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Wednesday, 16 October 1996
Page: 4303


Senator SCHACHT(4.37 p.m.) —I rise on behalf of the opposition and, I believe, the large majority of Australians to oppose the Telstra (Dilution of Public Ownership) Bill. A majority of the Environment, Recreation, Communications and the Arts References Committee made a number of recommendations, of which the fundamental one was that Telstra should not be sold.

In this bill, we have a proposal by the government to sell one-third of Telstra—for approximately $8 billion, the government's estimate—and one-third of that will be sold to foreign interests. The Senate committee report on this bill made it quite clear in a number of areas that this bill is unnecessary and that this public asset is worth keeping in public ownership for a range of social and economic reasons.

One thing that surprised all the members of the opposition, including the Democrats, on the Senate committee was that we waited for the government to produce a major reason—major empirical evidence—to justify the sale of Telstra. And we waited and waited.

DOCA, the Minister for Communications and the Arts (Senator Alston), Telstra, the finance department and other supporters of privatisation ended up quoting one report, the 1992 World Bank report Privatisation: the lessons of experience. DOCA's submission described the World Bank report as `perhaps the most compelling overall review of the effects of privatisation and its relationship with liberalisation'. DOCA also said `this is the only comprehensive study we are aware of that covers a range of privatisations and also attempts to analyse the outcomes on the basis of comparisons to reasonable counterfactuals in each case'.  The Department of Finance also placed great significance on this report, referring to it as a major study and quoting at length from its conclusion.

What does the 1992 World Bank report refer to? It refers to 6,800 privatisations around the world in about the last decade and a half. Of these, 4,500 were in the former German Democratic Republic, the old East Germany, and 6,100 were in Eastern Europe altogether, Latin America and the Caribbean. As an example of the benefits accruing from the privatisation, the study pointed to `a previously near moribund textile company in Niger,' `a finance company in Swaziland' and `an agroindustrial enterprise in Mozambique'. Just 170 of the 6,800 privatisations occurred in OECD countries.

Other studies relied on by supporters of privatisation included—and this is a classic list—the Polish cement and lime sector, the Odessa meat company, the Swarzedz Furniture Company in Poland, the Trinidad and Tobago Methanol Company, textiles in Tunisia and—the one that tops the whole list—privatisation in Haiti.

I have to say that for a report to rely on the privatisation in Haiti as an example of why you should privatise Telstra really is one of the most extraordinary arguments I have heard. We know that for about a century or more Haiti has relied on voodoo philosophy. Now we have the minister relying on voodoo economics from Haiti to justify the sale of Telstra, a profitable company, in a First World economy, by comparing it with Haiti, a Fourth World economy that has been through more unfortunate experiences than most of us care to recount.

Those reports clearly showed all the time that privatisation occurred where companies were not profitable. In the Third World, all these thousands of companies overwhelmingly were privatised because they were losing large amounts of money. So what is the comparison with Telstra? Telstra is not a loss making company. It is a profitable company, performing very well in public ownership. It was performing very well when the previous government introduced the GBE reforms to how publicly owned companies should run themselves, and of course has since the introduction of competition in 1991-92 by the previous government. Every proponent of privatisation admitted under oath at the inquiry into the sale of Telstra that the most significant improvement occurs when you introduce competition. The privatisation issue is really only a little bit on the side where a few percentage points may occur.

When I questioned the Department of Finance and DOCA, could they give us examples of the advantage of privatisation over and above competition from any experience in the world that is measurable? We got two stunning examples: two electricity companies in Chile in the early to mid-1980s, when the Pinochet dictatorship, noted for its human rights abuses, was running Chile. They were the only two examples the finance department, DOCA and Telstra could come up with to justify some advantage to privatisation in improving efficiency. In one of the cases, the improvement appeared to be no more than 1½ per cent improvement in productivity. In another case, they said one of the things that privatisation brought about was a reduction in the theft rate in one of those companies in Chile. I must say I have never seen any evidence that theft in Telstra from its own employees is a major problem that has had to be addressed. I have not seen any large numbers of Telstra employees being dragged off to the courts because they are consistently thieving from Telstra.

