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Letter: Re Telstra (Transition to Full Private Ownership) Bill 1998



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Secretariat: National Press Club 16 National Circuit BARTON ACT 2600 Tel: (02) 6273 3635

Mail Address: PO Box E445 KINGSTON ACT 2604 Fax: (02) 6273 2222

Chairman: I Baldock Tel: (07) 3352 6088 Chief Executive: R Bastian Tel: (02) 6239 4888 A/H

Council of Small Business Organisations of Australia Ltd. ACN 008 597 304

Reference: C .6.24

Ms Roxane Le Guen Secretary ________ ___________ __

/Senate Environment, Recreation, Communis) \and the Arts Legislation Committee S1.57 Parliament House CANBERRA ACT 2600 By Facsimile: 6277 5818

TELSTRA (Transition to Full Private Ownership) Bill 1998

Please find attached a short submission on the subject matter. The privatisation of Telstra has huge potential ramifications for small firms and we are not really comfortable to render this response at such short notice.

Notwithstanding the above, we look forward to the opportunity to expand on these initial thoughts before the committee on 6 May.

Our essential positions will be that:

a. COSBOA recognises the need to balance the Federal Budget and acknowledges the Government's mandate, but were it not for these, we would have difficulty supporting the transfer of such an increasingly essential service to the vagaries of the private sector,

b. the current bias within the Telecommunications Act against small business users, be removed prior to any transfer, and

c. the control by carriers of telephone numbers and potentially of website addresses be thoroughly examined on competition grounds prior to any transfer.

Para (b) above relates to the disproportionately high proportion of Telstra's profits understood to be currently obtained from its small business client base.

Rob Bastian Chief Executive 27 April 1998

Attachment 1. Submission Copy: The Hon Senator, Richard Alston by facsimile: 6277 7480

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Attachment 1 to COSBOA letter dated 27 April 1998

COUNCIL OF SMALL BUSINESS ORGANISATIONS OF AUSTRALIA LTD

Submission to: The Senate Environment, Recreation, Community and the Arts Legislation Committee

Re: TELSTRA (Transition to Full Private Ownership) BILL

BACKGROUND

COSBOA

COSBOA is a specialised small business advocacy organisation comprising thirty-eight industry bodies which link one hundred and sixty-seven state-based business groups with a combined network of over 150,000 individual firms.

It has influenced public policy for almost 20 years.

COSBOA and Telecommunications

COSBOA established the Telecom and Small Enterprise Policy Panel (TSEPP) and co¬≠ chaired it for four years with Telecom’s Head of Corporate Strategy. Council’s CEO was a foundation member of AUSTEL’s Consumer Council and a member of the Ministerial Advisory Committee established by Kim Beazley to oversight the development of the

New Telecommunications Act. Whilst holding these responsibilities, COSBOA commissioned research with Telstra which revealed that:

a. The usage pattern and telecommunications needs of single to five line firms, are identical to those of residential users, and,

b. 37% of Telstra's profit was derived from the 32% of its lines used by small firms.

For these reasons COSBOA has long questioned the disproportionately high line and service charges small firms pay and, in particular, contest the carrier’s right to impose time local call burdens on them beyond those imposed on residential users.

Recommendation 1:

It is recommended that both the usage patterns of small firms (1-5 lines), and the proportion of Telstra's profit derived from them in relation to residential and corporate clients, be re-examined prior to any privatisation.

Small Business is Changing

That the ABS records some 880,000 small firms which generate 40% of the GDP, generates 55% of private sector employment and approximately 92.5% of job growth, is well known. It is less appreciated, however, that the average size of our small firms is only 3.4 employees and that Australia faces massive swings to:

a. Home-based businesses. Which will confuse the residential/business line rental issue, and

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Recommendation 3:

It is recommended that small business access to E-Commerce be ensured by the extension of untimed local data access to small firms.

Are Benefits of Competition Flowing Fast Enough?

Since the emergence of new telecommunications players in the Australian market we have seen increased competition and reductions in phone charges. However, a survey released by Telstra on 21 April 1998 shows that despite these reductions Australia has the most expensive phone charges out of a group of thirteen developed countries.

Phone charges in other western countries have fallen at far faster rates than here; one example quoted was France where the costs fell by 47% in the year ended 1 February 1998.

As small business is limited in its opportunities to achieve telecommunications cost reductions on its own it must look to improved efficiencies in the carrier arrangements to make savings. Clearly, without some compulsion it seems that the major carriers are reluctant to achieve and pass on savings of the magnitude expected and now being achieved elsewhere in the world.

