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Make Telstra public again

August 18th, 2006

My piece in yesterday’s Fin (over the fold) was about the failure of Telstra (or, more fairly, telecommunications policy) to give us even late-20th century standards of broadband service. Meanwhile Joshua Gans looks at how Telstra talks to regulators when it’s the underdog.

Make Telstra public again

Following Australian telecommunications policy is like watching one of those horror movies where the protagonist insists on going down the staircase into the cellar, even though everyone in the audience can see that disaster awaits. Or perhaps it more like Groundhog Day, where the hero relives the same bad day over and over again. Looking at the current crisis over Telstra, it’s striking that, despite the massive technological changes of the past decade, the same policy issues are being debated and the same mistakes are made.

The most salient example is the protracted sage of Telstra’s proposed privatisation. It was obvious to anyone who cared to look that the idea of partial privatisation, commenced by the Howard government in 1997 (in emulation of previous privatisations on this model undertaken by Labor) was a recipe for conflicts of interest, and for the creation of a regulatory nightmare.

As Treasurer Peter Costello said in early 2000, barely two years after the T1 sale,

If Telstra is going to be caught in a position where it is half privately owned and half government-owned, I don’t think that is going to be a good outcome. Telstra should all be either privately owned, or if people really think that nationalisation and government ownership is necessary they ought to have the courage of their convictions and nationalise it.

More than six years later, Telstra is still half-private and half-public and it seems inevitable that, even if a sale goes ahead, a substantial share of Telstra will remain in public ownership through the future fund. Certainly, there is nothing in the record of regulatory policy to suggest that full privatisation would work well. So Costello’s own logic would suggest that he should be advocating renationalisation.

But the debate over Telstra’s ownership is of secondary importance compared to the more fundamental problem that telecommunications policy has failed to meet the needs of telecommunications consumers or Australia as a nation. We lagged badly in the initial provision and take-up of broadband, and now seem certain to fall even further behind as other countries move to high-speed Internet technologies based on optical fibre all the way to the home.

More than ten years and several communications ministers ago, it was evident that poorly designed telecommunications policy was promoting investment decisions driven by considerations of corporate and regulatory strategy, yielding outcomes that were not in the national interest. The biggest example then was the race between Telstra and Optus to roll out duplicate hybrid-fibre coax cable networks, covering half the country, leaving everyone else to wait a decade or more for decent broadband access.

As I wrote at the time

the future of communications, and most notably the rapidly developing Internet, lies in digital networks based on optical fibre … the more progressive telecommunications companies in the United States are already discarding HFC in favor of building optical fibre ‘up to the curb’’ … The resources being wasted in providing duplicate analog networks could have made Australia a world leader in the development of digital telecommunications networks.’ (Pay TV’s wasted billions, Australian Financial Review, January 8,1996).

A decade later, with Japan and other countries already delivering fibre to the home, allowing high-speed Internet traffic for both uploads and downloads, Telstra finally came up with a proposal to roll fibre out, but only as far as local nodes. But, this was a mere bargaining chip in Telstra’s corporate regulatory strategy, to be withdrawn when the regulator did not give the right outcome.

So, apparently, we are supposed to rely on the second-class option of stretching ADSL technology to its limits, in the hope (contradicted by Telstra’s own statements on the subject) that the copper-wire network will stand up to the strain.

It’s time for the government to face up to its responsibilities for our national infrastructure. Telstra should be brought back into public ownership, and required to construct telecommunications infrastructure to meet national needs.

The first step in this process is that the government should take its role as majority owner seriously, and appoint a board and CEO committed to acting in the national interest. Peripheral assets like the Foxtel stake should be sold off. And the Future Fund could be used to buy out shareholders who would prefer a company more focused on short-term profits.

Australian telecommunications policy has been stuck in the same endless loop for a decade or more. If the horror movie we’ve seen so far is to have a happy ending, we need to turn around and head back upstairs.

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  1. November 17th, 2006 at 14:05 | #1

    Andrew,

    You have not provided any substantion of your accusation regarding Mark Latham,

    Just post whatever it is from Polemica, oe wherever else, to here which substantiates your claim that Latham’s diary is full of “pathetic self-justification”. Of course you won’t do it because you cannot.

