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Monday, 22 November 2010
Page: 1778

Senator LUDLAM (5:11 PM) —I was expecting some contributions from the National Party, but they do not appear to be in the chamber. I will, however, rise to make some comments on the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2010. This debate has been a very long time coming. Senators will recall that it was originally scheduled for October 2009. A series of procedural blocking tactics by the coalition prevented this debate from happening more than a year ago. I rewrote my speech early in March, when it looked as though the debate would finally happen; but, in a tactical masterstroke, the coalition put 400 people on the speakers list and paralysed the Australian Senate for several days. I was disappointed but sympathetic when the government withdrew the bill. Given that this place costs something in the order of $1.5 million per day to run, you need to choose your issues carefully if you are going to move a filibuster to bring it to a standstill.

Since Mr Turnbull took over the portfolio there has been a welcome change of direction, as evidenced by the vastly more reasonable list of speakers that confronts us today. We have also seen a recognition by the coalition that structural separation of Telstra is an essential stepping stone toward a healthier telecommunications sector. But there is a reason that we are having this debate now, 13 months after it was scheduled. The coalition’s strategy, passed from Senator Nick Minchin directly to Tony Abbott, is to sabotage and delay the rollout of the NBN, with the ultimate objective of destroying it. As recently as September, post election, Mr Abbott was reported as saying that Mr Turnbull had ‘the appropriate technical expertise and business experience to entirely demolish the government on this issue’—not a lot of ambiguity there. Mr Abbott brought other priorities into the 2010 election campaign, and he funded his election commitments by cancelling the budget for the NBN and replacing it with a bucket with $6 billion worth of corporate handouts in it. It was a bucket held together with rubber bands and technical illiteracy, which was rightfully condemned by everyone who chose to offer an opinion. I am still deeply impressed by the spectacle of the Liberal Party and, to my lasting disbelief, the National Party, having as their key election campaign initiative to cancel the rollout of fast broadband to regional Australia. This miscalculation played a key part, I think, in the Gillard government’s ability to form this minority government.

One benefit of the NBN proposal playing such a key role in the election campaign is that telecommunications are now firmly on the national agenda, which is probably the only good to come from this bill being debated a year late.

The legislation before us is the first real attempt to deal with fundamental regulatory issues and the market structure of the Australian telecommunications sector, which could politely be described as dysfunctional. At the outset, let us speak very plainly about why we are here, at the end of the first decade of the 21st century, debating this legislation. It is because we are engaged in the first stage of fixing a privatisation debacle.

The telecommunications market in Australia for decades has been defined and shaped by the market power of the incumbent, Telstra. The industry still retains some characteristics of the time when telecommunications were seen as an essential service to be provided for all Australians and government provision was seen as the most economic and equitable way to do this. There was an unspoken and bipartisan acknowledgement that the private sector had neither the capacity nor the strategic interest in developing national telecommunications infrastructure. In a country as vast and dispersed as Australia, such an endeavour was a proper role of the national government.

The early 1990s saw a profound shift away from this world view toward one which saw the principles of competition assume fundamental importance and the whole framework of national competition policy established. This rapid ideological shift brought with it a range of sweeping and largely untested assumptions. The most important of these is that the shareholders’ interests will align perfectly with the public interest and market forces will project services cheaper and more efficiently than a stodgy and slow-moving public utility. Modern Australian history is littered with sad reminders of what happens when that ideology collides with reality.

In the example we are considering today, there is of course a strong divergence between the public interest in a fast, inexpensive, open-access broadband network and Telstra shareholders’ interest in achieving high rates of return from the advantages delivered by its incumbent position as the monopoly owner of much of the infrastructure on which its competitors depend. The unthinking belief in the magically redeeming powers of competition and the blind ideology of frictionless free markets culminated in the full privatisation of Telstra, which the Greens, the Democrats and the ALP opposed at the time. And so the sector today is a fractured and unworkable amalgam of these two worldviews—a large, vertically and horizontally integrated company, built over decades of public investment and then sold off and left with enormous power to make its way in the marketplace.