In the current Act, residential consumers receive particular price and service protection and large corporate clients receive bulk discounts and special account attention. As indicated prior to Recommendation 1 above, small business users are currently believed to be disadvantaged. It is important to note in this context that due to its size and

monopolistic history, Telstra’s pricing mechanisms still bear little relation to the actual cost of the services it provides. In such circumstances, it charges what the market bears ... or in the case of small business, what it can’t avoid bearing.

It is noted that Telstra is an extremely profitable company and that projections indicate that its profits will continue to grow at a fast rate. The current share price is evidence enough of analysts forecasts about it potential. COSBOA would like to see the playing field levelled for small business and suggests that Telstra review its charges to small

business with this as an objective. Whilst there may be lower profits for Telstra COSBOA is confident that benefits to small business would benefit the economy generally.

Recommendation 4:

It is recommended that any disproportionate loadings revealed in responding to Recommendation 1, be rectified through legislation before privatisation.

Control of Telephone Numbers

With the entry of new players into the telecommunications industry it was expected that some of the more irritating symbols of monopolistic behavior would have disappeared from the industry. A simple example of the type of behavior that irritates small business is that of ownership of telephone numbers. For many small businesses telephone

numbers have a value; they appear on letterheads, cards, advertising , become well known to clients, etc. However, they are not owned by the business. Often when a business relocates they are told the number must change, or if they want to change carriers the number must change, and so on. COSBOA asks why telephone numbers are not the property of the customer instead of the communications provider?

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b. Non-employing firms. Which have exploded from 291,000 to over 500,000 in the last decade and will also test existing residential/business user definitions.

TEXT

Small Business and Telecommunications

Like all sectors of the community, small business is increasingly dependent on Telecommunications. If it is to act as the creative engine room of our economy and generator of employment growth people want it to be, it must not have its access constrained.

The current Telecommunications Act requires all carriers in Australia to provide untimed local voice calls for all residential phone users. The Government has announced its intention to change the law to include small business in this requirement and to also include data in the untimed calls for residential users. COSBOA has consistently fought for legislation requiring that all local calls for small business, whether voice or data, to

be untimed.

COSBOA has to ask why small and particularly very small business users of electronic commerce will not receive the same support as residential phone users. Without legislative protection it will only be a matter of time before these small business people

will be subject to timed local data calls. Given Telstra’s current high profit levels, this would be hard to justify, particularly as post-privatisation returns will not come to the State.

At the recent Electronic Commerce Summit the Minister for Communications, the Information Economy and the Arts, Senator Alston, noted the vast opportunities being offered with the growth of electronic commerce. Several other speakers quoted examples of internet-based small business success in the most unlikely places. This is encouraging, however, the placing of additional cost burdens on new entrants to this emerging market place is likely to inhibit its growth rather than encourage it, particularly in rural Australia. Price should be set on the service or product, not on the social category of the client.

Increasingly we are seeing the emergence of home-based business activity. This is occurring for a variety of reasons, including minimising costs, balancing family/business responsibilities, etc. In the event of timed local data calls those small business operators who choose to operate from their homes would be charged on all their data calls whether they be for business or private purposes. This would immediately put them at a

disadvantage to other householders.

It is worth noting that many larger firms are now fostering arrangements whereby their staff can wort, part or all of their time from their homes. This is being done for a variety of good reasons. However, it is also obvious that if timed local data calls for small

business were introduced by carriers, then those big businesses whose employees are ‘hooked up’ at home will be at an advantage.

Recommendation 2:

It is recommended that prior to privatisation, Telstra be required to categorise and price its services by product and quality rather than by the nature of its client base (i.e business/residential).

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COSBOA sees the potential for similar problems arising in relation to website addresses as this means of communication achieves higher penetration into business activity.

The ownership of telephone numbers by the carrier rather than the customer is effectively a barrier to competition.

Recommendation 5:

It is recommended that the control of telephone numbers and potentially of website addresses be thoroughly examined on competition grounds prior to any transfer.

CONCLUSION

COSBOA supports the competitive environment being fostered by the Government but is concerned that small business is not receiving its share of the dividend and indeed, that the sector suffers from poor purchasing power and an inadequate legislative focus. It believes, firstly, that safeguards must be put in

place that protect small business from being disadvantaged as the world of electronic commerce opens up, and secondly, that licensed telecommunications carriers should be required to report regularly on their achievements in terms of cost reduction and how those savings are being passed equitably to various sectors of subscribers. We have offered specific recommendations to these ends.

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