    You actively supported John Howard in 2004 and intend to again. You have not the least bit of concern for the unconscionable means he used to get re-elected in 2004 and how he has abused his mandate since then. Whatever minor tactical disagreements you have with John Howard pale into insignificance beside that.

    You wrote : “Because one privatisation has succeeded in its aims and one (in your opinion) has failed does that mean I am being intellectually dishonest if I point it out? Balderdash.”

    You know perfectly well that that was not the point of my argument.

    Stop wasting everyone’s time.

  2. November 17th, 2006 at 15:26 | #2

    I did not think you would be able to substantiate “beloved”. I have provided numerous links substantiating my point. I think you lose on that one, James.
    If I understand it, the point of your argument is that we should govern Australia through opinion poll. Is that it or is there more substance?

  3. November 18th, 2006 at 01:40 | #3

    Andrew,

    So where is there any example of Latham’s “pathetic self-justification” in either of the two links you have provided? Arguably, one of Latham’s quotes that Guy has used seems ill-considered, but in a book of that size written by a fallible human being, that is surely to be expected.

    Surely, you can do a little better than that given that you hold that Mark Latham would have been a far more dangerous national leader than the current PM who permitted $300 million in bribes, whether by neglect or design, to be paid to a regime that he subsequently told us was such a mortal threat to world peace that we had no choice but to immediately invade in defiance of world public opinion and the UN? Please just open the book and dig out out just a few of the hundreds of examples of Latham’s “pathetic self-justification”, or, perhaps, ask someone youk now with a copy of the book to do it for you.

    (For my part I would be perfectly happy to provide quotes of where I think Mark Latham was wrong, but that doesn’t detract from the fact that he was head and shoulders above any other political figure in the country at the time.)

    Just in case you really are as slow as you appear to be trying to pretend to be, I will explain again the glaring logical inconsistency in that previous post. You argue that the awful record of the partially privatised Telstra must have resulted from the fact that it was majority Government owned. Then you immediately state, “In Perth, the buses are certainly better after they were put under the partial control of private firms.”

    So, somehow, in one case partial Government ownership is to blame for a very poor record, but on the other hand “partial control” by private firms (meaning also partial Government control and, presumably, at least majority government ownership) has led to better services. Then why shouldn’t that apply also to Telstra?

    Either Government involvement is always the kiss of death as you have maintained with Telstra, or it is not. Which is it to be, Andrew?

    This is only one of a number of dishonest arguments you have employed. I simply don’t have the patience to be bothered with anyone who resorts to such dishonesty in these arguments. I truly don’t mind dealing with any genuine weaknesses that people point to in my arguments (and there certainly have been in the ways many have argued against privatisation and neo-liberalism in the past IMO), but this is a complete waste of my time.

    If you persist in this practice and if you continue to fail to acknowledge facts I present to you, then don’t be too surprised if it begins to appear that you are being ignored.

  4. November 18th, 2006 at 10:06 | #4

    James,
    It is not “always” the “kiss of death”. If a privatisation, with some residual government involvement, is set up correctly it can easily provide benefits over full government ownership and control. The less residual control the government maintains and the better the incentives are structured, the better the outcome. Of course, full privatisation and deregulation is better, but some half way houses are a good start.
    It is nonsense to claim, as you seem to be doing, that a single questionable privatisation automatically damns the whole idea.
    As for Latham, I think you are somewhat understating what was said on those pieces.

    One wonders if the man is simply too burnt out and wounded after his time in politics to prepare a considered criticism for publication. Instead he took the quick and easy path, caring not for the implications of what he was doing, which are arguably legally defamatory in some cases. In attacking the media for only publishing half the story of political life, Latham has hypocritically done exactly the same thing, seeking no explanation or clarification from people before cutting them down and rejecting them completely.

