy who is an invalid pensioner with a record of five years of trying to get some justice in this case. He has to front up to a hearing without any legal aid. He tries to get representation, and fronts up to four or five well[hyphen]paid barristers employed by Telstra. It seems to me that Telstra keeps on throwing more and more money at it, hoping it will go away. I must say one thing about this particular character: he does not seem to want to go away and he is very persistent.
Mr Ward —I would certainly endorse that observation, Senator. I understand the points you are making. We are trying to resolve it.
Senator SCHACHT —Would you take on notice, following up Senator Calvert on this, how much you have actually spent on lawyers on the Saul case?
Senator CALVERT —I was going to ask if you could take this on notice: what are the total costs to date incurred by Telstra, broken down into categories for legal advice and representation staff, FOI applications, managers and staff time, and travel and mediation incurred in relation to this particular case? That should include hourly rates agreed to by Telstra for what they pay to their legal counsel. It would probably be an interesting exercise and perhaps it may in future help you deal with some of these other cases that may come forward in a cheaper fashion or a more satisfactory fashion.
I understand there have obviously been some faults on both sides, but, having had one of my staff put together a synopsis of what has been happening in this particular case, going back to 1992, I would hope the AAT hearing, if it ever comes to that, will sort it out or perhaps commonsense on both sides may prevail.
Mr Ward —I would hope the latter in this case. We will get out the details you have sought. There have been issues, as you suggest, on both sides that have probably complicated the matter. It is an unfortunate case, no doubt.
Senator CALVERT —I spoke to somebody who had looked at all the facts and they seem to think Telstra has a less than 50 per cent chance of winning it. I thought under those circumstances they would have been willing to settle and get the matter out of the way. I received a fax this morning and this particular guy said, `How can you be compensated for loss of family, loss of friends, loss of social life, economic loss, no assets, no future?' Basically that is what he says. It is one of those sad cases, I believe.
Senator SCHACHT —I am now the Acting Chair, which is a very useful position to be in here for a moment, I must say. While we are on legal costs, Mr Ward, I noticed in the paper the other day a little story about the litigation between BT Australia and Telstra. In a little line it says the discovery process alone has cost $19 million. How much is Telstra's cost in this case? Judge Sackville has been critical and, first of all, said the parties should negotiate. Apparently he has been critical that the case has taken so long and there were further discovery sessions set. How much of the $19 million has Telstra spent on the discovery process?
Mr Ward —I cannot answer that. You know there are three parties involved in that.
Senator SCHACHT —Yes. There is you and the New South Wales government and BT.
Mr Ward —That is right.
Senator SCHACHT —So that is $6 million—if it is a third, a third and a third.
Mr Ward —It is a very complex case, Senator.
Senator SCHACHT —I know this committee got quite a shock when it was told about 12 months ago that you had spent $18 million on legal costs to defend yourself over the so-called CoT cases, which we found horrific, in that you had spent $18 million to oversee the payout of $1.8 million—
Mr Ward —Against claims of $45 million.
—You have spent half of the claims. The lawyers got the lot. The CoT cases got $1.8 million. If you had offered them $10 million between the lot five years ago, they probably would have disappeared into the sunset and said, `Thank you very much, we're glad to get out of this,' and you would have been out of it cheaper. I will put on notice: how many other cases do you have of a substantial nature like this where you have got discovery
costs, legal costs, running into millions? Take that on notice. Also give me for the 1996-97 financial year the breakdown of who you paid what for legal fees—what firms.
Mr Ward —I think we may have done this before, Senator.
Senator SCHACHT —Yes, but each year goes by and the thing keeps going through the ceiling. This is taxpayers' money you are spending on a two[hyphen]thirds basis. The only people who are getting a benefit out of this are the lawyers. QCs are retiring early and rich on what you people are giving them. The implication is that Telstra has deliberately delayed the discovery process as a tactic in the case.
Mr Ward —I do not believe that is the case.
Senator SCHACHT —Maybe your lawyers have been doing it so they can charge you more.
Mr Ward —In the particular case, I do not think that interpretation is reasonable, and whenever we can—
Senator SCHACHT —Hang on, Mr Ward, before you go on and give me an obfuscating answer, the opening paragraph of this article says:
The New South Wales Government and Telstra have been criticised in the Federal Court for prolonging the discovery process involved in an action brought by British Telecom Australasia against the State of New South Wales.
That is not correct—the court did not criticise you?
Mr Ward —I am not familiar with the precise nature of—
Senator SCHACHT —Someone seems to be anxious in the next row behind you, a lady from Telstra who can come forward and answer.
Mr Ward —If, indeed, she is that anxious.
Senator SCHACHT —Is the officer from Telstra a lawyer?
Mr Ward —Correct.
Senator SCHACHT —Perhaps you could come forward and explain what this case is. Did the Federal Court criticise Telstra for delaying the process of discovery?
Ms Weir —I was not in the court the other day, and I do not have the exact details of what was put forward. There are a lot of concerns in the BT case in regard to discovery. Telstra has in fact been trying to have the scope of the discovery process narrowed.
Senator SCHACHT —I have heard that before too.
Ms Weir —The width of the orders that are involved means that there is a huge amount of documents that are actually subject to the discovery process, which then obviously increases the cost of that. So that has been a concern in that matter.
Senator SCHACHT —And you want to narrow the discovery down as part of your defence mechanism.
Ms Weir —In order to try to manage—
Senator SCHACHT —No, not to try to manage; in order to try to improve your position in the case, I presume.
Ms Weir —Telstra is one party that is being sued in that matter, so we are trying to meet a claim that is being put against us. So that naturally involves legal fees in order to defend ourselves in this matter.
Senator SCHACHT —So you are unaware from last week whether this article is correct or not, that you were criticised for delaying the discovery process?
Ms Weir —I think the court was critical of the whole process generally, from what I understand—
Senator SCHACHT —It says here Telstra and the New South Wales government.
Ms Weir —Yes. I was not in the court, so I am unable to answer.
Senator SCHACHT —Would you take that on notice and find out and give me a considered reply whether the judge did criticise Telstra either singularly or severally?
Ms Weir —Certainly. We can take that on notice.
Senator SCHACHT —While I have got you here from the regulatory section, I cannot miss this opportunity. Perhaps you can inform me how many other cases similar to this nature of the BT[hyphen]New South Wales[hyphen]Telstra case are you presently dealing with?
Ms Weir —There is one other large court case, which is an action against Telstra by Optus under section 46.
Senator SCHACHT —And how much have you spent so far on legal costs in that case?
Ms Weir —I could not give you an exact answer.
Senator SCHACHT —It would not be less than $5 million, would it?
Ms Weir —At this stage, yes, it is a bit less.
Senator SCHACHT —It would be. Goodness me! They have not sent all the bills in yet, I presume.
Ms Weir —It has been going since around September of last year.
Senator SCHACHT —Is the regulatory unit in charge of checking the invoices that come in from QCs, lawyers, to make sure that they are not overcharging you or they are not claiming against you for things that they have not provided?
Ms Weir —The legal directorate is responsible for that. We handle the legal budget and, naturally, all counsel involved in the various court matters are responsible for reviewing all bills and signing off and determining what is appropriate and what is not.
Senator SCHACHT —You might want to take this on notice, because I would not expect you to answer it here completely. Have you ever sent back to any of these major firms that you have employed a query and got a significant reduction in the bill once you have queried what they were charging you?
Ms Weir —Counsel are challenging and querying bills all the time. When I say counsel, I mean the various lawyers within Telstra who are responsible for the different matters.
Senator SCHACHT —Could you give an indication of whether you have been successful in having significant reductions in the bills?
Ms Weir —Yes, on a case by case basis where there is an argument that a bill is inappropriate, absolutely. We do that with all our suppliers.
Senator SCHACHT —Do you regularly go into the court and get the costs taxed?
Ms Weir —That is a matter relating to litigation law generally. No, we have a commercial relationship with our legal suppliers, and so we negotiate with them.
Senator SCHACHT —I think Telstra has got 40 law firms on retainers around Australia. Is that about right?
Mr Ward —That is about right.
Ms Weir —That is about right. It may even be a bit smaller now.
Senator SCHACHT —Take it on notice. Which lawyers in Australia haven't you got on a retainer? I do not know what else you are doing in telecommunications, but you seem to be a job creation scheme for the legal profession.
Ms Weir —I am sure you will appreciate that it is a very increasingly complex commercial area that we work in.
Mr Ward —I think your comments, Senator, in part are a reflection of corporate and commercial life, and in this industry. We would not be a patch on the activity in the US, for example.
