Opposition Communications Shadow Minister Stephen Conroy <a href="opposes the federal government’s decision to appoint Geoffrey Cousins to the Telstra board against the wishes of Telstra management:
“For the last eight years Mr Cousins has been a consultant to the Prime Minister,” Senator Conroy said. “The decision to give him another political appointment is a spectacular display of arrogance by the Howard Government and shows utter contempt for the interests of Telstra shareholders.”
But isn’t the whole point of Labor opposing the full privatisation of Telstra that it wants the government to show if not ‘utter contempt’ at least indifference to the interests of Telstra shareholders, by forcing them to finance telecommunications services that have no prospect of making money?
Less than two weeks ago, Conroy’s fellow MP Chris Hayes issued a press release which said:
Member for Werriwa Chris Hayes has called on the Prime Minister to pull Telstra into line over the price gouging and bully boy tactics that it is using on local schools. …
Andrew Norton 
The current government’s approach to board appointments in general is interesting. Perhaps they’re putting provocative appointments up for Telstra for just your reasons – i.e. to show the folly of being half pregnant. They have stacked the ABC Board (more bluntly with ideological types than past stackings) and have ensured that ALP members can’t be on university boards, which have some State appointees on them. It doesn’t speak well for good governance, and maybe it shows which institutions are deemed important (Reserve Bank, judiciary) and which the government sees as fair political game.
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“have ensured that ALP members can
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Yes, I meant politicans, not ALP members. My point was just that the criteria for deciding what skills are key for a board and who should decide who has those skills are not clear and so open to abuse. Dictating no (mainly ALP) politicians was one line that was drawn in the sand, and illustrated a particular view of universities.
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Robyn – But these governance changes are not at all like what you describe with the ABC. There has been a fair bit of bipartisanship surrounding this – the changes in 2005 can be traced back to the recommendations of the Hoare report a decade earlier, which had been commissioned by Simon Crean. There has been a general acceptance that universities are better served by having people with appropriate skills, rather than merely having representatives of various internal and external interests. The representative members that remain are reminded that they have a duty to the entire institution, and not just whichever group elected or appointed them. University governing bodies are less ‘stacked’ than they used to be, and less able to be stacked.
This was not aimed at the ALP – indeed, a common practice prior to the reforms was for politicians of both parties to be appointed and ALP state governments still get to make a significant number of appointments (as opposed to none from the Commonwealth, except for the ANU). It was a perhaps rare case of unpolicitised and sensible policymaking.
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andrew,
governments appoint board members to government bodies they do not nominate them! which begs the question IF they are selling T3 later this year what in hells name is this nomination about?
did these boofheads ever do ANY research?
This is the THIRD optus failure appointed/ nominated for the board.
cousins was also hopeless at the NRMA/AIG imbroglio.
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Homer – Haven’t you got this the wrong way around, as I did? Though when you own more than half the shares the difference between nominate and appoint is not significant.
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I’m not opposed to people sticking it to the government, but the Telstra business is strange at a whole range of levels. Fundamentally, though, the government is the majority shareholder and they should be able to have whoever they please on the board. They fact that they plan to sell their stake in future is irrelevant. This shows to my mind that the current and past Telstra management are totally out of control. This, to my mind, explains why the share price is so low.
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Off topic to the post, but on topic to the thread: I’m just back from visiting Buckingham University. The VC told me that he has changed the eligibility for the Univesrity Council. Only alumni and major donors are elibile for appointment. Very sensible. I also like the idea of having alumni vote for council members.
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“I also like the idea of having alumni vote for council members.” We used to have that here, but I am unsure of the logic behind it. Arguably, they have an on-going interest in that the ‘value’ of their credential is in some way linked to the current prestige of the institution, but I can’t see any a priori reason why they are likely to bring any wisdom or expertise to the council that can’t more reliably be found by other means.