    One of the core criticisms levelled at Latham by political observers is that he has failed or at least been very reluctant to accept responsibility for his defeat at the 2004 federal election. The closest Latham comes to taking responsibility for his share of the blame is admitting that some decisions he made reflect poorly on him, “graciously� admitting that his parliamentary career was by conventional measures unsuccessful (p.4). Unfortunately, this rather shallow admission of culpability just doesn’t wash, at least with me. Latham still sticks by his guns with regards to the “troops home by Christmas� decision, a decision almost universally labelled a poor one by anyone with a modicum of political sense. He has since suggested junking the U.S. alliance, a reaction that is amazingly foolish and extreme, even for him. As a policy, junking the alliance is a solid lead weight, politically and strategically. An election fought on such a policy would lead to a one-party Liberal Party state. I might not agree with the Bush Administration’s foreign policy in the slightest, but the U.S. alliance will likely endure whatever mediocre statesmen Australia and the U.S. throw up as leader.

    If those do not bolster my case there is a hat next to me that looks tasty.

  5. November 18th, 2006 at 18:25 | #5

    Andrew,

    Your quote about Mark Latham is nothing more than an expressed opinion, and one which I largely dispute. If you maintain that ‘The Latham Diaries’ were an exercise in ‘pathetic self-justification’ then you should be able to back this up with words from Mark Latham’s own pen.

  6. November 18th, 2006 at 18:36 | #6

    Andrew Reynolds wrote:

    It is not ‘always’ the ‘kiss of death’. If a privatisation, with some residual government involvement, is set up correctly it can easily provide benefits over full government ownership and control.

  7. November 19th, 2006 at 18:45 | #7

    then, perhaps you could explain why the treatment of its customers and workforce by Telstra has been driven by residual government ownership and not by the need to obtain a maximum return to its shareholders, contrary to what every other informed observer, of which I am aware, understands.

    (More nonsense in the middle of post to trick WordPress into publishing this post.)

    To argue that behaviour by a partially privatised corporation, which was fully anticipated by those of us who opposed privatisation from the outset, should then be used as a justification for full privatisation, as you have done, is disingenuous and insulting.

    (Nonsense at the end of post to trick WordPress into publishing this post.)

  8. November 20th, 2006 at 10:04 | #8

    Terje wrote:

    I haven’t seen any really new aspects to this debate in over a decade. This discussion included.

    Then perhaps you should show where all the aspects of the debate that I and others have raised here have been raised and countered earlier.

  9. wilful
    November 20th, 2006 at 10:14 | #9

    Coming into this debate waaay late… I finally got around to reading the Latham Diaries only recently. They were an eye-opener, and really quite frightening in the window they opened into the world of machine politics. They didn’t change my mind on Latham much, I have a great deal of respect for the bloke, though he has some serious flaws. He appeared to be reasonably incisive and critical of the way the system works, and was often enough quite critical of his own role in it.

    The diaries did make me vow never to vote for Beazley, or Rudd, or Swan. So I’m pretty much screwed with regard to the Centre0right party of Australia.

  10. November 20th, 2006 at 11:17 | #10

    I think Latham was a breath of fresh air. There were lots of things I disagreed with him on, however that is also true of Howard. I wish he had stuck around as leader of the ALP. I even gave the ALP my vote on the off chance that he might be able to upset the establishment (the Liberals got my senate vote). Without Latham I doubt I would have preferenced the ALP.

    In opposition Latham got superannuation rules changed for federal politicians and got ATSIC abolished. He actually made a difference. In time I fully expect to read his book.

  11. November 20th, 2006 at 12:30 | #11

    wilful wrote: The diaries did make me vow never to vote for Beazley, or Rudd, or Swan.

    If you don’t vote Labor in 2007, at least on a two-party preferred basis, you will be throwing away an opportunity to help end John Howard’s awful mis-rule of this country.

    Is that what you want?

    Do you really want to reward a man who has spent $54 million of taxpayers money in the most extravagent ever saturation level partisan political propaganda campaign in order order to indoctrinate the people of this country in favour of the “Work Choices” legistation that was not even put to them at the 2004 elections, with another term? Do you wish to see the man who allowed, through design or unbelievable incompetence and negligience, $300 million in bribes tobe paid to Saddam Hussein’s regime, rule this coutry after 2007?