Senator SCHACHT —I hope you are not advising the government that we should try to match what is going on in the US.
Mr Ward —We are certainly not.
Senator SCHACHT —I did try an amendment of the bill last year on telecommunications regulations that takes lawyers out of some of the process and got rolled on the Senate vote. The government said, `No, no, that's not what we're going to do.'
CHAIR —Senator Schacht, we are straying.
Senator SCHACHT —No, we are not straying. This is cost. This is substantial cost. We have got a figure here of $19 million, and that is why I wanted to raise it. I think that this ought to be raised in every estimates hearing to keep Telstra's feet to the fire about how they are handling legal costs, because Telstra's tactic is clear: `We have a big amount of money behind us. We'll outlast anyone who challenges us in court, and we'll starve them to death because our pockets are bigger than anybody else's.' That is your tactic, is it not, Mr Ward?
Mr Ward —Our tactic is to ensure that we meet all the obligations to our shareholders.
Senator SCHACHT —One can only be horrified at the idea that when you are fully privatised, if the government gets its way, the privatised Telstra will be given even more instructions to say the shareholders want to fight everybody off by starving them out.
Mr Ward —We have an obligation to protect our legal rights.
Senator SCHACHT —I have to say that the two[hyphen]thirds of Australians who still own Telstra at the moment would say that some of this money you are spending is a delaying tactic and is not in the best interests of either the community or even yourself. But, anyway, you have taken on notice a number of those questions, and I would also ask you to take on notice how many of those 40 firms are still employed on a retainer basis, who they are and whether you have increased the number. Hopefully you might be able to decrease it.
Mr Ward —We did decrease it, Senator.
Senator SCHACHT —Did you?
Mr Ward —We certainly did.
Senator SCHACHT —Does that mean one other firm got the business so they doubled their business?
Mr Ward —I will give you the sort of detail we gave you last time.
—This is just updating them. I am going to tell you this will be updated every year, because I think this is an area that has got to be consistently exposed, not only in your interests but in the interest of costs of justice in Australia. Could you also give us the
breakdown of the total legal bill that you spend each year? Is that $50 million, $100 million, Mr Stanhope?
Mr Stanhope —It is around $50 million.
Senator SCHACHT —$50 million a year is the legal bill?
Mr Stanhope —Last year it was around $50 million.
Senator SCHACHT —Around $50 million. You want to spend maybe $6 million on this discovery process alone in one case? Thank you on that. I look forward to those answers. Can I now turn to—
CHAIR —Just before you do, I have got a series of questions from Senator Payne to put on notice. They will be forwarded to you from the secretariat. Thank you.
Senator SCHACHT —Can I now turn to Mr Ward. Just quickly back to those issues of the revenue from the various products, you have taken on notice and you will come back to me, on whether you can give me, even in confidence, and I hope you can—I am happy to accept it in confidence—
Mr Ward —I believe any profitability figures that we would give you would be in confidence.
Senator SCHACHT —I have to say I think this committee has a very good record of—
CHAIR —We cannot actually take in[hyphen]confidence material at an estimates hearing.
Senator SCHACHT —We can take it as part of our consideration of the annual report.
CHAIR —We are not actually doing that at the moment.
Senator SCHACHT —I know.
CHAIR —If you need that information, then we should ask the secretariat to write to Telstra for you.
Senator SCHACHT —We will get the secretariat to write. All I can say is that this committee is the same as the committee that deals with the annual report and it has an excellent record of not breaching commercial[hyphen]in[hyphen]confidence.
Mr Ward —I have no difficulties in providing it.
CHAIR —We will write to you under the annual report heading.
Senator SCHACHT —I presume in the business plan that goes to the minister, those profitability figures may be provided.
Mr Ward —The corporate plan to the minister is a—
Senator SCHACHT —A future plan?
Mr Ward —A reduced plan compared to the fairly massive internal planning that we have. I just cannot recall the level of detail on product profitability. We would probably have in there issues around what we are addressing where products are not as profitable as they need to be.
Senator SCHACHT —Mr Ward, there are many questions I would like to ask about matters that may be before the ACCC but, because I do not know whether the sub judice rule applies or not in this case, I am cautious about asking questions because you are in dispute either with the ACCC or with other parties before the ACCC. Can you tell me how many actual competition notices the ACCC has now issued against Telstra?
Mr Ward —I believe only one, and it is yet to take effect.
Senator SCHACHT —They told me last week at the ACCC hearing an extension to 19 June?
Mr Ward —Correct.
Senator SCHACHT —I see that you have reached agreement with a couple of people—
Mr Ward —OzEmail and connect.com.
Senator SCHACHT —The main one still outstanding is to reach agreement with Optus?
Mr Ward —Yes, and they are outstanding in reaching agreement with anyone else too.
Senator SCHACHT —Yes, I note that, and I certainly make it clear that I think what is good for the goose is good for the gander in this area.
Mr Ward —Thank you, Senator.
Senator SCHACHT —If you cop a competition notice or transparency arrangement, et cetera, Optus and all other carriers who have got a carrier licence should be under the same provision, even though they may claim you are still dominant in the market, because if Optus itself escapes having the similar provision, they then have a significant competitor advantage. I accept that, and I have always had that view that unless the dominance in the marketplace, which leads me into the local loop area—
Mr Frueh —Senator, just before we move to the local loop, it is probably worth putting on record that Optus claim to have over 50 per cent of the wholesale market in Internet connections. That is their claim.
Senator SCHACHT —I am sure you will make that clear to the ACCC in information you put in.
Mr Ward —We have, Senator.
Senator SCHACHT —We turn to the local loop, where you are 90 per cent plus, and even at the ACCC they could not give me information of how successful Optus has been in getting telephony connections on their cable in the local loop. Maybe 1,000 a week are the estimations, and even at that rate that is 50,000 a year and in 10 years they would have 500,000. You have got 6[half ] million local loop connections?
Mr Ward —Probably higher than that, Senator.
Senator SCHACHT —Would it be 7[half ] million?
Mr Ward —It would be up near there.
Senator SCHACHT —I keep trying to get Mr Fels to explain to me how many of those cable connections would have to be made before there is effective local loop competition. He cannot give an answer on that, which I think is a deficiency in the ACCC process, which I have made clear. I think that, if he is really fair dinkum about competition, the issue is interconnect arrangements. The local loop at the moment, in your half-yearly report, if you extrapolate it, comes to $2[half ] billion a year in revenues?
Mr Ward —That would probably be local calls. There are two elements to the revenue. There is local access and local calls.
Senator SCHACHT —Local calls are $2[half ] billion, or thereabouts?
Mr Ward —I think that is about what it is.
Senator SCHACHT —I am not going to argue over whether we are out by a couple of hundred million either way. There is a significant profit for you in that $2[half ] billion revenue?
Mr Ward —It is difficult for me, as I just said earlier, to comment on profitability. Let me just say that the combined local service market of local access and local calls is not significantly profitable.
Senator SCHACHT —It is not as significantly profitable as mobiles as a percentage?
Mr Ward —As long distance or mobiles or directories or a number of other parts of the business. These matters are of course being addressed with the ACCC in their current inquiry with some of the matters confidential to us and the ACCC in that inquiry.
Senator SCHACHT —As I say, I accept my constraint reluctantly. When you have got matters before the ACCC and you are in dispute one has to be relatively constrained in asking you questions because I suspect you will just keep saying no.
Mr Ward —I have not said no yet.
Senator SCHACHT —I know you have not, but it is no use asking you questions on some aspects about it because the ACCC has got to have a transparent process about that. Have the ACCC given you any indication that, if certain commercial agreements are not reached in any area of Telstra's activity, they may consider putting a competition notice out elsewhere?
Mr Ward —You mean other than the Internet?
Senator SCHACHT —Other than the Internet.
Mr Ward —In terms of negotiations with other carriers or carriage service providers, the process there is more under another part of the act, which is the access part of the act, where the carrier or carriage service provider would go to the ACCC seeking an arbitration between Telstra and itself to resolve the issue. There may be one of those possibly in prospect as far as I know. On the matter of competition notices, there are other issues that the ACCC is currently looking at but it is yet to form an opinion, as far as I understand, about whether it would issue a notice. So there are some other areas of current investigation, Senator.
Senator SCHACHT —Mr Ward, it has been suggested by other carriers that the ACCC telecommunications regulatory section is underresourced to handle the range of issues that are bouncing around, no matter which side of the argument you are on, to get quicker decisions, et cetera. I know it may suit Telstra to have delays in getting some of these decisions because you are the incumbent, but are you yourself seeing examples where the ACCC, in handling any issue, is underresourced or is not able to deal with it as expeditiously as you would have liked?
