Is history important? Seemingly not in the fact-free environment that the Australian government’s policies on the NBN and Telstra separation have been framed.

Taking their lead from no less authority than the Prime Minister and Minister for Broadband, who believe splitting Telstra and creating a wholesale only NBN will correct ‘mistakes of the past’, other players in the debate have taken considerable licence with historical fact.

In a speech to the Committee for the Economic Development of Australia (CEDA) bemoaning the failure of the Senate to consider the Competition and Consumers Safeguards Bill, Optus CEO Paul O’Sullivan offered his take on Telstra’s history to bolster the argument that splitting Telstra is hardly a big deal. After all, as Mr O’Sullivan asserted, Telstra’s shareholders don’t really own the network – by his reckoning the network was given to Telstra after being paid for by the taxpayers.

Mr O’Sullivan isn’t alone in this view. In a letter to CommsDay published 23 July, the carrier relations manager at Internode, John Lindsay expressed a similar view. “The local loop was bought and paid for by the government and users of the telecommunications system over 50 years...Telstra is obliged to provide access to the network that was sold to its investors at a massive discount.”

That Telstra’s shareholders who shelled out close to $60 billion don’t really own the network will come as somewhat of a surprise to those who thought they had paid the market price. Despite the fact Telstra was privatised in three tranches, with the unfortunate T2 buyers paying well over the odds, Mr O’Sullivan maintains “Much of the copper local loop network was built over decades with taxpayers funds.” and “Telstra was given substantial fixed network assets, which had been paid for by Australian taxpayers, on the understanding from Day One that Telstra would also be required to make those assets available to other players and competitors”.

Given that fact ,according to Mr O’Sullivan, Telstra shareholders should hardly be surprised that separation is being forced – it’s been on the cards for years.

Right in part, Mr O’Sullivan. Following the 1991 Telecommunications Act the Telstra network was subject to an access regime but it’s a long bow to suggest the access regime creates the precedent for separation and its even more off the mark to suggest taxpayers paid for the network which was then ‘given’ to Telstra.

The network was always owned by Telstra, and its predecessor Telecom Australia. It was not given to Telstra in 1991 but the assets owned by Telecom and the Overseas Telecommunications Corporation were vested in the merged entity, the Australian and Overseas Telecommunications Corporation (AOTC) under the AOTC Act. The domestic network had originally been vested in Telecom Australia in 1976 under the Postal and Telecommunications Commissions (Transitional Provisions) Act 1975 following the 1974 Vernon inquiry which had led to the creation of separate telecommunications and postal commissions with the break up of the former Australian Post Office (APO).

Under the Vernon recommendations, the newly formed Telecom assumed the lion’s share of the debt owed to the government by the APO, with some $3.8 billion of the outstanding $4.2 billion ending up on Telecom’s books.

Mr O’Sullivan seems be unaware that the advances from Treasury took the form of loans rather than general payments or subsidies from tax revenue. Although appropriated through the budget, the loans were for fixed terms and attracted interest at the long term bond rate and had to be repaid. The loans made good any shortfall in the APO’s trust account between receipts and capital expenditure and operating expenses. As the loans became due they were rolled over at the prevailing long term bond rate meaning that in 1976 Telecom had a portfolio of over 50 loans attracting an interest rate of approximately 6%. This debt portfolio included advances made before 1960 which had been deemed to be debt following the 1959 Fitzgerald inquiry into the APO’s finances. In summary there was no taxpayer subsidy to the network even under the APO.

Telecom received its last loan appropriation in 1977 and began raising debt commercially. But even whilst Telecom was replacing government debt with commercial funds the government upped the rate of interest payable on outstanding Treasury loans. In 1982 the Fraser government hiked the rate to 10% and by 1988, under Hawke, Telecom was paying 13.9% to the government. Far from the taxpayer subsidizing Telecom, Telecom had become a cash cow.

Such misunderstandings of what might seem be ancient history may seem trivial but these misunderstandings play to the prejudices in Canberra that Telstra is somehow a privileged delinquent that never repaid its debt to Australian society. This picture of the delinquent incumbent is central to the argument that Telstra needs the discipline of separation.

True structural separation has found few supporters other than Telstra’s competitors.

No investor doing due diligence over the last decade could have foreseen structural separation, especially of a type enforced via crude prohibition on access to spectrum. A prudent investor would have checked the ALP’s policy – it never went beyond operational separation. They would have looked at international precedents and regulatory fashion and found that structural separation was a discredited and discarded policy option.

But now separation is apparently a natural progression in regulation rather than a massive intrusion and discontinuity! 

Kevin Morgan