It is no secret to anyone in the industry that Telstra has used its incumbent position to do what its directors are obliged to do by law: leverage its monopoly position to maximise its profits and extend its market power into new areas. On 11 November 2008 Telstra appeared before the Senate Select Committee on the National Broadband Network to express its views, during which Mr David Quilty said:

The bottom line for us is that we have to act in the interests of our shareholders. We cannot do anything that we do not consider is in the interests of our shareholders. There is no doubt in the mind of Telstra management, and all of the analyst reports concur, that further separation of Telstra is not in our shareholders’ interests. We simply cannot contemplate it.

What an extraordinary change between November 2008 and November 2010. In other words, Telstra was more than comfortable with the market power it was able to exercise and could not see any reason to want to change. This is partly an outgrowth of the corporate culture exemplified by the take-no-prisoners approach of Sol Trujillo and his team, but it also reflects a deeply embedded legal obligation: directors of corporations have to put shareholders first, or they betray their fiduciary obligation to act in their shareholders’ interests.

Today we are here to talk about the public interest. A basic principle of competition policy is that in a market as dominated by a single incumbent as telecommunications is in this country, a wholesale provider should not compete with its own customers. There are simply too many opportunities for monopolistic behaviour. Whole slabs of the Trade Practices Act are dedicated to trying to prevent exactly the kind of behaviour that has characterised this sector for as long as most people can remember.

This bill is the first real attempt to deal with this textbook case of what happens when the public interest diverges from corporate self-interest. When I say ‘the public’, I do not refer only to the roughly 1.4 million Telstra shareholders who took up equity in the company on the three occasions in which tranches of stock were put up for sale; I refer to the 22 million Australians for whom telecommunications are now an essential service.

Australia now has some of the most expensive fixed line and broadband prices in the OECD. The most recent data indicate that Australian small-business or home-office customers are paying more than 30 percent above the average for this group of countries. We are paying among the highest prices in the OECD in all speed categories according to a 2008 survey. And we are a vast distance behind in broadband speeds when compared to leading countries, including Japan and Singapore.

Last year, the Telecommunications Industry Ombudsman dealt with half a million complaint issues. Complaints figures detailed in the TIO annual report for 2008-09 show 178,000 compliance issues about mobile phone services alone. That was an increase of 107 per cent on the previous year. The rising discontent is not just at the user end. The ACCC reported in March that, since the inception of the negotiate-arbitrate approach to resolving disputes between Telstra and access seekers interested in offering rival retail services over Telstra’s network, more than 150 access disputes have been lodged with the ACCC. The disputes range across monthly access charges, connection charges and managed network migration or service qualification charges as well as an array of non-price terms, and they are often protracted and expensive as all procedural avenues are exhausted at great expense to all parties. By contrast, in the gas and electricity sectors ‘where the natural monopoly facility is separated from the contestable market elements, and revenue or price is set by the regulator’—that is, sectors that operate in the way that the government is seeking to model the telecommunications sector if this bill is carried—four access disputes have been lodged with the ACCC over the same period.

There are proposals in this legislation which would allow the minister to issue binding rules of conduct to replace the voluntary industry codes which have in some cases been shown to be ineffective. But these powers rely on the minister exercising them—for end-user protection and customer service to improve, this bill must only be seen as the first step. Our national end-user advocate, ACCAN, has pointed the way with Consumers first: smart regulation for digital Australia, a report by the UTS Communications Law Centre published earlier this month. On release of that study, ACCAN chief executive, Teresa Corbin said:

The current self-regulatory system, with its excessive rules, exemptions and exclusions, has failed, …Without a new approach to protection, consumers are going to be left with providers that still don’t care and won’t change.

That new approach can begin today if the minister makes good use of the leverage over the industry that he has written into this bill and that the Greens have approved.

While negotiations between Telstra, the government, the ACCC and NBN Co. continue behind the scenes, there is broad agreement that structural separation with fair compensation for Telstra’s traffic and physical assets provides the simplest and most equitable way forward. Everyone is now on board with this proposal—even Telstra, which spent six months to one year opposing the bill and then changed tack earlier this year when it became apparent that what it had earlier described as a gun to the head was in fact a lifeline.

The proposal is for the publicly owned National Broadband Network to take over Telstra’s wholesale traffic and much of the physical infrastructure of poles, wires and ducts over which telecommunications services are delivered. In return, Telstra is compensated for handing over these assets and relieved of the burden of working out what to do with a decaying fixed-line copper network that is delivering falling revenues and hurting its share price far more dramatically than any regulatory uncertainty generated by this bill.

