Telstra may be excellent at telecommunications, but it is not so good at public relations. On the same day it announced a record $2 billion half-year profit, it announced a $650 million cost-cutting exercise that will result in 10,000 jobs lost over the next two years. The juxtaposition caused outrage. It also caused an unlikely confluence of views between unions, the National Farmers’ Federation, the Labor Party and some National Party MPs.
From a corporate perspective, the program for job cuts in the face of competitive pressure and the profit figure go hand-in-hand. From the perspective of people on the receiving end and those who represent them the profit figure is unjustified. It should be lower, they argue, and jobs should be retained and services to the bush improved.
But the competitive pressure that Telstra is under was also illustrated on the same day. Many had expected an announcement that Telstra would float its internet arm. Instead, there was a more woolly announcement of some restructuring with possible floating of some bits of Telstra. The result was an immediate mark-down of Telstra shares. Now, Telstra has 2.3 million shareholders — most ordinary Australians with an interest in an efficient telecommunications company.
In the meantime, Telstra’s major shareholder, the Federal Government, is unhappy with being in that situation and would like to see a full privatisation.
The tension and conflict in these relationships is a direct result of the poor model presented for the initial part-privatisation. Rather than sell a third or a half of all of Telstra, the Government should have divided Telstra, isolating the infrastructure as a separate entity from the service-provider role. That would have given the Government a greater chance to regulate the infrastructure and ensure the bush was properly treated. Indeed, given that Telstra chief executive Ziggy Switkowski said he was going to put a corporate strategy to the board in the next few weeks, there is still time to consider this option.
In the meantime, the partial Government ownership appears to be doing little placate the bush. People are complaining bitterly about service levels under the present arrangement. They might be better off if Telstra were fully privatised. Competition would help improve service to the bush. More importantly, the Government could then stand back and enforce its benchmarks against all the competitors. If anything, the present arrangement is an enticement for the Government to encourage Telstra to slash and burn in the name of higher profit because that will result in higher dividends for it.
The present arrangements also hamper Telstra because it will be difficult for it to engage in partnerships, mergers, takeovers, sell-offs and partial floats while it remains under majority Government ownership and under the yoke of special legislation. That is to the detriment of existing shareholders and customers. Services to the bush will be best looked after if the Government stands back as a non-owner and regulates all players even-handedly, provided the Government learns the lessons of the nursing-home debacle and does not assume that competition will do it on its own.
The argument of those who want more jobs and better service to the bush has flaws. It ignores the huge gains created by competition in the telecommunications industry. Australia cannot go back to the days when it took six weeks for the PMG to connect a phone. Competition has resulted in efficiency, innovation, service improvement and cheaper prices in telecommunications that would not have happened otherwise. We cannot have it both ways. There may have been a growing disparity between the city and the bush, particularly with internet provision, but that is because competition has dramatically improved city services, not because services in the bush are worse.