Mr Ward —This is a personal opinion. I think in gearing up to the new regime, which was only passed by the parliament in March and implemented on 1 July, for the first few months they may have been gearing up in a resource sense. Obviously it is a question for them rather than me, but I would have thought now that they are resourced to do the tasks. That is a question perhaps you should ask Allan.
Senator SCHACHT —We do—but you are a client in a sense.
Mr Ward —We are.
Senator SCHACHT —Some clients are complaining about that.
Mr Ward —Can I make an additional comment there, and this may have occurred to you, Senator. It is a little bizarre to judge the effectiveness of the regime by, say, the number of competition notices.
Senator SCHACHT —No, I just asked for factual information. I am not asking if the number of competition notices issued is a sign of what they are doing well.
Mr Ward —The ACCC could well meet all of their charter without necessarily issuing competition notices.
Senator SCHACHT —I accept that. It is not what others accept, but that is part of the public debate. I accept that in fact good regulation, when it settles down and there is an introductory period, would mean it was working well and there would be no need for any competition notices on either side.
Mr Ward —That is what we would hope too, Senator.
Senator SCHACHT —I have to say everybody is in favour of a competition notice on someone else in the industry rather than to them. Self[hyphen]interest does have this sort of—
Mr Ward —There is some sense to that.
Senator SCHACHT —The other day the Senate carried a resolution which the minister, I think, reluctantly had to accept. It was on a motion from Senator Bourne about employment figures, which I presume you provided to the minister to meet that request.
Mr Ward —If they are Telstra employment figures, yes.
Senator SCHACHT —There are a couple of explanations you might help me clarify. What is the difference in the columns? There are Telstra numbers and then C&C. Are generally the C&C part of the overall Telstra numbers?
Mr Ward —Yes, it is perhaps the largest division of the company but it is part of the Telstra figures.
Senator SCHACHT —The next thing I want to ask is this: you have listed these in state metro and state country. Take New South Wales country; you have central New South Wales, central west, far north coast, et cetera. They are your formal regions within the structure of Telstra. There is a geographical definition for each of those places, is there? How were they compiled? Was this a matter of efficiency on your part to list them roughly like that? Is there a manager for central New South Wales?
Mr Ward —There are different regional structures for different areas of the business. We do not maintain that a particular regional structure is mandated on any line of business. So that would have been our best effort, to aggregate those into some regions, to be helpful.
Senator SCHACHT —I wanted to get that clear. So when I look at New South Wales country, central New South Wales, Telstra has gone down overall 176 and C&C has gone down 23 as part of that 176.
Mr Ward —Right.
Senator SCHACHT —That is the reduction and that is the total Telstra change in employment in what you have defined as central New South Wales?
Mr Stanhope —Yes, that is right.
Senator SCHACHT —Can I ask you to take on notice, if it is not too difficult, to actually describe what is central New South Wales?
Mr Ward —Absolutely.
Senator SCHACHT —If you could take that on notice, and the same for all of those regional areas.
Mr Ward —If we compiled it, we have a basis for it—we will give you a description.
—If it is a map of something, or whatever, that will be fine. I was going to ask the minister, but he is not here, but Mr Stevens—he has hidden in the cupboard, has
he? The last person who walked into a cupboard in one of these rooms subsequently resigned, I think, so I hope it is not going to happen to this minister until the election. At the time of the partial privatisation of Telstra Senator Harradine and Senator Colston made big play of the fact that they were out to defend regional Queensland, in Senator Colston's case, and in Senator Harradine's case Tasmania, from job losses. Yet I notice here that Queensland country has a loss of 390 jobs from March 1997 to March 1998, and from April 1996 to March 1997 it was 68, so it is about 450 jobs. I was going to ask the minister if that meets his promise to Senator Colston to protect jobs in Telstra in regional Queensland.
Mr Ward —You may need to go into the cupboard.
Senator SCHACHT —To get him out of the cupboard? If I am going to run out of time, I will put that on notice, Mr Stevens, to the minister. If he gets back, I will raise it with him again. In Tasmania, country had a loss of 56 jobs, though in the previous period they actually had a gain of 16. So again country jobs went. I notice that in Burnie, in this information, there were 18 jobs gone, but on 5 June of this year the acting minister for communications, Warwick Smith, who happens to be from northern Tasmania, put out a statement saying:
Telstra's decision to expand its OAS centre at Burnie will create an additional 45 full[hyphen]time jobs . . . This will increase Telstra's Burnie workforce to more than 125 . . .
Mr Ward, is the 45 jobs increase after the 18 have been taken away? Or are the 18 to be taken away out of the 45?
Mr Ward —I may stand corrected on this, but I believe a number of those 45 are still to be added to our numbers.
Senator SCHACHT —Sorry?
Mr Ward —The numbers that you have got are out of date.
Senator SCHACHT —So some of those 45, but not all of them, could turn that minus 18 figure for Burnie into a plus?
Mr Ward —Correct. I think those jobs are coming on board over the next three months or so.
Senator SCHACHT —Mr Smith says there is an increase in the Burnie work force in Telstra to more than 125. What was the Burnie work force two years ago?
Mr Ward —I would have to take that on notice, Senator.
Senator SCHACHT —I now want to turn to some individual issues.
Senator CALVERT —I missed it when I was here before, but I wanted to put some questions on notice regarding the other matter, and I am just wondering whether that was okay with Telstra.
ACTING CHAIR (Senator Schacht) —That is fine. I now want to turn to a number of individual issues. Recently a statement was put out dated 7 May by the Boating Industry Association of Queensland, concerned that Telstra was putting up the cost of the telephone call when you dial 1800, or whatever the number, on weather information for coastal Queensland. The cost has gone up substantially per minute when you ring that number to get weather information. Their concern was that this will discourage up to several hundred thousand boat users—it says here `on behalf of Queensland's one million boat and fishing population'—from going out fishing and that they may not get the correct information to warn them about weather.
Last weekend we saw a tragic case along the coast where, through maybe no fault of Telstra at all, some maniacs—I should not use that word, I suppose, until the coroner completes his inquiry—according to the amateur video, showed a pretty devil[hyphen]may[hyphen]care attitude of putting a small boat into a big wave and turning over. Unfortunately, two people drowned. It is true that you have put up the cost per minute for the weather information?
Mr Frueh —I will try to answer what I can here. I have no specifics on this. The service is probably a 1900 service, which would be a value added information service. Telstra works with service providers to provide that service. The price at which that is charged to the end user is dependent on the choice of the service provider and the value they charge. It is not really determined by Telstra, unless this is one of the exceptions. There are very few services now that are actually provided by Telstra.
Mr Ward —I think we have had the transition, as I understand it, from a range of dial[hyphen]it services—
Mr Frueh —Dial[hyphen]it services which have been wound back.
Mr Ward —to the more commercially based, with other service providers, on 1900 numbers.
Mr Frueh —We will certainly get the facts for you, Senator.
ACTING CHAIR —I just want to read three paragraphs out. He says:
The Queensland boating industry wants the Federal Government to abolish the new telephone charge for Bureau of Meteorology weather forecasts.
Telephone forecasts, which previously could be obtained for the cost of a local call, now cost several dollars—and even more from a mobile `phone on the water.
President of the Boating Industry Association of Queensland, Ron Collins, has condemned Telstra over the sky[hyphen]high cost of weather forecasts.
Mr Collins said lack of consultation and the underhand scrapping of the recorded weather information service was an insult to the State's boating industry and the boating public.
I know you have not got the detail, but is it true that it would be several dollars now compared with the cost of a local call previously?
Mr Frueh —I do not believe it would be as high as quoted there, but it depends on the nature of the information. Some of these services have facsimiles of the weather and so on. It may be more for that. This is probably an issue for the Bureau of Meteorology. It is in a similar category to that raised before with the White Pages.
Senator SCHACHT —I do not know whether you at a senior level have any contact with Mr Collins from the Boating Industry Association of Queensland, but if you could get his press release dated 7 May and contact him I think he would at least like the opportunity to discuss it at a senior level with Telstra.
Mr Ward —We may have had some contact with him at a more junior level, but we will follow that up.
Senator SCHACHT —You will take that on notice and come back to us?
Mr Ward —Yes.
Senator SCHACHT —Have there been any changes to charging arrangements for 13 and 1800 numbers?
Mr Frueh —I am not sure what you are referring to. Is there something specific there?
