Five good reasons why the government should not own half of Telstra

Kenneth Davidson (The Age, 30 June 2003) asked the question: "Why does the Howard Government want to sell the remaining 50.1 per cent of Telstra?" The answer is that it is in Australia's national interest - it is in the interest of Telstra itself, its 1.8 million shareholders, the wider telecommunications sector and, most importantly, the Australian public.

The question I would pose to Davidson, and to the Labor Party, is: "Why do you insist on the government running a phone company?" Those opposing the sale of Telstra must explain:

1. How would they resolve the extraordinary conflict of interest whereby the government on the one hand should be promoting maximum competition and thereby lower prices and better service quality, while at the same time it has a very powerful incentive to maximise returns from its $30 billion stake in the largest player in the industry?

2. In an increasingly global telecommunications market, how is Telstra expected to compete effectively when the odds are stacked against it because, unlike its competitors, it is unable to issue shares for capital raising purposes?

3. How can Telstra's 1.8 million shareholders be assured that their shares will not be devalued by the threat of government meddling and politically motivated decisions?

4. Why should all Australians continue to be saddled with the remaining $32 billion of the $96 billion in federal government debt that Labor left them with?

5. Why should all Australian taxpayers continue to have no choice but to be exposed to the vagaries of the sharemarket? In fact if Labor, which privatised almost everything that moved when in government, had not just said no some years ago, taxpayers would already be close to $30 billion better off.

By selling Telstra the government would overcome the problems of the present ownership structure. This would allow Telstra to get on with the business of operating one of the world's leading phone companies, and would leave the government, free of any conflict of interest, to concentrate on maintaining a robust, world-class regulatory framework.

Davidson glibly claims that when Telstra is fully privatised, Australia "will be worse off because Telstra will put the interests of the shareholders before the national interest". He provides no evidence for this bald assertion, because there is none.

Telstra is not a public service organisation. Since 1991, it has been required by law to operate on a fully commercial basis, which includes the obligation imposed on all company directors through corporations law to act in the best interests of their shareholders.

Telstra directors already do so, at times quite stridently and vigorously rejecting any overarching social obligation.

It is disingenuous to pretend that Telstra is a warm and cuddly teddy bear that will suddenly transmogrify into a raging commercial gorilla if fully privatised. Nothing changes with partial privatisation, because ownership is not the issue. You don't have to own an asset to regulate it.

Community service obligations such as price caps, the customer service guarantee and untimed local calls are imposed by Parliament through the Telecommunications (Consumer Protection and Service Standards) Act. These obligations are unaffected by the recently tabled Telstra sale legislation, as even a cursory glance should make clear.

Telstra's universal service obligation, which requires it to provide and maintain a standard telephone service for all Australians, is not unique to this country. Industrialised countries around the world require the dominant carrier to cross-subsidise services to otherwise uneconomic areas outside metropolitan boundaries.

The USO model is a direct replica of a long-standing arrangement emanating from the United States, which has never had publicly owned telecommunications companies.

In other words, parliaments the world over accept the need to guarantee basic services irrespective of ownership, and not one has ever proposed changing them.

Government and Parliament will always retain the ability to regulate the telecommunications landscape. I do not know of one politician who would even think of watering down the current regulatory regime. The Coalition has established some of the world's toughest telecommunications consumer safeguards and strengthened them where necessary. This will not change, whoever is in government.

In a modern and dynamic telecommunications environment, it is competition that drives new services and lower prices and regulation that provides the safeguards to protect consumers.

Since Australian telecommunications were opened up to full competition six years ago, the number of phone companies has increased from three to 89, the quality and range of services has improved out of sight and the average price of phone calls has fallen 25 per cent.

Virtually every country in the world now sees the virtues of governments not running phone companies, given that consumers can be adequately protected through strict safeguards and a competitive environment.

The government part-owning Telstra adds nothing to Australian telecommunications, other than continuing uncertainty and a $30 billion conflict of interest that is akin to the chief steward owning the red-hot favourite in the Melbourne Cup.