Prime Minister John Howard has given two reasons why the remaining 51 per cent of Telstra in public hands should be privatised. The first is that the money realised could retire public debt and the proceeds be used for things that only governments can do, like health and education. The second is that it is a conflict of interest for the Government to be at once the regulator of Telstra and its half owner.
Both these arguments have some merit, subject to some qualifications. Until the 1970s, it would have been difficult for private enterprise to run a telecommunications company in Australia. Only government could mount the capital to build and run the infrastructure. Nowadays there is enough private capital about to do the job. A counter to Mr Howard’s argument is that Telstra is such a successful company that the Government should keep its share and keep the profits rolling so it has more money for education and health. But that counter-argument has dangers. Under that theory, Government could engage in all sorts of commercial activity for profit. The better position is that taxpayers money should not be put at commercial risk. Further, one of the main reasons Telstra is doing well is that the Government changed the regulatory environment. There is now more competition in telecommunications. The competition delivered efficiencies, profit and risk to capital at the same time. The logical outcome of deregulation and competition is privatisation, or at least privatisation of the parts of Telstra that are subject to competition. The Government should not have its capital tied up in Telstra. It should retire debt.
The other point the counter-argument ignores is that a fully privatised Telstra would be subject to tax, so the government would get a reasonable return from Telstra anyway.
Mr Howard’s point about conflict of interest is a valid one. But the conflict of interest is one of the Government’s own making. It arose out of the model it chose in partially privatising Telstra in the first place. It decided to sell part of all of Telstra, instead of selling all of a part of Telstra. It would have been better to break Telstra into two parts: the owner of the infrastructure as one part and the provider of telecommunications services on that infrastructure as the other part. The first part remains a monopoly even now. The second part used to be a monopoly in the says of Telecom and before that the Postmaster-General’s Department. Now it is subject to competition. It is the joining of these parts that presents the Government with the conflict of interest. The joining of the parts also presents the Government with difficulties over community service requirements.
If the parts had been kept separate, the infrastructure part could have been wholly or partly government-owned monopoly subject to community service requirements and regulation. The rest could have been totally privatised and competed evenly with Optus and other players.
It is still not too late to do that.
The great difficulty for Mr Howard in this is to persuade people in the bush that a privatised Telstra and its privatised competitors can be made to look after the bush and to persuade the Democrats that the money raised will go to socially worthwhile things. The trouble is that the track record is not good, despite the past week’s whistlestop tour of regional Australia.