—These are commercial arrangements, where people have an 1800 number. Has Telstra put up the charges? I now know that the government is changing the posi
tion. Buying the 1800 numbers is now an option, I think, in some form or another, or there is some extra fee. It is in the budget. Is it $30 million, Mr Stevens, some increase in revenue?
Mr Stevens —There are increased charges for those numbers. That is right.
Senator SCHACHT —Is that flowing through to an increase which you will be charging customers?
Mr Frueh —We are yet to follow through from those as those are determined obviously, but it would be our intention to on[hyphen]charge the extra costs, yes.
Senator SCHACHT —I have not disagreed with the government's position, but what I would want to raise with you is that some of these numbers are actually an industry or a community association providing some community service. Whether the Boating Association is an example, I do not know. But what I would ask you to take on notice is to separate out those that are selling Tupperware—one of those famous television ads that you see rushing across the screen—from somebody who is clearly providing a community service, even though it might actually be partly commercial. They would use the 1800 number. I would like you to get some information back to us on whether you will be able to separate a charging regime if any of those fall into this category. I would also raise that, if they do, this may be another response you could give to us about the USO.
Mr Frueh —Or a matter for the department determining the charges themselves.
Senator SCHACHT —I have a particular case here which I have to say sounds strange to me. A constituent rang my office and said that he had taken out a mobile analog contract with Telstra five years ago for $10 per month plus call costs. He was rather late in paying his bill, and he was disconnected. The bill was a Telstra bill and he called the number given on that bill to negotiate payment and reconnection. The person answering the phone was from United Telecommunications, his new service provider. He was upset at the way they spoke to him and was told he would have to pay the bill in full instantly or he would be black[hyphen]listed. That is his claim. There would also be a $30 reconnection fee. He said he had not been apprised of the change and thought he was still with Telstra, and he phoned Telstra, who said this change had occurred during deregulation. My office phoned a Mr Higginbottom at Telstra.
Mr Ward —He is in my area, yes.
Senator SCHACHT —He confirmed that this would be correct. The issue it raises with me is: if there was a change in whom he thought he was connected to in his business, is it a bit odd that he was not informed he was no longer with Telstra and he was with another company? I do not know who United Telecommunications is.
Mr Ward —Mr Bundrock may be able to give a response.
Mr Bundrock —With that transition, all our customers were advised by letter and they had the option of not making that transition, as I understood it. So the individual you are referring to might have received a letter and perhaps not read it and forgot about it, and then it was only later in the piece that he realised.
Senator SCHACHT —The way I understand this is that, when he took out his analog phone five years ago with Telstra, that was to provide his mobile phone service. Is that right?
Mr Bundrock —Yes.
Senator SCHACHT —And now United Telecommunications has taken over that service. Is that correct?
Mr Bundrock —That would have been part of an arrangement we came to with United to act as a service provider off Telstra, and certain customers were transferred across to United.
Senator SCHACHT —Is United Telecommunications a fully owned subsidiary or controlled subsidiary of Telstra?
Mr Bundrock —No, it is completely separate from Telstra.
Senator SCHACHT —So, if I ring up now to get a MobileNet phone connection, how do I know I do not end up with United Telecommunications rather than with Telstra?
Mr Bundrock —If you do connect with Telstra and there is ever any subsequent change, you will certainly be informed of the background and I think have the option of whether you stay with Telstra or otherwise.
Senator SCHACHT —Can you explain to me what the advantage is to Telstra in having this passed off to another independently controlled service provider to run, because your television adverts say all the time, `Join Telstra MobileNet. This is a fantastic service.' If the poor old punter at some stage is going to find that he has got a complaint and he is not dealing with Telstra but dealing with a company he has never heard of, isn't that misleading advertising?
Mr Bundrock —If anyone connects to Telstra, they are obviously a Telstra MobileNet customer and they will receive a bill from us. If there is any subsequent change, then the individuals are informed.
Senator SCHACHT —I have to tell you, this is a bit odd.
Mr Bundrock —It is the general principle of wholesale and retail within the market, and whether there are advantages in having more diversity in the way people can retail and provide customer service.
Senator SCHACHT —When I got a mobile phone at Christmas time for my son, I went down to the Telstra shop and there was a queue a mile long—everyone was getting Christmas presents of mobile phones for their kids and their families and so on, and I was just one of many in the queue, which is fine, great business—and I actually signed a contract that was in 40 pages of triplicate or duplicate or whatever it was. You had to be Einstein and 47 of Mr Ward's QC firms would have to have been there to interpret the goddam contract for a start. Nevertheless, I signed up on the Telstra digital MobileNet. Now you are telling me that, if I am not careful and read carefully everything coming through, I no longer will be a customer of Telstra MobileNet but, whether I like it or not, will be with United Telecommunications or some other firm?
Mr Bundrock —If that be the firm acting as a service provider. But everyone would be informed. Also it is always with the Telstra network.
Senator SCHACHT —Can you tell me this then: what is the difference between a service provider and Telstra's MobileNet?
Mr Bundrock —MobileNet is our retail brand and, if you are a MobileNet customer, we would look after all customer service issues, the billing, any complaints, and also we would obviously have our own promotional packages, et cetera. If it was a service provider, they would have their own billing system, their own customer service people, and they have flexibility in how they might package—
Mr Ward —But it is Telstra's network.
Mr Bundrock —It is still Telstra's network.
Senator SCHACHT —But the billing is done by United Telecommunications.
Mr Bundrock —They obtain the raw information from us and they package the bill under their own billing system. I might add, if I could, Senator, it is not an unusual arrangement right around the world that—
Senator SCHACHT —It may not be an unusual arrangement, but you are advertising to people, `Join Telstra's MobileNet and get a MobileNet bill.' You are saying that this person, Mr Mundy, if he had not been disconnected, would have received a bill headed `United Telecommunications'. The bill would not have had Telstra's name on it; it would have had their name on it.
Mr Bundrock —Yes. First of all, he would have been informed that this change was proposed, and then if there was no objection—
Senator SCHACHT —And if he objected, what would you have done?
Mr Bundrock —Hope he would stay with Telstra, but if the transition happened, then you are right. It would have been a United Telecommunications bill, still with the Telstra network.
Senator SCHACHT —Who actually does the bill? You do and they put their name on it?
Mr Bundrock —No, they do the billing. They only get raw information. There is a reasonable amount of computer processing and everything to put a proper bill up, and they have their own billing package. In fact, that was one of the attractions of this company—that they had a world recognised billing system that they were interested in introducing to Australia.
Senator SCHACHT —But I have had evidence before other committees and to me personally as shadow minister on this very issue about unbundling the bill, so to speak, from Macquarie, Optus, AAPT. They are all asking about the big issue of the interconnect fees, et cetera. They want complete control of the billing. Telstra say, `We can't give you that. We're going to charge you interconnect fees because we're in control of the billing, and that's a cross we have to bear,' and here you are putting it off to a subsidiary, separately done. You have already conceded 90 per cent of that argument, that are you already unbundling and separating the billing process out.
Mr Ward —We are talking about the mobiles business here, though, Senator, and we are talking about a practice that I think is pretty common, is it not, Tony, in mobile phones?
Mr Bundrock —In many countries.
Senator SCHACHT —All I can say is I think you are misleading consumers. I do not see how you can advertise, `John MobileNet, get all the wonders of Telstra's system,' and then say, `We sent him a letter. He didn't read it. Bad luck. He didn't understand.' Then, `We've transferred you to another company that runs the business.'
Mr Ward —I think you will see in the ad, Senator, that so-and-so is a registered MobileNet dealer.
Senator SCHACHT —No, I have seen your ads on television. You are spending an arm and a leg. You are saying on television, `Join MobileNet, the best coverage.'
Mr Ward —That is the network advertising.
—I see. I should have realised the subtlety, that that was the network advertising, not the marketing name. I think that is almost deceptive. If you were an ordinary punter watching, you would not know the difference. You would have thought, `I am buying
MobileNet in all its glory.' This is an issue that I think the ACCC ought to have a look at, because I think you are misleading in your advertising.
Mr Ward —I do not believe we believe that.
Senator SCHACHT —Obviously you do not, but I have to say I am glad this gentleman raised this with me, because next time round in the ACCC on consumer protection—I think you ought to have a good look at this—I will raise it with them.
Mr Ward —Senator, I am happy to provide you with a brief around that issue.
Senator SCHACHT —First of all, can you tell me how many other United Telecommunications, or similar, you have spun off. How many other independent companies have you got deals with that are now taking over the running, the marketing and the billing of Telstra's MobileNet?
Mr Bundrock —I think there are only three, as far as Telstra is concerned, with mobiles. We can provide you with some further information.
