Country Report Australia October 1996 Main report

Economic policy: Telstra Senate report splits along party lines--

The majority (Labor and Democrat) report from the Senate's Telstra privatisation inquiry, released on September 9, recommended sweeping changes to government policy, including substantially upgrading the definition of "standard telephone service" and the separation of certain main consumer safeguards from the Telstra sale bill. The majority report also recommended that the government legislate to ensure that all future cabling is underground and that it took immediate action to ensure that the two carriers negotiate to combine their cable systems into one national network.

A dissenting report was handed down by the committee members from the government benches. It stated that the partial sale of Telstra would contribute around A$345m per year to the federal government's budget position, and argued that partial privatisation would boost economic activity and employment levels in rural and regional Australia through reducing costs.

The minister for communications, Richard Alston, rejected calls for the federal government to support a publicly owned underground cable network. However, the public furore over aerial cabling led him to ask Telstra and Optus whether combining their competing "broadband" networks would be feasible. (The term "broadband" is applied to cabling that can carry a range of services such as telephony, television and interactive computer links.) He also stated that, while the government had no intention of imposing a cable monopoly, the companies were free to combine their networks as part of a commercial arrangement. This move indicates that the government would welcome a joint approach to cabling by the companies.

--and the outcome of the Senate vote is in doubt

The independent senator, Brian Harradine, indicated in early September that he would initially vote against the proposed partial (one-third) privatisation of Telstra. His comments followed a statement by Mr Alston that the full privatisation of the telecommunications firm was inevitable and that the federal government was likely to seek a mandate for it at the next election. Mr Howard subsequently repudiated Mr Alston's comments despite the fact that a few months earlier he had also described the full privatisation of Telstra as "unstoppable". Mr Alston's comments effectively undermined the government's careful cultivation of Mr Harradine and Mr Colston.

Mr Harradine has proposed instead that the federal government issue redeemable preference shares in Telstra, claiming that this approach would enable it to retain legal control over Telstra while still obtaining A$8bn from investors. (These shares would attract dividends, but have no voting rights attached to them, so in some ways would be more like holding debt than equity.) However, it is unlikely that this sum could be raised without investors being given at least some control over Telstra's strategic direction. Mr Harradine also questioned whether Tasmania would receive an adequate share of the A$1bn of environmental funding earmarked from the Telstra sale.

While discussions were proceeding between Mr Alston and Mr Harradine, Mr Costello said in parliament that Mr Harradine's redeemable preference share plan held no attraction for the government. Although the coalition government would not have seriously entertained Mr Harradine's plan, the treasurer's blunt and public repudiation of it is likely to have hardened Mr Harradine's resolve to vote against the sale.

© 1996 The Economist lntelligence Unit Ltd. All rights reserved
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