Tragedy or Farce?


The recent Telstra saga has shown Australian telecommunications policy and politics lurching between Greek tragedy and farce. As the Telstra drama unfolds we hold our breath because we realise the principal actors have no place to hide. The essence of industrial tragedy. Farce masks the drama as the protagonists pretend that hubris can be denied.

The inevitability of the current shoot out between Telstra and the Commonwealth Government was set in train many years ago. The irony is that it was a Labor Government which scripted the plot and a Liberal Government which has ended up as the executive producer of the drama. To understand this policy tragedy we have to step back a little and recall some history.

In the 1980s Australia followed the lead of other industrialised countries in adopting an OECD agenda for ‘structural adjustment’, or microeconomic reform as we gradually came to call it. This agenda called for government-owned utilities to be corporatised, stripped of their regulatory functions, deregulated, and privatised. New industry sectors were created overnight. A new stage was set.

As the corporatised monopoly incumbent, Telecom Australia (Telstra’s predecessor) responded to the prospect of market liberalisation with a four-part strategy, the ramifications of which are still being played out today. This strategy effectively represented the corporate business interests of Telecom Australia as the best public policy in the national interest.

The first leg of the strategy was delay to buy time to gear up for the new world. Hence Telecom succeeded in having put in place a staged, drawn-out timetable for change, culminating in a seven year period of duopoly competition before the market could be opened up further after 1997. This timetable compromised the ability of any government to address the privatisation issue in a timely manner.

The second leg of the strategy was to take hostages, and this is where ‘the bush’ came into the picture. A little background is useful here. Over the course of the 1980s Telecom, along with other incumbent operators around the world facing new competition, invented the idea of universal service. Before then, utilities operated on a ‘best endeavours’ basis, negotiating long-term service roll out plans with governments as part of budget appropriations and Loan Council approvals. The concept of access to service as a universal right was a clever strategy to embed the notion of cross-subsidies as essential to achieving nation-wide service coverage. Incumbent operators like Telecom would then need special safeguards from the ‘cherry picking’ effects of competitors to preserve their national role as ‘carrier of last resort’.

The then Liberal opposition spokesman, Senator Alston, called this ploy for what it was and argued strenuously against any notion of universal service being enshrined in legislation. In the ensuring policy debate between the departmental economic rationalists and Telecom’s rural hostages the notion of universal service morphed into the concept of Community Services Obligations, to be funded under transparent transfer payments between market competitors. This elegant economic algorithm translated into an administrative nightmare and ensured that the whole issue continues to be highly politicised.

The third leg of Telecom’s strategy was to invoke the national interest in having a strong national flagship carrier in an increasingly internationalised industry. This led to the great Labor Special Conference debate of 1990 over whether OTC, then Australia’s separate international carrier, should be privatised as the platform for competition – as argued passionately by Treasurer Paul Keating – or merged with Telecom to compete against a privatised and recapitalised Aussat, then Australia’s failing satellite operator. With Telecom’s strong backing, the second ‘megacom’ model was pushed through by Prime Minister Hawke and Minister Beazley over the Treasurer’s opposition. Telecom’s success in pushing this model ensured that the merged entity “ Telstra – remains the dominant carrier in the Australian market.

The final part of the strategy was to assert that telecommunications is different from other utilities, in a bid to head off the structural separation model adopted in telecommunications deregulation in the US and in Australia in the case of electricity and other utilities. Telecom successfully argued that the ‘any to any’ connectivity imperatives of the network required vertically integrated operations. This led to the adoption of a ‘full services’ model for carrier licensing. It also led to telecommunications being carved out from the National Competition Policy Framework, and to separate, sector specific, provisions being inserted into the Trade Practices Act, and to the creation of a complex web of regulatory roles and responsibilities.

Today’s unfinished business of the final privatisation of Telstra is complicated and politicised by the consequences of that four-part strategy from the 1980s and its unintended consequences. The bush now holds Telstra hostage. Telstra is micro-managed by a highly interventionist regulatory regime which works against the market tests of classic competition policy. Australia’s competition regulator is hamstrung, and in any case lacks the generic anti-trust powers which have been employed to significant effect in this sector in the US and Europe. And Australia’s flagship carrier has failed to carve out a defendable regional or global position.

No industry situation or policy agenda starts with a clean sheet of paper. Going forward successfully, however, requires that the assumptions and objectives which have given rise to the position today be re-examined thoughtfully as a basis for reassessing future options.

If I were advising Telstra today I would be questioning whether the parts of the company are not worth more than the whole, and whether a commercially driven strategy of divestiture might not produce the best result for shareholders and, ironically, for users. It would also resolve many of the intractable policy and regulatory dilemmas. It is the only way I can think of to unwind the tangled web we have all conspired to create.

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.