Senator SCHACHT —Okay, give me the three names, and give me how many customers you have handed over to them from Telstra's MobileNet, your own system.
Mr Ward —In terms of the billing and servicing, Senator?
Senator SCHACHT —Yes. Have United Telecommunications got 100,000 MobileNet people handed over to them to have the billing and the marketing done?
Mr Bundrock —I will have to take that on notice.
Senator SCHACHT —I want the three companies. Take it on notice. Also explain to me what the arrangement is. You might want to provide this commercial-in-confidence via a process that we outlined before. What are the commercial advantages of you handing this over to somebody else?
Mr Ward —Yes, we are happy to do that, and we will comment on the advertising as well.
Senator SCHACHT —And comment on the advertising, and I have to say in the meantime I might put this to the ACCC, anyway. What I thought was a strange query from a constituent has turned out to be right on the nose, and probably this is a bit on the nose, I think. Can you tell me the funding for Telstra's research laboratories based at Clayton? In 1997[hyphen]98 how much was it? How much did you provide?
Mr Ward —Yes, we will have to take that on notice.
Senator SCHACHT —When the new financial year begins, within a month's time, you can provide how much Telstra is providing in 1998[hyphen]99 to Telstra laboratories, and how many staff you presently have. In the redundancy program you have that you outlined earlier, how many further job redundancies will take place in 1998[hyphen]99 in Telstra laboratories? Also could you provide information on how much generic research in telecommunications, both in hardware and software, is now being done in Telstra laboratories, or is it all applied research purely for the benefit of Telstra itself? Also, how much funding do you provide directly to other science research agencies in Australia, such as CSIRO and various university research programs, and how many CRCs are you providing funds for this year and for the coming financial year?
From the business plan, without actually saying it is in the business plan, can you give any comment about where the future of Telstra laboratories is going within Telstra's organisation. We all accept that before 1991, when Telecom was the absolute monopoly, the laboratories provided a lot of pure research, because you had no competitors. I understand that you do not want to spend money on applied research or even pure research that your competitors may
get the advantage of and that they do not contribute to. The final thing is: in the last five years, how many patents have Telstra laboratories taken out on the work that they have done, and also how many patents have they taken out in conjunction with other research agencies that I have just listed?
Mr Ward —Okay.
Senator SCHACHT —On the Jindalee project, how much has Telstra now written off? Has it changed from the last time you gave us a figure of $600 million or $700 million?
Mr Ward —No.
Senator SCHACHT —Is that the complete write[hyphen]off or are there any more losses yet to come?
Mr Stanhope —We do not expect any further losses.
Senator SCHACHT —Are there any people in Telstra still working on Jindalee, even in the sad case that it is with Telstra?
Mr Stanhope —There are about eight people who are watching over the new arrangements.
Senator SCHACHT —How long will they be involved in watching over the new arrangements?
Mr Stanhope —Until such time as the contract is handed over completely.
Senator SCHACHT —Could you provide how much it is going to cost Telstra each year to have those people watching over it? They are project managers, I suppose you would call them.
Mr Stanhope —Yes, there is a project manager and there are two or three accountants to make sure that the financial arrangements are in place. There is one technical person to make sure that the technical aspects are being watched over.
Senator SCHACHT —I have raised this question before, and I will keep raising it. In view of the fact that in your submission for full privatisation you think the marketplace is the way to drive efficiencies in Telstra, and if you do not perform people pay a penalty, has anybody lost their job or been demoted for losing Telstra $800 million on the Jindalee project?
Mr Ward —No, not that I am aware of, Senator.
Senator SCHACHT —Isn't this strange? You have shown me the wonders of privatisation: that even with one[hyphen]third you will be much more market driven, cost driven, performance driven. Somebody or some group of people have lost the shareholders of this country $800 million and no-one has been sacked, no-one has had a mark put against their record?
Mr Ward —I am not aware if people have been sacked per se, Senator, no.
Senator SCHACHT —I want this now formally taken on notice. How can Telstra be telling us this—and Mr Rizzo is a great devotee of this argument, as he put to us in the Telstra inquiry a month ago about full privatisation—that $800 million has gone south, is missing, lost? This is one of the most substantial losses any public company owned by the people of Australia has sustained. You now rate just short of some of the state banks that went west in the late 1980s. I think Tricontinental lost a billion plus in Victoria, got wiped out. Unfortunately in my state the State Bank lost $3 billion. You are approaching that sort of league, and nobody got sacked, nobody was transferred or demoted?
Mr Ward —I did not answer the latter.
Senator SCHACHT —Has someone been demoted?
Mr Ward —No. All I am saying is I am not aware of anyone who was sacked. I am not saying nobody has been transferred. I am quite sure people have been transferred, because we have been winding down that project.
Senator SCHACHT —But transferred where? So that they can repeat the mess? What have they been transferred to? If they have lost $800 million of the shareholders' money, where have they been transferred to?
Mr Ward —As you know, the Jindalee project was one that had, I guess, some lessons for us and for the government in the way that that all—
Senator SCHACHT —And the shareholders? That $800 million is a big lesson, Mr Ward. $800 million could probably build—
Mr Ward —I understand.
Senator SCHACHT —It could probably build 150 or 100 hospitals around Australia.
Mr Ward —I understand.
Senator SCHACHT —I want you to take it on notice, and I want a response. If this is how Telstra is going to operate in the marketplace if it is fully privatised, what do you think the analysts would say?
Mr Ward —The analysts are fully informed of the history of the Jindalee project.
Senator SCHACHT —Okay. Now let me turn to a later one. How much have you written off on the roll[hyphen]out, the loss on the cable roll[hyphen]out pay TV adventure?
Mr Ward —I think we went through that last time, Senator.
Senator SCHACHT —What is it—$600 million? $500 million?
Mr Stanhope —If I recall, it was about $450 million.
Senator SCHACHT —A $450 million write[hyphen]off, a loss?
Mr Stanhope —Yes.
Senator SCHACHT —Loss. Have any of the people responsible for that decision been sacked, transferred, demoted, or had to leave the company?
Mr Stanhope —No, they have not.
Senator SCHACHT —So there has been something like $1,300 million worth of losses in Telstra, and you are telling me this is how you are going to operate, that people are responsible, and not one person has suffered or been made responsible?
Mr Ward —I think on the investment in the broadband area, Senator, that investment was made with the best market and competition and technology assumptions available at the time. The market has been a fairly interesting one, as you know; certainly the pay TV market, at least. The broader potential of the broadband market I think is still ahead of us, so I do not think that story is over by any stretch of the imagination. So I am not too sure—
Senator SCHACHT —But in that case, why did you write it down? If the potential is still fully before us, why did you write it down as a loss?
Mr Ward —Mr Stanhope might describe the rationale that we took for the write[hyphen]down.
Senator SCHACHT —I know what the rationale is. You lost your dough. How could you say the big potential is before us, but you have put it in the books now as a $500 million or $600 million write[hyphen]down, a loss? I cannot work that out.
Mr Stanhope —On the basis of pay TV over that broadband cable, we believe its cost is not recoverable, so it is written—
Senator SCHACHT —So it has lost that amount of money?
Mr Stanhope —On the basis that pay TV is the only service over it, then it would not be recoverable as far as we can see. But as we have said in this place before, we are trying to develop other services over that broadband cable to make use of that asset, and we still are.
Senator SCHACHT —That is just pie in the sky. You have had to write the loss off now, so the shareholders of Australia, both the one-third private shareholders, and the two-thirds through the public, have had to bear the loss of bad decision making.
Mr Ward —We outlined all of that in the prospectus before any shares were sold.
Senator SCHACHT —Yes, of course. And it is only because your company has such cash flows from other business that in some areas are near monopoly that you have all been able to survive. No other company that lost a $1,300 million write[hyphen]down in a year would survive. Take Burns Philp. They went through this and they are about to go out of business and be liquidated. They made a couple of bad decisions and went `whack'. They have all got sacked and the company is to be liquidated. You are cross-subsidising this loss by the profit out of local calls, STDs, mobiles, and international.
Mr Stanhope —Well, we have had this discussion in this place before.
Senator SCHACHT —No, we have not had this discussion.
Mr Stanhope —We have had a similar discussion, and you have made the assumption that the decision was a bad decision.
Senator SCHACHT —The shareholders think it probably was.
Mr Stanhope —We have talked about that before, that at the time the decision was made Optus was rolling out a broadband cable to take customers away from us in terms of access and local calls, and all our call products, and we decided, knowing that some shareholder value would be impacted, to roll out the broadband cable in telephony defence.