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Both Stephen Conroy and Chris Hayes are highlighting the folly of privatising the rest of Telstra. If you think the labor party is presenting a conflicted view of the merits of full privatisation, think about the Howard governments motive for this appointment. I’d agree that the labor message is confused, but it’s nowhere near as bad as the governments attitude and here is why:
Obviously, even THEY don’t think that a fully independent Telstra is a good idea if they are trying to push obviously biased board appointees onto the company. On the one hand they want to follow the doctrine of free enterprise, but only so far as it doesn’t allow free enterprise any real freedom.
One question that needs to be asked of the Australian people is whether they are still comfortable continuing to subsidise the telco needs of those of us who don’t live in capital cities. It’s a question I don’t think has ever been seriously asked. My gut feel is that the disappearing principle of “a fair go” would support the continued bush subsidies, but we’ll never know until we ask. Up until that point, privatising Telstra is an exercise in blind doctrine rather than an informed decision that might benefit the public.
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David – The Australian public is in a spendthrift mood, so I am pretty sure they would say yes to subsidies (plus there are already massive subsidies to regional areas which have been only mildly contentious). But I’d say better to do it through the Budget than through cross-subsidies within Telstra.
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Andrew,
The simple reason for not subsidising telco costs through the budget is that it is inflationary. It’s the same reason that private health insurance rebates are a poor idea. The rebate encourages price rises and does nothing to keep a lid on costs – customers wear the price rises because they live under the illusion that the 30% rebate makes it cheap. First home buyers grant? Had the opposite effect to the intended one (made houses more expensive). See a pattern emerging?
If the costs are entirely contained within Telstra, they have an automatic internal mechanism for keeping those costs under control (i.e. it affects their bottom line), not an incentive to gouge their more expensive customers. If the government had any real incentive to create real competition, they’d divide Australia into two markets (urban and bush), carve off the bush part of Telstra and taxpayer fund it (automatic lid on costs) and flog the urban bits of Telstra to whoever can afford to buy them. It sounds a bit bolshie, but isn’t that what the national party is all about?
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Andrew – I know the outcome was good, and the process may have been a model of rectitude, but I guess I was being more cynical than you in wondering why good practice and bipartisanship occurred there and not elsewhere, and wondering what sort of a political calculation underlay the pursuit (and enforcement) of good governance for universities. Particularly since Nelson was the champion involved.
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Dave Rubie – I don’t agree with your contention that cross subsidy is preferable to direct budget funding because it keeps costs down (I take it that you didn’t actually mean “inflationary”).
For example, if the body doing the cross subsidising is a monopoly, then the costs are readily passed on to the consumer and signals for efficient pricing and resource allocation are blunted. This does nothing much to hold down costs.
As the market becomes more competitive, the ability to follow social policy objectives weakens greatly. There are also many difficulties when part of the industry is a natural monopoly and the company (like Telstra) also operates in the competitive part. It isn’t very easy for the regulator to determine where cross subsidies are being pursued in line with government objectives or when the natural monopolist is gouging its competitors in the other part of the market.
If the item being subsidised is budget funded it is more transparent and more amenable to scrutiny and cost control by the budget process.
That is exactly what your proposal on separating Telstra amounts to – how else would a taxpayer funded “Bush Telstra” operate other than by budget funding? (Of course there would be other ways of doing this – a levy on the rest of the industry, vouchers for bush users etc but let
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Andrew,
Suppose that the T3 sale goes ahead. If at that point a majority of shareholders do not like any of the board members, surely they can vote to change them? (I’m not sure about the legalities of this, but this seems likely to be possible over time if not immediately after the sale.) However, at present just over 50% of Telstra is owned by Australian citizens and the Government would seem to be obligated to act in their best interests up until the point at which it is sold. This underscores the ridiculous position that the government is in at present being both a regulator of Telstra and representing the majority owners of Telstra. But I don’t see anything obviously unreasonable about them nominating (and thereby appointing) someone to the board of Tesltra at present. Especially given their obvious concerns with certain practices of the current management. Things would probably have been much better if the wholesale (at least in terms of the fixed line network) and retail arms of Telstra had been separated before the initial privatisation. While there may have been some loss of economies of scope and the like, I suspect that the gain in the form of lower cost and more effective regulation of the natural monopoly element of Telstra would have outweighed any such losses. Anyway, this is getting to be a long comment, so I’d better finish it here!!!
