Deregulation of communication industries must be set in the wider context of overall national economic strategy (Barr, 1985, 30)
This chapter investigates the wider context of national economic strategy that led to the deregulation of telecommunications in Australia. Deregulation policies were implemented by reforming several Government bodies, including Telecom, into Government Business Enterprises (GBEs) (See Evans, 1988; Davies, 1990; Cutler, 1990). The chapter also explores the political, commercial and technological contexts in which the reforms took place. The social responsibilites that GBEs maintained were characterised by non-market or non-profitable activities and were redefined by the term Community Service Obligations (CSOs).
People with disabilities were ignored as potential markets in telecommunications policy and appeared to fall outside the universal service parameters of CSOs. Similarly this chapter does not specifically refer to people with disabilities. However, macro-policy decisions by the Government transformed the telecommunications environment. In the new environment people with disabilities emerged as consumers and citizens who demanded equitable access to telecommunications services. Consequently, the chapter explores the changes in the material conditions of the telecommunications environment that facilitated the recognition of the rights of people with disabilites and led to their inclusion in the Telecom consultation process.
The chapter begins with an analysis of the Davidson report commissioned in 1981 by the Fraser Liberal Government. The report is a key example of the impact that research informed by free market theories had on telecommunications policy. The Davidson report placed an emphasis on cost-efficiency imperatives for Telecom and advised that the corporation be forced to loose its privileged hold on value added services to a broader deregulated telecommunications market environment.
In 1981 the Fraser Government commissioned the Davidson Committee of Inquiry to determine the desired level of involvement by the private sector in telecommunications services. The results from this inquiry were far reaching and were used later by Senator Alston as part of the argument for privatising Telstra (Alston, 1990). Davidson recommended that Telecom be opened up to competition and the cross-subsidy scheme be unbundled to facilitate market control of telecommunication services. Dismantling the cross subsidy involved Telstra quantifying the costs and replacing it with a direct government subsidy for those people who could not afford the market rate for telecommunication services (Reinecke and Schultz, 1983, 199-226). This was a significant departure from the politically removed and independent cross-subsidy provisions. Once a direct subsidy was in place it could be altered at political will, unlike the complex cross-subsidy arrangements. In addition, equitable affordable access to telecommunications services as a right would arguably be replaced by a charity discourse of provision.
The cross-subsidy system from which Telecom funds its USOs was estimated by the corportation at approximately $290 million in 1982 (Barr, 1985, 127-128). This money is derived from intercapital business profits which mostly offsets losses which include all telephones west of the Great Dividing Range, and a number of suburban areas concentrated by domestic users (Reinecke & Schultz, 1983, 9).
Interestingly while Davidson was calling for the costing of the cross-subsidy, AT&T in the United States had just given up on a ten year project to cost its cross-subsidy scheme (Reinecke and Schultz, 1983, 9-10). The observation indicates that there was more driving the debate than simple economics. Available data from previous reports appeared to be ignored. Notable among these were the recommendations from the Vernon report tabled in 1974. The following extract from the Vernon report casts doubt on the possibility of calculating the cross-subsidy:
It would be difficult if not unrealistic to attempt to quantify the permissible limit of cross-subsidisation within particular services. The commission believes that it can only state a general principle that the tariff structure not reflect a gross distortion in favour of some categories or classes of users of a service at the expense of the majority of customers... (Reinecke and Schultz, 1983, ibid, 219)
It is also surprising, given the complexity of his task, that Jim Davidson didn't have a telecommunications background. Davidson's previous position had been the chairperson of a manufacturing company, Commonwealth Industrial Gases (CIG) (Reinecke and Schultz, 1983, 199).
In order to avoid the complexities of costing out the whole cross-subsidy arrangement, the Davidson committee proposed to approach Telecom as if it were a company which did not have access to ministerial funding options. All operations and sectors of the company had to be self-funding and revenue from each sector had to reflect the costs of providing that service. However the task's fulfilment required that costs be measured precisely which proved an impossible task.
Two simple examples indicate the complexity involved. The first is based on drawing up the lines of demarcation. An elaborate system of cross-subsidy exists not only between the rural and metropolitan areas, but also within the metropolitan. How would these areas be located and sub-divided? The second illustration involves the location of capital intensive equipment such as multiplexers which are used to split up the signals at either end of a communication path and the difficulty of calculating pro-rata costs (Reinecke and Schultz, 1983, 220).
For any possibility of estimating the true costs of Telecom's cross-subsidy, it was necessary to introduce timed local calls as was also recommended in the Davidson report and as will be discussed later proved to be politically dangerous. (See Chapter nine; Davies, 1990, 65, ). The election of the Hawke Labor Government in 1983 resulted in the omission from telecommunications policy of most of the recommendations of the Davidson committee (Lindsay, 1990, 32). However, in 1990 Senator Alston revived interest in its arguments and recommendations:
There can be little doubt about the enduring validity of the universal service concept, but as the Davidson Report noted in 1982, its objective as in most industrialised countries, has already been achieved in Australia (Alston, 1990, 388).
For Barr and others (see also Reinecke and Schultz, 1983) the Davidson Report was consiously ideologically informed and politically positioned:
The Davidson exercise was yet another example of the muddled and indecisive way the Fraser Government approached the vexed issues of communications policy. As a case study in policy formulation the chief stages typified the Fraser administration's approach to forward strategies- the notion of greater privatisation, followed by a government which showed how this might be achievable, then internal tensions and inability to cope with complex matters which led to a breakdown (Barr, 1985, 137).
