THE cry for compensation for shareholders went out almost immediately the wicked socialist Rudd government announced it would cut the Telstra Gordian knot.
The cry has no substance because it misunderstands the nature of capitalism under the Australian Constitution, and is partly politically motivated anyway.
Opposition Senate Leader Nick Minchin was quick to take up the call on behalf of the ridiculously named “Mums and Dads” shareholders. More than $1 billion was sliced off the value of Telstra shares after Communications Minister Stephen Conroy announced Telstra would have to voluntarily split either functionally or completely into two – an infrastructure arm and a retail arm.
“Where’s our compo,” the cry went up. The fact the shares went up again the next day shows how silly the call was. Even if the Government’s proposals hammer Telstra shares in the long term, the call is still unfounded.
It is based on a misreading of the Constitution that suggests that the Commonwealth cannot do anything that affects anyone’s property or property rights without paying compensation.
Wrong. That is not what Section 51 (xxxi) says at all.
It is much more limited than that. And Telstra and Minchin’s Mums and Dads shareholders can go sing for their money.
The section has two arms. First, it gives power to the Commonwealth to make laws to acquire property from a state, corporation or person. Second, it imposes a condition that it may only acquire the property on “just terms”.
In the exercise announced by Conroy, the Commonwealth does not acquire any property. We haven’t got the detail yet, but his plan does not seem to require any law “with respect to the acquisition of property”, as the Constitution requires before the “just terms” or compensation clause is triggered.
It may well be that Telstra shares lose a lot of value, but the Commonwealth did not “acquire” that value, so no compensation is payable.
A 1998 case illustrates the point admirably. WMC Resources (formerly Western Mining) had an off-shore oil exploration permit under Commonwealth law. It was worth a lot of money, especially if they found oil. Then Australia signed a resources treaty with Indonesia dividing the resources in the north-west, including WMC’s permit area. The legislation giving effect to the treaty in effect expunged WMC’s permit. WMC sought compensation.
The High Court said no. The Commonwealth did not acquire any property.
So the Constitution ensures that private property is respected in Australia, insofar as the Commonwealth cannot acquire it or confiscate it without paying fair compensation or just terms. But the Constitution does not provide for a rampantly capitalist society in which the Commonwealth is totally hamstrung for fear of treading on the toes of private property.
There is plenty of room for public interest over property interests in the constitutional arrangements – many of them affecting Telstra.
Taxation is an obvious example and we’ll leave it aside. The control of resources like the wireless spectrum or minerals is another. And trade practices is yet another.
On the trade practices front Telstra and other monopolies or members of oligopolies or cartels have difficulty defending their so-called property rights.
Put simply, if your share value requires monopoly power they are illegitimately priced too high. If your share value requires retail price maintenance or any of the other sins in the Trade Practices Act, they are illegitimately priced too high. So really a shareholder loses no legitimate property right if a government forces competition, divestment or other mechanism to promote the public interest in fair markets.
No property rights have been taken so as to warrant compensation when a government acts to improve competition. It may the aim of every capitalist to be so competitive that they drive all competition out and create a monopoly. But that should not be the aim of government in a civil society.
In a way, the initial purchasers of Telstra shares were sold a pup, especially the third tranche. This is because the Telstra model was always flawed. Part of it – the infrastructure — is a natural monopoly. Just as you don’t have two sets of roads, you shouldn’t have two telephony systems. But if you only have one it requires some stern regulation to prevent exploitation.
The other part of Telstra – retail telecommunications – had long been ripe for competition. Jammed together in one organisation the tensions and conflicts were inevitable.
But the Howard Government wanted to sell as much as possible to make Australia a nation of shareholders – mini-capitalists who are more likely to vote conservative.
The salvation for Telstra shareholders will come if the Telstra management extracts the best deal it can from the Government’s new position, not from futile demands for compensation.
Telstra’s copper wire network would only be worth the scrap metal (admittedly significant) if the Government pressed ahead with its National Broadband Network without Telstra. Once fibre went to the home, telephony would go with it.
Telstra has a lot of fibre, cable, conduit and expertise in its network which could substantially reduce the cost of the NBN. Telstra (Infrastructure) and NBN make a more logical (and more profitable) partnership than Telstra (Infrastructure) and Telstra (Retail).
The Government has threatened to cut Telstra out of extra wireless spectrum if it does not co-operate. (Incidentally, the Govrnment should think about a single entity running the mobile network.) The Government can cut Telstra out of new wireless spectrum without fear of compensation claims for the reasons given above.
The Government can ration the spectrum and place conditions on who can have access to it. This happened for years with the cross-media ownership rules. Just as newspaper-owning companies had been prevented from owning a broadcast licence, so, too, can a copper-wire-owning company be prevented from access to the new wireless spectrum that comes available when analog TV goes and the whole spectrum gets reorganised.
So with the threat of looming redundancy of its copper network and nowhere to expand with wireless, Telstra has no choice.
Ironic that. Telstra will now know what so many of its customers have felt for so long.
CRISPIN HULL
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