Regards,
Damien.
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Andrew,
I should have noted in my previous comment on this post that Sinclair Davidson had already made the point that until the T3 sale takes place, the Commonwealth Government is acting on behalf of the majority share holder of Telstra.
Regards,
Damien.
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Andrew,
Just to clarify, the second last sentence of my first comment on this post should be read as: — lower costs of regulating the natural monopoly element of Telstra and more effective regulation of the natural monopoly element of Telstra.
Regards,
Damien.
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Stephen c:
I think we’re writing about much the same thing: unintended consequences of socially driven policy, although I didn’t express it as well as you did. I don’t see Telstra being any different. At the moment they are largely controlled by their majority stakeholder. When that control disappears, we’re left with last minute board fiddling and legislation. Neither of these would be palatable to any publically held company that wishes to maximise profits to it’s shareholders. Look at how often, and loudly, banks and media companies chafe under their various controls (although strangely it doesn’t appear to affect their profits).
I would agree that internal cross-subsidy at Telstra for bush customers is unworkable after the company is fully privatised, but I remain unconvinced about the efficacy of vouchers or similar schemes for non-urban customers. They are too easily rorted and there are too many grey areas on the outskirts of our cities where endless arguments can take place about just how country they are. When we lived in Cherrybrook, (major suburb in Sydney) we couldn’t get broadband (for example). Does that mean it was the bush? Not by a long shot, it just means the local telephone exchange was rubbish. By contrast, here in New England we had broadband up and working within a few days of moving in (and this was 2 years ago). Is Armidale the bush? There’s barely 20,000 people here. I still think that ownership of the telco is important to maintain parity between australians and I’ve yet to see a convincing argument in favour of selling the govt’s stake. “Trust me” just doesn’t cut it any more.
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Damien – Given its choices under the current arrangements I am not saying that the government shouldn’t appoint someone to the Board, though I don’t know whether this particular appointment makes sense or not.
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Andrew,
I don’t know anything about the backgound of the proposed appointmtee, other than a few things I read or heard since the story broke. However, I suspect that one of the main requirements that the government has for any appointee is that he or she try and mitigate attacks on government policy and the like. Its a difficult situation, since the objective of maximising the value of Telstra directly conflicts with the objective of restraining its ability to exercise market power.
I should probably disclose that I used to work for an economic consulting firm that does work for Telstra and I also used to work for the ACCC.
Regards,
Damien.
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A minor quibble with Damien’s interpretation of my earlier point. I wouldn’t argue that the government represents Telstra’s majority shareholder. That simply adds another level of agency cost – which we know is there already. Rather, I would say the federal government IS the majority shareholder. In other words, I would differentiate between state ownership and public ownership.
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‘I can
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I think the real question is – does John Howard oppose Telstra privatisation?
Mr Cousins may claim not to be a toady or sychophant of the PM. And I have no doubt his performance will show this. But sadly, he sounds as believable as Mark Steyn did when he denied ever demonising Muslims.
It seems to me this appointment might just be the straw that breaks the Coalition camel’s back …
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Sinclair,
I’m not sure that it makes sense to differentiate between State ownership and public ownership. The government is both elected by Australian citizens and paid by Australian residents. Since there is a large overlap between these two groups (Australian citizens and Australian residents), it seems clear that they are supposed to be representing the interests of Australian citizens. Of course, standard public choice arguments would suggest that elected representatives are unlikely to act as perfect agents for their constituents. So there are probably additional agency costs as you suggest.
Regards,
Damien.
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I agree with all that you say. It still seems to me that a useful distinction can be made between different types of state ownership. As a reform measure, if government wanted to signal public ownership (what you are talking about) relative to state ownership (my concept), they should vest the shareholding in the governor general, and not is the relevant cabinet minister.
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