After a long period of negotiation and under a framework that is still largely opaque, the government has arrived at a heads of agreement which will see $11 billion handed over by the taxpayer to bring Telstra’s wholesale network back into public hands. It is hard to imagine a more complete failure of a privatisation process than this one, which has resulted in this parliament having to bring the system back into the public domain.

At the end of 2008, in our minority report to the first interim report of the Senate Select Committee on the National Broadband Network, the Greens urged the government to consider:

… taking a majority equity stake in the National Broadband Network and operating it as a competitively neutral, open-access network.

Although that is effectively the model we have arrived at, until very recently a number of issues remained outstanding. Most obvious was the government’s incomprehensible proposal to sell down the government’s stake in the NBN within an automatic time frame based on nothing more than a test of whether the market would deliver a fair price for such a sale. After going to all the trouble of bringing the network back into public hands after several years of quite evident market failure, the Greens can see no justification for repeating the privatisation debacle all over again with the NBN.

Over a period of several months, the Australian Greens have been negotiating to put some checks and balances into the NBN bill, which I believe the government will introduce later this week. We sought to remove the automatic triggers for privatisation that were built into the NBN exposure draft bill. Whatever our views might be on the wisdom of privatisation, it is hard to imagine why parliament would want to compel a future government to do so, whether it wanted to or not. The government has agreed with this proposal, and the privatisation provisions in the NBN bill when introduced will be entirely discretionary. If a future government is happy with the operations of the NBN, there will be no obligation to sell it. If, on the other hand, there is a will on the part of the government to sell the network, the government will be required to conduct a full public interest test. The amendments that the Greens propose to the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2010 include a provision for the establishment of a joint parliamentary committee and a detailed reference to the Productivity Commission to examine the impacts not just on the Commonwealth balance sheet but also on the competitive structure of the market, the implications for governance, the consequences for social inclusion and so on.

The opposition have been going on at some length today both here and in the other place about why we would support Productivity Commission referral at the end of the NBN buildout rather than at the beginning. But our proposal is not for a cost-benefit analysis—we have no issue whatsoever with the Productivity Commission’s coming on board and offering its expertise. The issue is not with the PC; it is with the validity, or the point, of doing a cost-benefit analysis. What we are proposing is that at the end of the buildout there be a comprehensive public interest test which will not rely on formula but on research. The government has agreed to the Greens’ recommendations on privatisation so that, if a proposal for privatisation comes forward, at the bare minimum the government will undertake a study to determine whether or not privatisation is a good idea. If, subsequent to undertaking this public interest test, the government still wishes to proceed with the sale, the decision will need to be approved by parliament through the mechanism of an instrument that either chamber can disallow. Having set these basic checks and balances in place, the Greens are more comfortable with the idea of handing over $11 billion, or whatever the final figure ends up being, to bring Telstra’s wholesale assets back into public hands. Our objective has been to make it as difficult as possible for any future government to repeat the debacle of the sale of Telstra—if it is to happen, we must at least be doing it with our eyes open.

This brings forward some of the recommendations, which were quite strongly worded, in the implementation study that KPMG-McKinsey produced. They said:

The privatisation of NBN Co will significantly reduce the Government’s subsequent capacity to influence its operations and market conduct. At the same time, pressure from private shareholders and the appointment of a new board representing them will create an incentive for NBN Co to focus on commercial returns to the exclusion of other objectives.

The authors of the implementation study had very serious concerns about the competitive outcomes if the NBN Co. was privatised. The Greens’ share these concerns—and we think they were sensibly stated in the implementation study—but we also have much broader concerns. They go to governance issues, social inclusion issues and a whole range of other issues which are encompassed in our amendments to the bill providing for a reference to the Productivity Commission. There have been similar comments and concerns raised within the industry by Optus as well as by the Competitive Carriers Coalition, which represents the more diverse end of the mid-tier and smaller service providers operating in Australia. Let us not repeat history. It is my hope that the amendments we have secured to the NBN bill will never be brought into play and that by the time the NBN has been built there will be a public and political consensus that essential service, natural monopoly infrastructure should stay in public hands and be operated in the public interest. In the meantime, it will be very good to know the Greens’ amendments are in the legislation.