Senator SCHACHT —But it was not to be used in telephony, it was to scare them.
Mr Stanhope —No, this is very important. Let me just finish this. When we had a look and made that decision, it was a do nothing decision, or it was to roll out this broadband cable. The do nothing decision would have lost this company greater shareholder value than to roll out that broadband cable, and we made the decision on that basis. That is better for shareholders, so I still do not think it was a bad decision.
Senator SCHACHT —So for the shareholders of Australia, all this cable we hung around was not actually to deliver pay TV, it was to scare Optus.
Mr Stanhope —Pay TV was a service that was available over that cable, but we have never ever said anything different than that it was also to defend our telephony revenues. We have always said that.
Senator SCHACHT —To defend it? As a sign that you had deep pockets. Can I put it around this way, then: if, all-up, those two projects had not lost $1,200 million or $1,300 million, not only would the shareholders have got more money, and profit be available for distribution, but I could say to all customers of Telstra, you would have been able to drop your prices further.
Mr Stanhope —Take the broadband case. It is great with hindsight, because we now know that Optus was not as successful as we thought they might—
Senator SCHACHT —In the private market that you want to go to, Mr Stanhope—in the private market that you keep telling me about, and which Mr Rizzo was so enthusiastic about, and Mr Blount in his public statements—you pay the penalty. You do not have hindsight. Those other companies n the full commercial sector, no matter what, do not have the benefit of hindsight. I suppose Mr Prescott, with the wisdom of hindsight, would have liked to have done something different, but he paid the penalty because BHP lost money in a couple of projects. That was nothing to what you have lost. He went. The chief executive went. Other managers of divisions have been sacked. The shareholders have demanded it. I do not think BHP has lost as much money as you have so far.
Mr Stanhope —I get back to the broadband decision. It served its purpose, it defended our telephony revenues. We may have lost greater shareholder value had we not done it.
Senator SCHACHT —Goodness me! Well, I am not going to labour the point now. You are going to take it on notice and come back to me with a particular answer.
Can I now turn to the matter of the ISDN roll[hyphen]out. Is it true that, even when the digitalisation of all the exchanges takes place under the speeded up program of the government that you took on 18 months ago—which cost $200 million or whatever it was, which no[hyphen]one can disagree with—it still means, though, that anybody who is more than seven kilometres from the nearest exchange will not be able to get a normal ISDN connection?
Mr Paratz —The provision of ISDN facility, as opposed to an ISDN connection, really involves a whole stack of technologies. The future mode of operation, which is effectively the digitisation of the switches within the network and the transmission that connects them together, provides the basis for ISDN. Subsequently, we have to provide infrastructure, either existing or embedded in some way, to allow customers to access that ISDN capability. There is a range of ways of doing that. You mentioned seven kilometres. That approximates to a limitation that might apply to a particular gauge of copper cable. ISDN can be delivered by a variety of media: radio; digital concentrator systems; satellite based solutions; fixed radio access; copper; potentially the cable network we have just been talking about.
Senator SCHACHT —The cable network that has been rolled out, Mr Stanhope, can be connected. You can put ISDN down that?
Mr Paratz —There is a range of technologies which allow the delivery of ISDN. The simple proposition of seven kilometres, and beyond that seven kilometres there is or there is not ISDN, really is not the situation. Telstra has recently announced a range of technologies, including satellite, which gives us the capability to deliver not only ISDN but the facilities which ISDN delivers—the Internet capability, the data networking capability—for customers throughout Australia, independent of location. So the capability that Telstra has put in place, right across the customer base, right across the geography base, to deliver the sort of capabilities that ISDN delivers, extends well beyond any seven kilometre or any other number.
Senator SCHACHT —If I am 20 kilometres outside Broken Hill, on a sheep station, and I want ISDN, there is a copper pair going out, it has been there for 40 years or however long, and I want to connect to ISDN with the same quality as somebody in Broken Hill itself or in a suburb of Sydney, what would you have to do to provide that?
Mr Paratz —If you are 20 kilometres outside Broken Hill—
Senator SCHACHT —Which is the nearest telephone exchange.
Mr Paratz —that is fine. You may or may not, in the first instance, be connected by a copper pair. You may be connected by a radio solution, and there are many types of radio solutions.
Senator SCHACHT —Let's just take the copper pair, because back in the 1950s and the 1960s under Country Party leverage, et cetera, there were big subsidies paid to farmers in the pastoral and wheat belt areas of Australia to lay copper wire out for many kilometres across a farmer's property to get to the house. So there would be large numbers of farmers who have got a copper pair going into that house. Maybe I should not use Broken Hill. I should use the example of 20 kilometres outside Parkes, which is in the agricultural wheat belt.
Mr Paratz —If we take the proposition that we are 20 kilometres outside Parkes and we are on an existing copper pair, the sheer physics of the situation, say the transmission of an ISDN signal on that copper pair, is extremely problematical. The question, though, is can you, as a customer of Telstra, get access to the products and facilities which you might seek to achieve through an ISDN connection? When you ask that question, a wide range of other responses come into play. For instance—and I am not familiar, as I sit here, as to whether this holds in a specific case at Parkes—we have just rolled out 150 fixed radio access base stations throughout regional Australia, and they give coverage and ISDN capability to radiuses of 25 to 35 kilometres, depending on the terrain and the foliage and so forth.
In addition, we announced recently a set of satellite technologies which again give high speed data capabilities, high speed Internet capabilities, which again are available to this customer 20 kilometres outside of Parkes. So the capability of the company to deliver product to the customer that we are talking about is substantial. It is world-class and increasing.
Senator SCHACHT —Just a simple question. In a suburb of Sydney they get an ISDN connection. Will the person 20 kilometres outside Parkes get exactly the same quality and range of services as the person in a suburb of Sydney under present technology? I just want yes or no.
Mr Paratz —The delivery depends on the situation, and the customers get access to a—
Senator SCHACHT —Does the customer in Parkes get the same as the customer—
CHAIR —Senator Schacht, let the witness answer the question.
Senator SCHACHT —Well, I know what is going to happen. We are going to go round and round in a circle until I actually nail this down.
CHAIR —Just let him answer the question.
Senator SCHACHT —Give him a hint, Mr Ward.
Mr Paratz —For our customers, whether they are in metropolitan Sydney or whether they are 20 kilometres outside Parkes, Telstra is bringing to the marketplace the technologies which are appropriate for the situation. We cannot pretend that 20 kilometres out of Parkes is the same physical situation as one kilometre in Sydney. You and I cannot make that true.
Senator SCHACHT —So, fine, the simple answer then is, `No, there is a difference.' It might only be a 10 per cent difference, but there is a difference in that the provision of the same ISDN service in the suburb of Sydney, normal connection, does not automatically translate to be exactly the same as the person gets 20 kilometres outside Parkes.
Mr Paratz —Senator, I believe the difference is in the method of provision rather than the delivery of service. If you just put to me the proposition, `Do you need different solutions in different locations?', I will of course agree with you.
Senator SCHACHT —So now you are telling me that the method of delivery will be different but the quality of the service and the content of the service are exactly the same?
Mr Paratz —The nature of the service is the same.
Senator SCHACHT —The nature of the service? I think there is enough obfuscation in there and I think you have given yourself enough outlets here that I will not be able to accuse you of misleading estimates when I get more advice. It has been a performance, Mr Paratz: Mr Ward will give you a good pat on the back and a free drink in the boardroom later on and say, `This bloke really knows how to handle the Senate estimates committee.'
Can I ask: whichever the delivery system is though, and even though we are going to argue about whether the service is exactly the same, irrespective of the delivery system, will the cost for that ISDN connect service 20 kilometres outside Parkes, however it is delivered, be the same as the ISDN in the city?
Mr Paratz —We have just spoken through a number of delivery systems, Senator, and as I think Mr Frueh indicated earlier, Telstra has not yet productised some of those technologies, and particularly the satellite based ones we recently announced, so it is pretty difficult for me to answer that with a simple yes or no answer.
Senator SCHACHT —I just ask you to take it on notice, and could you get back to me as soon as you can on what would be the range of prices, different prices, if there are different prices. The main thing I am after is: does the farmer 20 kilometres outside Parkes have to pay more for ISDN for the connection, the rate of use per minute, et cetera, as a person in the city. If he does, what is the difference?
Mr Paratz —We can certainly take that on notice and give you an insight into the range of products that are out there at the moment.