    Even given all that Latham has revealed about Beazley, Rudd and Swan in his Diaries I still can’t see why you would not contemplate voting for them in order to rid the country of John Howard. If we are ever to move forward out of this terrible rut that we have found ourselves in since 1996, then unpalatable choices have to be made.

  12. November 20th, 2006 at 13:09 | #12

    Please wilful,

    Just understand how truly appalled, I along with many ordinary decent Australians, felt on the night of 9 October 2004 and if we had truly understood, back then, just what was in store for us in the coming years we would have felt true despair.

    Please try not to let this happen again in 2007.

    Please understand that the choice is still extremely important, even with the very serious shortcomings of Beazley and the Federal Labor Party.

    If democracy is to ever properly function again in this country then we just can’t go on indefinitely returning to office a Government that has such an indefensible record as this one has.

  13. November 20th, 2006 at 13:38 | #13

    James,
    At every election we get a choice of two. You evalute the possibilities that “…the very serious shortcomings of Beazley and the Federal Labor Party” are less of a problem than “…a Government that has such an indefensible record as this one has.” If the majority of people in the majority of seats agree with you then the government will change. Otherwise, it will not.
    .
    As for the question in 207 – the answer is easy. Services are being withdrawn because there is no effective competition. The reason for this? I think you can guess. That’s why I said it should have been split up before being sold. It was not, but we have to deal with that. Leaving it as a bloated monopoly is not a solution to the problem of having a bloated monopoly.

  14. November 20th, 2006 at 14:14 | #14

    Andrew you wrote: At every election we get a choice of two. …

    Thank you for this statement of the bleeding obvious. However, I thought my point was to convince wilful that he should vote Labor, at least on a two-party preferred basis, even if he is very concerned about Labor’s shortcomings as I am.

    Your ‘explanation‘ for 207 is no explanation at all. A government which is concerned about the welfare of the people would not permit the removal of these services whether or not competition existed. They allowed the removal of these services in order that Telstra could reduce its costs in order to raise the return and share price for the private shareholders.

  15. November 20th, 2006 at 14:40 | #15

    What – the government should not permit redundancies? The staffing level of a firm, whether government or private, should never be allowed to vary downwards even if there is no work for them? Is that a welfare issue or an abandonment of common sense?
    FTTN is also a welfare issue. Just what the country needs – more glass in the ground. No question of the cost / benefit ratio – just go ahead and do it. Hold on – that is a fair amount of GHG produced as well to put it in – who cares, lets put it in anyway. Government orders.
    We should also have lots of public phones everywhere, even if they are not being used – that is irrelevant. We need more of them.
    Aren’t you the one concerned about overuse of our current resources, yet here you are saying we need to use more?
    And on the pricing – have you looked at the prices now compared to what they were under the old government monopoly. They still suck and are too high – but they are a heck of a lot cheaper now.

  16. November 20th, 2006 at 15:48 | #16

    Andrew,

    For now, I’ll disregard the straw men that you have built and have then knocked flying so well.

    It seems that, once again, an argument used by you has been turned around 180 degrees.

    I had thought that you had agreed with me that the things we were discussing were bad things, only that you held these as confirmation of how bad residual Government ownership of Telstra was:

    And all that at Telstra while still under the controlling ownership of the government. Bring on privatisation.

    Now it appears that you are defending them.

  17. November 20th, 2006 at 16:29 | #17

    James,

    If we are talking “straw men” then perhaps I should then ask for an apology over the “beloved” bit. I have people whom I love, but none of them are our current Prime Minister. A concession that I do not agree with him on many things would also be appreciated, if unexpected.

    In any case, where was the straw man constructed? You were saying that these things should not be permitted by any government concerned about the welfare of the people – i.e. force should be used to stop them, if needed. That is how a government does things. If that is a strawman, it is a very curious one.

    I apologise if I forgot to put the [SARCASM] and [/SARCASM] tags around the “all that” bit.