These are the absurd examples this government and its departments have relied upon to justify the privatisation of Telstra. Telstra is a profitable company. On 13 September, Telstra announced a profit after tax, abnormals and minority interests of $2.3 billion for the year ended 30 June 1996. On the day these massive profits were announced, business editor Alan Kohler said on the 7.30 Report that Telstra's unit costs per line are now below the average of the world's telecommunications companies for the first time. Kohler commented:

. . . they're 8 per cent below the average of the world and they're planning now to stay there.

On the 7.30 Report , Kerry O'Brien asked Alan Kohler:

So would partial privatisation force greater efficiency on Telstra?

His response was:

Well, that's already happening, that's the point.

A comment from a commentator such as Kohler is far more persuasive than the very dodgy examples that the World Bank study produced.

Mr Ian Martin from BZW, a company strongly in favour of privatisation, gave evidence accordingly before the Senate committee. He said:

On a range of benchmarks, Telstra stacks up very well against overseas companies.

Telstra's pretax return on capital for 1993-94 was 22 per cent; world's best practice is over 20 per cent. In 1994-95, return on investment was 21.8 per cent and in 1995-96 it increased to 22.9 per cent. Telstra's interest cover for 1993-94 was 5.3 times; world's best practice is over 5.5 times. In 1994-95, Telstra's interest cover increased to 8.3 times and, in 1995-96, it was 8.6 times. This indicates that Telstra is continually improving its capacity to service its debt. Telstra's debt ratio was 35.5 per cent in 1993-94 and world's best practice is 35 per cent. The debt ratio improved from 35 per cent in June 1995 to 30 per cent in June 1996—a significant improvement.

We have heard some advocates of privatisation saying that the problem with Telstra is that its debt is too low. This comes from a government which is saying that our national debt is too high, yet they are saying that Telstra is not performing well enough because its debt is too low. That is an extraordinary contradiction. We ought to congratulate Telstra for having a debt well below the average debt of similar telecommunications companies.

Telstra's return on average equity for 1993-94 was 18 per cent; world's best practice is over 17 per cent. It was 17.9 per cent in 1994-95 and 1995-96. So again that is an international measure. Telstra's credit ratings are amongst the highest of any major Australian company; this has enabled Telstra to access low cost borrowings.

All in all, we have in Telstra a company that on a number of international measures is already one of the world's best. Telstra is performing at a rate that we should all be very proud of. Its contribution to national revenues is significant. In fact, I think last year Telstra's profit was bigger than the revenue we gained from the capital gains tax, and the way the profit is anticipated to grow will mean that within a few years it may well equal the revenue we get from the fringe benefits tax. So Telstra is making a major contribution to revenue whilst providing a better and better service to the Australian people.

We also want to point out that privatising monopolies is not without risk. Whatever people may say about a public monopoly, at least it is in public hands. For the future, even under the changes that will be made from July next year when we have a more deregulated market, Telstra will still be the dominant player in providing telecommunications services to anywhere between 85 and 90 per cent of the Australian public.

Even those people who came before the Senate committee arguing for privatisation said that, for the foreseeable future, Telstra will be the dominant provider of telecommunications in this country. Yet, if it is the dominant player, is it not much better to keep that dominant player in public ownership and responsible through the minister and estimates hearings to the Australian Parliament in regard to the services it is providing? Once it becomes privatised, those oversight arrangements come to an end.

Telstra will be the biggest dominant player in our economy. We believe that is a major reason why such a dominant player should be maintained in public ownership for the benefit of ordinary Australians. Then, should they have a query about the way it is being run or about its performance, or should there be issues of concern, questions can be asked of the minister in this parliament.

Madam Acting Deputy President, I also want to deal with the sort of telecommunications system this country will have in the future. There is no doubt that early in the next century access to broadband services will be a major issue for the social and economic equity of this country. New definitions, such as information poor and information rich, which have already come to light, will be commonly used. If you have access to broadband services you will have advantages in the way you conduct yourself and in the way you will have economic opportunities within our society. If you do not have the ability to connect with these new broadband services, you will be economically disadvantaged.

With Telstra in public ownership we can ensure that all Australians will have access to a reasonable telecommunications system because, when parliament and the minister direct Telstra, it will be carried out. Once the power of direction, the power of effective oversight, by the parliament is given up, we will no longer be able to guarantee that all Australians will get the new range of services.