Senator SCHACHT —Could you explain the difference in the range of products so I can try and work out whether the person in the city is getting a better quality in content than they can do on ISDN in the bush. I hope, Mr Ward, you can do that in your submission to that inquiry over what is the USO definition. This issue of ISDN access is one of the most important issues we need to have looked at.
Mr Ward —That will be covered in our STS submission.
Senator SCHACHT —Right. When you do make that submission, if you have not already done so, I would not mind getting a copy of it once it is made public.
Mr Ward —We will take that on board.
Senator SCHACHT —I want to raise an issue about the closure of a company in Western Australia which is a subsidiary of Telstra called QPSX Communications. Is anyone aware of it?
Mr Stanhope —Yes, I am.
Senator SCHACHT —You say that with a weary sound, Mr Stanhope.
Mr Stanhope —We have been here a long time, Senator.
CHAIR —Not as long as we have, Mr Stanhope.
Mr Stanhope —No, true.
CHAIR —This is our third day.
Senator SCHACHT —And our second week, for some of us—not for all of us but for some of us. What I have been informed, Mr Stanhope, is that the people at QPSX, a full subsidiary of Telstra—is it a full subsidiary of Telstra?
Mr Stanhope —Yes, it is.
Senator SCHACHT —They were not offered the same redundancy package as other Telstra staff have been in this downsizing, to use that euphemism, of the 25,000 going from Telstra. Is that correct?
Mr Stanhope —Yes, that is correct.
Senator SCHACHT —Why was that the case, if it is a full subsidiary of Telstra and, as I understand it, the staff actually came from Telstra in the first place?
Mr Stanhope —No, the staff did not come from Telstra.
Senator SCHACHT —There was no transfer from Telstra?
Mr Stanhope —No, there was no transfer from Telstra. QPSX started some time ago and was not 100 per cent owned by Telstra. It had established its own employment terms and conditions and it was owned 25 per cent by the University of Western Australia, as I recall.
Senator SCHACHT —When did you buy out the University of Western Australia?
Mr Stanhope —It would be two years ago now, I would say, maybe three.
Senator SCHACHT —So for the last four years since that occurred, since 1994, it has been a fully owned subsidiary of Telstra.
Mr Stanhope —It has.
Senator SCHACHT —In every sense of the word, in other arrangements and doing accounts, if you were looking at liabilities and assets and many accounting procedures, this would be put into the Telstra accounts as an asset and liability, would it not?
Mr Stanhope —That is right. It is a controlled entity.
Senator SCHACHT —So it is a fully controlled entity. If it is a fully controlled entity, why wouldn't the staff expect to receive the same treatment as at Telstra?
Mr Stanhope —Many of our subsidiaries had terms and conditions that were established in the companies as they were incorporated. This company has been earmarked for sale for some time, and the directors of that company, of which I am one, decided that the company would—
Senator SCHACHT —It is good at last to have someone right at the table who has got his fingerprints on it. Thank you very much.
Mr Stanhope —Okay.
Mr Ward —We do our best, Senator, as you know.
Mr Stanhope —You will be looking for my head.
Senator SCHACHT —No, no, never. I am a kind person.
Mr Stanhope —The company had its own terms and conditions and was earmarked for sale but the board of directors, of which there are two of us, decided that it would be less saleable if this company had any other terms and conditions than the company already had. Those terms and conditions were to remain in place for the sale of that company. As it turned out, we could not get a buyer for the company and the company has now been wound up. The net staff of that company now is one person who finishes up on 30 June.
Senator SCHACHT —You can assure the Senate estimates committee that when these people were employed, even when it was a venture with the WA university—at that stage how much did the WA university have in it?
Mr Stanhope —I think it was around 25 per cent, Senator.
Senator SCHACHT —So right from the very beginning QPSX has always been majority owned by Telstra?
Mr Stanhope —Yes, it has.
Senator SCHACHT —When people were employed at any stage in the history of QPSX, can you assure the Senate that they were clearly informed they were not employed under the same conditions as Telstra employees?
Mr Stanhope —Yes, I can. They were employed under the terms and conditions of QPSX the company, and they were different from Telstra's.
Senator SCHACHT —I am informed that on 22 March 1996 Frank Blount issued a memo directing that all subsidiaries adopt Telstra's corporate policies. This memo indicated that any exemptions would be rarely granted, particularly with regard to employee relations and conditions. We understand that no exemption was granted for QPSX. That is the advice I have.
Mr Stanhope —The board of directors, myself and one other—
Senator SCHACHT —Who is also a Telstra person, I presume.
Mr Stanhope —Yes, he is.
Senator SCHACHT —Who is that?
Mr Stanhope —At that time it was Peter Abery. He is no longer a director of the company.
Senator SCHACHT —Who is the director now?
Mr Stanhope —Myself and Noel Robertson.
Senator SCHACHT —What is his position in Telstra?
Mr Stanhope —He is a senior manager in our strategy area.
Senator SCHACHT —Okay. Referring back to this memo from Frank Blount, is that correct, as he says—`would rarely be granted, particularly with regard to employee relations and conditions'?
Mr Stanhope —That is correct. I recall that memo from Frank Blount and this was one of those rare occasions. As I alluded to before, the company was about to be sold.
Senator SCHACHT —So Frank Blount or the board or the senior management has given an exemption.
Mr Stanhope —I think the exemption came from the group managing director at the time.
Senator SCHACHT —An exemption was granted?
Mr Stanhope —Yes, that is right.
Senator SCHACHT —When was that exemption granted?
Mr Stanhope —I cannot tell you the exact date but it certainly is minuted. The decision of the directors of QPSX is minuted in the minutes to retain the terms and conditions of QPSX for all employees as we were about to enter a sale.
Senator SCHACHT —This is in the last year?
Mr Stanhope —Probably the year before.
Senator SCHACHT —In the last two years?
Mr Stanhope —That is right.
Senator SCHACHT —The exemption was granted.
Mr Stanhope —That is right.
Senator SCHACHT —It is one of these rarely granted exemptions.
Mr Stanhope —That is right, because we were going to sell the company. That is a fairly exceptional event.
Senator SCHACHT —But this meant Telstra was able to save itself a higher level of redundancy payout, did it not?
Mr Stanhope —We would still pay redundancies but not to the extent of Telstra's redundancies.
Senator SCHACHT —What was the difference between what you would have had to pay out in redundancies?
Mr Stanhope —I cannot tell you the amount, Senator.
Senator SCHACHT —I would like you to take that on notice.
Mr Stanhope —Okay.
Senator SCHACHT —It seems to me that you have adopted a practice here that I think you could claim is technically and legally correct but I have to say I am not sure, in commonsense ethics around the place, that it is actually completely clean. You have sacrificed the workers. You have taken a decision that you had to get the exemption, otherwise you would have been responsible for giving them probably the same amount of redundancies as every other Telstra employee. You got the exemption so you could save yourself a payout.
Mr Stanhope —That is true but the employees of that company were never under any misapprehension that they had any change in their terms and conditions.
Senator SCHACHT —If that is the case, why did you need an exemption?
Mr Stanhope —Because of Frank Blount's memo.
Senator SCHACHT —Yes, he had given a memo which the staff took as saying, `We are treated the same as Telstra employees.' The exemptions were rarely granted.
Mr Stanhope —Correct.
Senator SCHACHT —So for four months they did not read the fine print or accept that Telstra would pull this on. Two years ago when you took the decision to give the exemption, were they informed beforehand? Were there any negotiations or discussions that this exemption would be called on?
Mr Stanhope —I cannot say the extent of—
Senator SCHACHT —No, but then you are a director. You should know. This is germane to the financial performance of the company. All right, you cannot remember two years ago. We all cannot remember everything two years ago. But you were a director.
Mr Stanhope —That is right, and that decision was minuted in the board minutes, and whether the general management of the company two years ago then went out and said, `This is what the board has decided,'—I would expect them to do so.
Senator SCHACHT —But you do not know.
Mr Stanhope —But I cannot tell you.
Senator SCHACHT —I would like you to take that on notice. Unfortunately I am not sure that this matter can be rectified if management has taken the decision, unfortunately, but I have to say I think these employees have been shabbily treated.
CHAIR —Is that it?
Senator SCHACHT —I just have a couple of quick ones, and we will not take long at all now. Has the digitisation of exchanges under the FMO program all been completed now? Is it close to the deadline?
Mr Ward —I think the commitment was to effectively complete digitisation by December this year and we are on track to deliver that, Senator.
Senator SCHACHT —Right. It is a pity the minister is not here again. He is still in the broom cupboard, I presume.
CHAIR —I think he might have died in there from lack of oxygen!
