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INFORMATION, ANALYSIS AND ADVICE FOR THE PARLIAMENT INFORMATION AND RESEARCH SERVICES Chronology No. 3 2003–04 Telstra Sale: Background and Chronology This chronology outlines the history of the Telstra privatisation process. It documents some of the key dates and policy processes associated with the first and second tranche sales of Telstra. It also outlines some of the key inquiries and legislative conditions required for each stage of the sale. Grahame O'Leary Economics, Commerce and Industrial Relations Group 15 September 2003 DEPARTMENT OF THE PARLIAMENTARY LIBRARY ISSN 1442-1992 Copyright Commonwealth of Australia 2003 Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means including information storage and retrieval systems, without the prior written consent of the Department of the Parliamentary Library, other than by Senators and Members of the Australian Parliament in the course of their official duties. This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian Government document. IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public. Acknowledgements I would like to thank Dr June Verrier, John Kain, Dr Matthew Phillips, Brendan Bailey and Indra Kuruppu for comments and assistance. Enquiries Information and Research Services publications are available on the ParlInfo database. On the Internet the Department of the Parliamentary Library can be found at: http://www.aph.gov.au/library/ IRS Publications Office Telephone: (02) 6277 2778 Published by the Information and Research Services, Department of the Parliamentary Library, 2003. Contents Introduction .....................................................1 Background .....................................................2 First Tranche Sale –—T1 (September to October 1997) ......................5 Second Tranche Sale —T2 (September to October 1999) .....................7 Proceeds of the T1 and T2 sales .......................................9 Towards a Possible Third Tranche Sale of Telstra..........................13 Conclusion ....................................................16 Appendix A: Government's Response to Telecommunications Service Inquiry (TSI) . 17 Appendix B: Government's Response to the Regional Telecommunications Inquiry . 19 Appendix C: Chronology ...........................................21 Endnotes ......................................................38 List of Tables Table 1: Networking the Nation—T1 allocation to states and territories............10 Table 2: Social Bonus disbursement from T2 .............................12 Table 3: Summary of disbursement of proceeds from T1 and T2 ................13 Table 4: Summary of major telecommunications funding initiatives since the T2 sale.........................................................15 Telstra Sale: Background and Chronology Introduction The sale of Telecom/Telstra1 has been an issue of public policy debate for well over a decade. It was talked about in the late 1980s and early 1990s as the Hawke Labor Government implemented a microeconomic reform agenda that included the privatisation of a number of Commonwealth assets including AUSSAT, the Commonwealth Bank, Australian Airlines, the Commonwealth airports, the Commonwealth Serum Laboratories (CSL) and Qantas. Labor generally opposed any sell-off of Telstra, but did consider the splitting of Telstra on a number of occasions. The Liberal-National Party Coalition, on the other hand, embraced the idea of selling all of Telstra (although the National Party's support has been less clear cut). The minor parties in the Senate, the Democrats and the Greens, have consistently opposed the privatisation of Telstra. More recently, a number of independent members in the House of Representatives, such as Peter Andren, Tony Windsor and Bob Katter (all of whom have rural based electorates) have been staunch opponents of any further sale. Then Opposition Leader, John Hewson, campaigned on a platform to sell Telecom in a series of tranches in the 1993 election2. John Howard endorsed a partial privatisation of Telstra as a central plank of the Coalition's 'communications policy' in the 1996 election.3 After it won that election, the Howard Government moved almost immediately to sell one- third of Telstra, introducing legislation—the Telstra (Dilution of Public Ownership) Bill 1996—for the sale in May of 1996. The sale Bill passed the Senate in December that year. Following what was considered a highly successful first tranche float, the Howard Government moved quickly to introduce legislation—the Telstra (Transition to Full Private Ownership) Bill 1998— to fully privatise Telstra. However, early attempts to get support for a full sale failed when independent Senators Brian Harradine and Mal Colston did not support the Bill. The Howard Government had to settle for selling off a further 16 per cent, enabling it to privatise almost half of Telstra with the Government maintaining a majority shareholding (50.1 per cent). The second tranche sale was also subject to a funding package to improve telecommunications services—the social bonus initiatives. The second tranche sale legislation precluded any further sell down below 50.1 per cent unless an independent inquiry certified that Telstra had met prescribed criteria relating to its operational performance, after which the provisions of the Bill which facilitate the further sale of shares in Telstra would commence. The inquiry, known subsequently as the Telecommunications Service (or Besley) Inquiry (TSI), found that some problems existed in rural and regional areas with regard to: the timeliness of installation, repair and reliability of basic telephone services; mobile phone coverage and pricing; and reliable access to the internet. The Government announced a series of initiatives (totalling $163.1 million) in response to the recommendations of the TSI in May 2001. 1 Telstra Sale: Background and Chronology The Coalition's election platform in the November 2001 federal election included a commitment that there would be no further sale of Telstra until telecommunications services in rural and regional Australia were adequate.4 In August 2002, almost a year after the 2001 election and amidst further debate as to the adequacy of regional telecommunications services, the Government announced a further inquiry into regional telecommunications services—the Regional Telecommunications (or Estens) Inquiry (RTI). The RTI was also required to evaluate the Government's response to the recommendations of the TSI and to suggest ways to future proof regional telecommunications service standards. The inquiry gave general support to the Government's TSI initiatives, suggested that telecommunications service standards were generally adequate and provided recommendations on ensuring the future standard of telecommunications services. On 25 June 2003 the Government released its response to the RTI. Having resolved much of its internal arguments over a further Telstra sale (particularly with some National Party backbenchers), the Government introduced legislation—Telstra (Transition to Full Private Ownership) Bill 2003—for the full privatisation of Telstra the next day. Background The Commonwealth assumed responsibility for communications services in Australia upon Federation in 1901. The Overseas Telecommunications Commission (OTC) was established in 1946 to manage international telecommunications. Until 1975 responsibility for internal (domestic) telecommunications services rested with the Postmaster General's Department. The Telecommunications Act 1975 separated telecommunications from postal functions through the establishment of two separate statutory authorities—the Australian Postal Commission and the Australian Telecommunications Commission (Telecom). Telecom was given monopoly control over the telephone network infrastructure and associated services. It was set up as the monopoly provider of domestic telecommunications services with exclusive rights to supply, install, maintain, repair and operate the basic telecommunications services in the national network. Telecom was also the technical regulator of customer service equipment, private telecommunications networks and value-added services. Private interests were limited to localised telephony networks essentially based within the confines of private organizations (for example, PABX systems). However the rapid advance of telecommunications technology and the services it could provide to business challenged the role of the public provision of telecommunications infrastructure. Two reports in the 1980s, the Davidson Inquiry5 (a Committee of Inquiry into Telecommunications Services) and the Myers Report6 (a Committee of Inquiry into Technological Change) concluded that rapid technological