The Telstra committee of inquiry recommended, for example, that universal service obligations should be amended to guarantee, instead of it being a local phone connection on a copper pair, that it should be a bandwidth of 64 kilobits per second. That is the start for everybody to be on the information superhighway.

People in regional Australia will not get this level of connection. When you ask Telstra and Optus—who are rolling out cable for broadband services in the major cities of Australia—they will tell you they have no plan to do this in Tasmania or in regional Australia. As a result, we will end up with a two-tiered system. If you are fortunate enough to live in a socio-economically rich suburb in Sydney or Melbourne you will probably get it; if you are unfortunate enough to live in a country town or in Hobart, Tasmania, you will be waiting a long time, whistling in the wind, to get that connection. To get that connection and service Telstra should be left in public ownership so that not only will its revenues pay a profit to the federal government but also so that capital works can be directed for the benefit of all Australians.

The next matter I wish to raise is the issue of industry policy. Telstra is a major purchaser of equipment in Australia. It has had that policy for decades. As a result, we have many manufacturing companies in Australia which not only have supplied top quality equipment to the Telstra system in Australia, but also are now being able to compete in the world market. I think that, last financial year, exports from Australia of such equipment totalled $600 million or $700 million—a threefold increase over the previous five years. They are getting into that market because Telstra gives critical mass to purchasing in Australia. That creates lots of high quality, effective jobs.

Once you let private sector enterprise into Telstra—foreign interests, in particular overseas telcos—many of them will not want Telstra, which they are part owners of, competing with them in the new markets of Asia. It will be against their interests. As shareholders, and with directors on the board—even in a minority position—they will be able to influence an outcome. Because the minister's power of direction and influence is reduced under this bill, there will be no way to overcome it and say, `We want Telstra to be one of the major leading companies exporting services to the world and creating good quality jobs for Australians.' That is another area in which this bill is extremely deficient. It is silent about what will happen when Telstra is in private ownership.

Though we will get some argument that we are only privatising a third, we all know that the Minister for Communications and the Arts, Senator Alston, spilt the beans on all this about a month ago in a television interview, which he obviously came to regret. He said, `It is not only desirable, but it is inevitable that all of Telstra will be privatised.' The Prime Minister (Mr Howard) publicly admonished him for those remarks. He publicly said that he had rung the minister twice to point out that that was not the policy of the government. The Prime Minister was getting worried at the minister's inability to convince the Senate to support the privatisation and that this may upset some independent senators in this place.

It is quite clear that is on the agenda. Mr Costello made similar remarks overseas. He made it quite clear that if he could not get away with privatising it by legislative means, he might look it by non-legislative means. Again, this government is about full privatisation—privatisation that will lead to substantial job losses. The minister has announced at the estimates committee that he is quite happy that Telstra will get rid of 22,000 jobs over the next three years. That is a one-third downsizing of Telstra. Telstra itself said that this will improve the profit bottom line by $600 million a year within 12 months—$600 million profit!

If we have to have this downsizing under this government over the next three years, why don't we keep Telstra in public ownership so that that extra profit—which comes at the loss of 22,000 jobs—at least stays with the public; it at least goes into consolidated revenue and can be used, maybe, for education, health or, in particular, labour market reform programs for the 22,000 who have lost their jobs. Some of those 22,000 will overwhelmingly be in the rural areas of this country. The ones who will hit the fence are the service operators, the directory assistance personnel—all of which are operating very successfully in country regional centres. They are the ones who will get chopped by Telstra. That is what project Mercury said, even though it has now been denied.

Telstra is an outstanding public asset of the Australian people. We on our side accept that there always will be some faults in Telstra, that there will always be need for improvement. There always should be. We should always look at ways to improve its performance, to improve its service to its customers, to improve the quality of its jobs for its employees and, above all, to improve its profit to the Australian people.

Telstra should not be bagged, as it has been, by the minister and this government, who describe it as a 600-pound gorilla. They bag it as inefficient, saying that it is a shel tered workshop. Telstra is one of the most successful companies this country has ever seen, and it is in public ownership. It is delivering the goods for the Australian people. That is why this opposition will, in this bill, fight tooth and nail to oppose the privatisation of Telstra. We will fight it all the way through in this place, and we hope that enough senators see the commonsense view of maintaining Telstra in public ownership for the benefit of all Australians. (Time expired)

Debate interrupted.