Senator SCHACHT —Mr Stevens, you will have to be it until he turns up. On 6 May in the Financial Review , I think it was, there was a story that the minister had asked the department for advice on possible amendments to the Telecommunications Act vis-a-vis competition policy vis-a-vis the relationship with Telstra and others. Has the department provided advice, and do you know if, as a result, the government is going to propose amendments to the Telecommunications Act?
Mr Stevens —We have certainly provided some advice on that issue, and that is still advice we are refining at the moment. So no final decision has been made at this point.
Senator SCHACHT —Would you anticipate—because the Telecommunications Act I think is before the parliament as part of the privatisation of Telstra—that the government is going to propose any amendments to that act, to this package, while this bill is being debated on these areas where the government has sought advice from the department?
Mr Stevens —If any amendments are to be made, I am sure that would be the time frame.
Senator SCHACHT —I just wonder if the minister could assist us here. Minister, I just asked this of Mr Stevens. On 6 May there was a story in I think the Financial Review that you had sought advice from the department about possible amendments to the Telecommunications Act on issues of competition where there had been complaints and people wanted the act strengthened. Some of those people have given evidence to the Telstra inquiry just on the Telstra privatisation package when we took that, and they have been commented on by both the majority and the minority reports. Is it the intention of the government when this bill is debated in the last two weeks of this session to come up with significant amendments that deal with telecommunications competition issues while the Telecommunications Act is before the parliament—on the privatisation issue, I know, but as it is there it does not stop anybody moving amendments, including the government.
Senator Alston —We have consistently said that we regard the package of bills that went through and took effect from 1 July last as adequate, essentially putting the onus on the regulator to pursue the reform agenda or competition agenda. At the same time, I have said that we would look at the possibility of finetuning, meaning that there might be some changes that could be made at the margin to either strengthen the role of the ACCC or to somehow assist the process, and we are considering whether that might be done in the context of the bill.
Senator SCHACHT —Would that finetuning include such areas as forcing Telstra to unbundle, to use that phrase—is the other phrase ringbarking, or something?
Mr Stevens —Ring fencing.
Senator SCHACHT —Ring fencing? I knew it was something like that. I know some people want to ringbark Telstra. When I speak to them they use phrases probably that remind me of ringbarking. Are ring fencing and unbundling what you would call, Minister, finetuning or are they more substantial amendments that would need more considered discussion or consideration by the government?
Senator Alston —Part of the difficulty in this debate which is being conducted in the media, to some extent, is even understanding what people have in mind when they talk about ring fencing—or in your case ringbarking. Certainly it has been suggested that we could draw some insights from the UK experience. Now, that does not, to me, seem to go anywhere near what the ultimate definition of ring fencing might involve, which is effectively a structural separation, not just an accounting separation, and we are not inclined in that direction.
Senator SCHACHT —If it was just a mechanical separation, would you be inclined?
Senator Alston —I am not sure what a mechanical separation is.
Senator SCHACHT —I knew that; that is why I asked you about the phrase, because I am not sure—
Senator Alston —Do you mean sending in engineers to separate the various parts of the network?
Senator SCHACHT —Mr Ward, does Telstra have a view of what the difference between a structural separation and just a mechanical separation would be?
Mr Ward —Structural separation at its ultimate means, I guess, economic separation—entirely different entities.
Senator Alston —The sort of thing Keating had in mind prior to the last election.
Senator SCHACHT —You would hive off mobiles and Yellow Pages .
Mr Ward —Directories, et cetera—yes, that is right.
Senator Alston —Which I presume is still your policy.
Senator SCHACHT —All you have to do is read our national platform, Senator Alston, and you will find very clearly outlined what our policy is.
Mr Ward —And at the other end of the scale there is the accounting separation, which is essentially what we have now.
Senator SCHACHT —As you know, publicly some of these companies have used the opportunity of the Telstra sale—
Mr Ward —I have noticed.
Senator SCHACHT —to drop a few ideas around the place, and beat you around the head, which they are entitled to do—and you are entitled to hit them around the head in return, and I have noticed Mr Blount has done that on a number of occasions.
Mr Ward —We encourage him to do so.
—I am sure. Perhaps you might encourage him to turn up here, and we could get some of this on the record as well. Never mind about his attendance or not. There was a suggestion by some companies at the hearing we had. I think AAPT said they thought for the local loop, the cost is about 12c a call, not 25c. I think Macquarie put in a submission saying that if you took out all overheads and if they did their own billing and everything like that, it would be 7c, 7.5c, 8c or something like that. Has Telstra done any public work in
response to that that you could provide us with where you explain why those figures, in your view, are wrong? You have publicly said you do not agree with them, but I have not actually seen any material that attacks the assumptions they are making.
Mr Ward —Let me answer that in a few ways. Some of those assertions are just entirely outrageous in terms of the actual cost structures that apply. I think earlier in this session you have sought some profitability figures around parts of our business, which we have agreed to respond to commercially-in-confidence.
Senator SCHACHT —Yes.
Mr Ward —We will use that response to expand on this issue.
Senator SCHACHT —Okay.
Mr Ward —We will also give you information that we will put on the public record about this issue. However, the local part of our business does not enjoy profits, for a whole raft of reasons which go back to the history of pricing in telecommunications in Australia—in fact worldwide—and the price cap regime that we are under, et cetera. There is a rich history to it.
Senator SCHACHT —It will be useful to get that information. Minister, I just want to raise this with you: two days ago, in I think the West Australian , a detailed story appeared about the fact that Northgate in Ballarat had completely withdrawn from using the cable that it had hung in some parts of Ballarat for any of its services, and said it was going to use the other carrier's existing cable for getting into wholesaling, et cetera. Senator Alston, for 12 months you have lectured us in the Senate on a number of occasions about `This is the way that competition will operate in regional Australia.' In view of the fact that the cable was not successful, and they have withdrawn from it and are now relying on using basically Telstra's network, I would imagine, on the system, this actually is an example that would suggest regional Australia will never get the competition level that you will get in the city.
Senator Alston —You have to distinguish between the different products. I think you will certainly get competition in telephony in all sorts of ways.
Senator SCHACHT —They offered free phone calls and it never occurred.
Senator Alston —They were essentially offering pay TV, but they only ever got something like 200 consumers because they were not able to get access to the product from Foxtel and Optus. What they were offering was essentially not competitive. I think when they decided to concentrate on untimed calls—and you will recall they had a package that allowed free local calls between subscribers, and I think also untimed calls to Melbourne—they have since expanded their operation to include untimed, fixed price packages to a number of international locations. They claim that they have been swamped by the demand.
That suggests that there are going to be some competitive opportunities for telephone players. Whether they are installing their own infrastructure or leveraging off the carriers is obviously a commercial decision that they take depending upon interconnection rates. But I think it certainly suggests that the punters are hungry for an alternative, and that augers well for competition.
Senator SCHACHT —Yes, but they are not going to be using duplicate infrastructure to do it; they are going to be using the existing—
Senator Alston —They may or may not, depending upon the interconnection rate that is set.
Senator SCHACHT —All I can note, Minister, is that twice you have got the Prime Minister of Australia to be publicly involved in launching a new local telephony system. One of them was Optus's famous launch in August 1996 and ever since they never publicise it or never go out and encourage people to join up because they cannot get the technology to work. And then at the launch of the Northgate system you made a phone call from Ballarat to wherever the Prime Minister was, or vice versa, to launch that system. You have led the Prime Minister up a dead end twice. I trust that next time you put the third opportunity to him that he might have the wit to say no, because on both occasions it has not worked.
Senator Alston —I think you understand as well as we do that we are not responsible for the business cases of players, but we do certainly welcome it when we see new and innovative packages being offered, including by Telstra, and we would always want to encourage those developments. We have recently had a very good launch of a Telstra's announcement of—
Senator SCHACHT —Well, that is Telstra. It works.
Senator Alston —I am just saying, and it may be in due course—
CHAIR —Order! On that note, my suggestion is that we have now gone well over time on Telstra, and the ABC officers are waiting. My suggestion is—
Senator SCHACHT —Actually, I am finishing, but I just want to indicate, on the questions on notice, Madam Chair, that as we are meeting all day tomorrow as a committee on another matter, on digital matters, that if we could have till the close of business on Monday to lodge further questions on notice that we have not had a chance to raise here today with Telstra and the other agencies, that would be helpful.
CHAIR —That will be an order. My suggestion is that we go to lunch now. At 20 past 1 we will resume with the officers from the ABC. I would like to thank the officers from Telstra for their attendance today. Thank you very much.
Sitting suspended from 12.40 p.m. to 1.24 p.m.