Most of the coalition’s contributions to the debate thus far have centred on the rights of Telstra’s 1.4 million shareholders, whose interests do need to be considered in this rare exercise of parliamentary intervention in a dysfunctional market. I stress that the Greens are not out to get Telstra or its shareholders, and I have no doubt that this process can deliver a fair outcome for Telstra that will see it take its rightful place in a rapidly expanding telecommunications market. A number of issues are worth considering: firstly, whether shareholders might have seen this intervention coming and, secondly, whether in retrospect the current process is necessarily all bad for Telstra. The T3 share offer document, in 2006, included this passage:

The real risk with operational separation, in Telstra’s opinion, lies in the power of the Minister to determine the way Telstra conducts its business by directing it to vary its operational separation plan, subject to the aims and objects of the legislation which are very broad. These regulatory discretions could in Telstra’s opinion be used with a significant adverse effect on Telstra.

Every single share offer document contained some kind of warning to the shareholders that there was a material regulatory risk that the government could move some form of what we eventually saw. That is fair warning—shareholders were made aware of the potential for future changes to the regulatory framework, just as they should have been. We as legislators need to consider the interests of all 22 million Australians in vibrant and healthy telecommunications markets, not just the interests of shareholders in one particular company. This naturally raises the question of whether this process is automatically bad for Telstra. Keep in mind that this debate is happening a year late, during which time Telstra shares have dropped by approximately 25 per cent. I wonder if Telstra’s shareholders realise that if the coalition’s delaying tactics had not been so successful we would be a year further down the track with this process than we are now, and Telstra could have avoided 13 months of uncertainty.

This bill sets in motion a key microeconomic reform that the Greens would support in principle even if the NBN did not exist. In the context of the government’s refusal this week to hand over the business case, there is no point in arguing over whether or not this bill is linked to the NBN, because of course it is. But we agreed a year ago that this bill should be debated because, even if this proposal for the NBN was not on the table, the creation of a government owned, open access wholesale telecommuncations network is, we believe, in the public interest.

I will conclude with some reminders of what has been consistently lost in this debate—that is, what we will use this network for, because we have heard almost nothing about that during this debate. Once this bill has cleared the parliament, I look forward to moving past the overheated clash of political or economic self-interest that has skewed this debate from the beginning. I look forward to talking about what widely distributed Western Desert Aboriginal communities will do with this technology when it finally reaches them; what their health workers will make of remote telemedicine applications; how their administrators will manage when they do not have to download PDF files over a dial-up connection; and what artists, elders and cultural practitioners will do with live videoconferencing across thousands of kilometres of country.

I look forward to engaging more directly in the Gov 2.0 debate to examine how this technology can unlock more direct democracy in Australia, create more diversity in our media landscape and amplify voices at the margins of Australian society.

I look forward to talking with the small business operators who have thought through the consequences of having 469 million broadband users coming online across China, which is the estimated online population there by the end of 2010. Elsewhere in the region there are opportunities of a similar magnitude. We have been considering this debate in isolation from the fact that, at the other end of the line, it will not just be your kids working shifts in Karratha but planet earth.

I do not know whether it is still true that half the population of the world is yet to make its first phone call. There is no doubt that the digital divide is still deeply entrenched and maps perfectly onto areas of poverty and disadvantage whether in Australia or overseas. But is it possible to unlock the transformative educational and community empowerment properties of instantaneous communications between here and Tokyo, here and Nairobi or here and the Swat Valley?

We know there are serious challenges in front of us, and this project brings with it enormous risks. It carries risk not just because of the price tag but also because it attempts to unscramble the mess that privatisation of a vertically integrated incumbent set in train. It carries risk because the government still imagines it can somehow filter the network, and the Attorney General hopes to more effectively spy on all of us over the network. As the government’s inquiry into cybercrime or the cybersafety committee has identified, there are real and present dangers of becoming immersed in these networks if you go in without your eyes open.

This bill should have been carried a year ago. This proposal carries risk and leaves the government open to sustained attack from an opposition that I think has made the dramatically wrong call when it decided to destroy the NBN. The risk arises because it is one of the few genuinely bold initiatives of the Rudd-Gillard period in government. We will be supporting this bill and we look forward to its passage later this week.