    The root problem is that the entity has been a government monopoly for a long long time. I would prefer that the privatisation was done differently, but it was not and there is no use crying over spilt milk. It is done (and at a better price and volume than expected) so what, to me, we have to concentrate on is getting the regulations cut down and competition up.

  18. November 21st, 2006 at 02:16 | #18

    Andrew,

    You actively campaigned for John Howard in 2004 and intend to do the same again in 2007.

    You excuse the mountains of deceit, well over $20 million of it paid for by the taxpayer, used to get John Howard re-elected in 2004.

    You excuse John Howard’s implementation of laws that are changing the very fabric of our society that were not even put to the electorate in 2004.

    You excuse John Howard for having spent $54 million in taxpayers funds in an extravagant saturation-level campaign of fraudulent propaganda to indoctrinate the Australian public into supporting the “Work Choices” legislation that was never put to them at the 2004 elections.

    You excuse John Howard for having allowed $300 million in bribes to be paid to Saddam Hussein’s regime, the same regime which he maintained was such a mortal threat to humanity that we left with no choice but to invade Iraq in 2003.

    I think you will just have to accept that some of us cannot help but remain deeply sceptical now matter how strenuously you deny that you love this man.

    Andrew Reynolds wrote: The staffing level of a firm, whether government or private, should never be allowed to vary downwards even if there is no work for them?

    And why do you presume that the cuts of 12,000 are being made because there is no work for them?

    Because Sol Trujillo said so? If Sol Trujillo said so, then that must be good enough for you.

    Don’t you understand that the degradation of Australia’s copper network was precisely because they cut back on necessary maintenance staff in order to save a few dollars for Telstra’s private investors?

    Andrew Reynolds wrote: FTTN is also a welfare issue. Just what the country needs – more glass in the ground. No question of the cost/benefit ratio – just go ahead and do it. Hold on – that is a fair amount of GHG produced as well to put it in – who cares, lets put it in anyway. Government orders.

    Anyone with a modicum of intelligence should be able to appreciate that for most settled areas of the continent the cost/benefit ratio would have been spectacularly good if we had taken advantage of the massive economy of scale that a comprehensive rollout of fibre optic cable would have allowed. For more remote communities, other technologies including satellite may have been more appropriate. As it is millions of Australians have missed out because our Government has put the kind of nonsense neo-liberal ideology that you espouse ahead of the public good.

    Yes, of course there is a GHG cost to every human activity, but surely you should have been able to understand that the GHG cost entailed in connecting millions of Australians to fibre optic would have saved us from other much higher GHG costs.

    Andrew Reynolds wrote: We should also have lots of public phones everywhere, even if they are not being used – that is irrelevant.

    Again, why do you presume that the public phones are not being used? Simply because Sol Trujillo says so?

    Did you know that they did not take into account 1300 reverse phone calls in considering which phones to axe? Possibly because the telecommunications ‘experts’ they pulled off the streets of the US, Europe and Singapore in order to write the strategic report at a cost of $54 million to Telstra didn’t have a clue about Australian conditions. Do you actually care that many people unable to afford either landline phone connections, the rent for which having been inflated so that shareholders can be paid dividends, or mobile phones, may be left entirely without telecommunications services?

    Why do you waste my time, and everyone else’s time, by venting such ill-informed prejudices?

    Andrew Reynolds wrote: I apologise if I forgot to put the [SARCASM] and [/SARCASM] tags around the “all that” bit.

    Yes, very funny, I now realise. Please don’t hold back from further repeating endlessly this joke about how silly I am to want the Government to own Telstra when this Government has stuffed up Telstra so badly.

    Andrew Reynolds wrote: The root problem is that the entity has been a government monopoly for a long long time. I would prefer that the privatisation was done differently, but it was not and there is no use crying over spilt milk. It is done (and at a better price and volume than expected) so what, to me, we have to concentrate on is getting the regulations cut down and competition up.

    Yes, I already know you think this. You have told me all this countless times before. Do you imagine that by just repeating this endlessly over and over again that I am going to eventually just going to give in and agree with you?

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