‘Privatisation is a once in a lifetime opportunity to get the government to tilt the market in our favour’. That was what senior executives from British Airways (BA) boasted in the run up to the privatisation of that company under Margaret Thatcher in 1987. Thatcher wanted a good price and a successful float – what a great time to get concessions from the government!
Maggie obliged, but the public was the loser. Competition was limited in favour of BA, particularly on the profitable North Atlantic routes. And a notorious example of its abuse of market power was the campaign that it ran against Virgin Atlantic.
All this has a familiar ring in Australia. The board and senior executives of Telstra are now playing the same game, exploiting the government’s desperation to privatise Telstra. The argument runs that if the government, the major controlling shareholder, wants a good political and financial return from privatisation, it needs to fatten up Telstra for sale. And how is that done? By ensuring that the regulatory regime is tilted favourably towards Telstra as far as possible, at the expense of the community and future consumers.
Thanks to Sharyn Raggett
That is why the Telstra board and senior executives are putting as much pressure on the Government as possible – to limit future competition. In fact, it is more than pressure. The Government is being threatened that unless it adopts a regulatory regime that is more favourable to Telstra, then Telstra will wreck privatisation.
Telstra’s CEO, Sol Trujillo, threatens that Telstra will not undertake capital investment in next generation technology if the Government insists on more competition. The second most senior executive of Telstra, Phil Burgess, tells us he wouldn’t even recommend that his mother buy Telstra shares. The Government’s problems are also intensified by the habit of new senior executives bagging the performance of their predecessors, so that they can later claim a successful rescue operation.
The window of opportunity to privatise Telstra is closing quickly, now that National Party Senator Barnaby Joyce, ASIC and ACCC are all running their eyes over Telstra’s newly released figures. But more important than privatisation, is ensuring that Australians have a competitive and efficient telecommunications system. Telstra over the years has shown little regard for governments and customers. Its deep pockets have allowed it to see off genuine complainants such as the group, ‘Casualties of Telstra’.
So far, the Communications Minister, Senator Coonan, has withstood the threats from Telstra by insisting on the separation of Telstra’s wholesale and retail arms, and ensuring an effective ACCC in defence of competition and the public interest. This is a critical debate because telecommunications is the core infrastructure of the new economy. The debate is not just about whether the Howard Government gets a good share price when it floats T3, it’s about whether future generations of Australians are able to access the best 21st century telecommunications technology.
Coonan and the Howard Government should be encouraged to hold the line against the pressure from Telstra for the sake of fairer, more competitive telecommunications. It is also essential that future shareholders are told frankly about the regulatory regime within which Telstra must operate.
The experience with BA is a salutary example of how the game is played and is quite illustrative.
In anticipation of privatisation, the British Civil Aviation Authority suggested that there should be some reduction in BA’s size through compulsory route transfers and that its scheduled services from Gatwick (as opposed to Heathrow), and its European services from regional airports, be taken over by other British airlines. British Caledonian was to become the ‘second force’ in British aviation.
But the BA board and senior executives wouldn’t have any of that competition. They went to work on a government that was very amenable to pressure. Maggie Thatcher wanted a good price for BA shares, and political kudos on top of that for a successful privatisation.
So, before privatisation, route transfers unfavourable to BA, particularly to the United States, were stopped. BA’s access to airport ‘slots’ was enhanced. BA was given ‘grandfather rights’ to about 36 per cent of the take-off and landing slots at Heathrow, which is known in the industry as BA’s ‘fortress Heathrow’. There was a generous guaranteed minimum market share. And British Caledonian, the hope for ‘a second force’, was pressured to sell to BA.
Two years after the privatisation, in 1989, former Chairman of British Caledonian Sir Adam Thomson told the National Accountants in Government Convention in Melbourne that, ‘although lip service was paid to the second force concept, it was not pursued when privatisation of BA was under consideration the interests of BA were being promoted by the government with a view to the realisation of the best possible price. British Caledonian decided that in the circumstances it could not satisfactorily fulfil its role and eventually sold to BA.’
In short, the Thatcher Government was so determined to successfully float BA that it turned its back on competition and, in the process, effectively killed off British Caledonian. BA was ‘successfully’ privatised – or so it seemed. In the protected market that it inherited, BA made good profits for a few years. But with its feather-bedding and inefficiency, the day of reckoning was inevitable. Down the track, BA had to go through a painful period of downsizing and restructuring from top to bottom. Even CEOs weren’t immune.
It all has a familiar and depressing ring about it. Governments should resist the threats and blandishments to ‘get a good privatisation away’. It is much more important to first get the competitive regime right. Senator Coonan seems to understand this better than the board and executives of Telstra.
Privatisation should be deferred until a competitive regulatory regime is first established. The last thing we want is for the Telstra board and executives to exploit the Government’s desperation to fully privatise Telstra.
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