Reinecke and Schultz were equally scathing of the report :
Davidson had produced a report of some complexity, organized in a haphazard fashion and containing 103 recommendations, some of them so ambiguous that one had to look for clues in the text for their meaning...Davidson had produced a report couched in often vague and sometimes laboured prose. Assumptions were adopted and not argued for, and factual support was sometimes thin and occasionally non-existent (Reinecke and Schultz, 1983, 212-213)
For a report to be so castigated by seminal writers on Telecommunications policy, it was surprising that Senator Alston revived interest in the Report's recommendations. For more than a decade the report has been a political hot potato. The attempted implementation of some of its recommendations proved to be publically contentious and politically dangerous as illustrated by incidents such as the Adelaide By-election for Labor in 1988 (Davies, 1990, 55).
This section explained and analysed the Davidson report and the controversy it caused in telecommunications arenas. It has been criticised as being ideologically and politically biased as well as being badly constructed. However the current Communications Minister, Senator Alston has referred to the report in policy statements (Alston, 1990) and has used it as an authority to justify current policy considerations. For this reason it continues to be a useful report for telecommunications analysts seeking to investigate policy. Labor began to deregulate the telecommunications environment in its second term of Government and created conditions that facilitated the implementation of many of the Davidson committee's recommendations.
The next section analyses the macro-political and economic changes to the state sector initiated in Labor's second term of office. The structural reform of the state sector contextualises the changes in the telecommunications environment.
This section describes and analyses the macro-political developments between 1987 and 1989 that influenced future Government policy in telecommunications and further deregulation of the industry (See Davies, 1990, 52-60).
Economic rationalist theories based on laissez-faire models of the economy place an emphasis on reducing government, balancing the budget and shifting control of the fiscal environment to market forces which rely on competition (Hanson, 1978, 193). This is achieved through a process of deregulation which relaxes restrictions on private enterprises from competing with Government bodies for a consumer service. Deregulation may also lead to privatisation which involves the sale of Governmnent assets and institutions to private investors and corporations (Wanna, 1995, 71).
Movement toward the deregulation of Government monopolies gained pace under the Hawke Labor Government in the latter half of the1980s (See Walsh, 1995; Davies, 1990). Pressures from within and outside the Government mounted against the Government monopolies which were regarded by industry to be both inefficient and stifling free trade as a result of perceived protectectionist policies.
Several developments inspired their progress. The Federal Opposition had already announced that it supported deregulation of several areas of Telecom's monopoly to enable competition. One example of this related to the provision of terminal equipment which was at the time only supplied by the Government monopoly (Davies, 1990, 53). Attitudinal changes also occurred within the upper ranks of the Labor Government. As Davies notes even the Economic Planning Advisory Council (EPAC), a labor party group chaired by the Prime Minister, the Honourable Mr. Hawke, was in favour of deregulating some large Government monopolies. The EPAC concluded that accelerated technological change and the attendant costs associated with keeping pace with developments:
... can erode the natural monopoly characteristics of some industries enabling them to sustain more than one producer...It would be desirable to review the barriers to entry that now prevent the monopoly status of some public enterprises and to assess whether they remain appropriate. (EPAC, Efficiency in Public Trading Enterprises, February 1987, in Davies, 1990, 53)
The position reflected an ideological change in Hawke's thinking as evidenced from his shift in attitude in relation to proposed sale of Australia's national airlines (Walsh, 1995, 107). According to Peter Walsh, an ex-senior Labor Minister, Hawke initially opposed Walsh's suggestion at an Economic Review Committee meeting in April 1983 that Qantas and TAA should be privatised. Walsh argued that the air-lines at the time were in danger of insolvency unless the Government provided a further $200 million to keep them operating. But Hawke made it clear that to sell the airlines were ‘options open to their political opponents but not them' (Walsh, 1995, 107). Hawke's comment is an implied reference to a socialist ideological position, the traditional dominant characteristic of the Labor political movement that informed the party platform (Warhurst, 1995, 139). Although Walsh accepted the Prime Minister's objection as being the correct political judgement at the time, he observed that the Prime Minister later shifted towards a sympathetic view of privatisation of the airlines. According to Walsh the shift in attitude resulted from Hawke gaining a fuller appreciation of budget costs (Walsh, 1995, 107). Walsh claims that this was the, ``start of the privatisation debate within the Labor Government'' (Walsh, 1995, 102).
The airline example is significant because it demonstrated a growing Government unease with perceived inefficiency that permeated large Government monopolies. It also indicates the concerns that deregulation and privatisation proponents such as Walsh had against cross-subsidisation of costly rural services by the wider community. Walsh provides further insights in laissez-faire philosophy from his recollections of the airline cross-subsidisation issue:
Both were said to be essential services which justified a heavy taxpayer subsidy. The truth was that private aircraft were an indulgence to the affluent, that most commuter services went to country towns within easy driving distance of capital cities and which the vast majority of country town residents never used because - even with the hidden subsidy- they were too expensive. (Walsh, 1995, 114)
Walsh referred to two aspects of cross-subsiding the airlines. The first was in reference to 'general aviation' and carried principle application to agricultural operators and private aircraft. The second related to 'commuter' airlines which referred to small planes that supplied air services to country towns. In both situations Walsh was sceptical of their need for subsidisation.
Walsh addresses two issues for consideration. One concern was a growing disquiet among some Government members that national assets were inefficient and unrestrained in expenditure and not being accountable to market forces which demanded restraint (Davies, 1990, 53). The second was a growing concern that Government subsidisation for services was not justified. Subsidised transport services were the focus of initial tension but the impact was experienced later in a number of Departments, including Communications, as the demand for efficiency led to restructuring. Arguably, another significant point is the use of generalisations by politicians who used some examples of inefficiency as rhetoric to justify the universal axing of cross-subsidised services to rural areas (See also Alston, 1990). It may be suggested that the term cross-subsidy became synonymous with inefficiency and came under suspicion wherever it was used.
The complex telecommunication's cross-subsidisation scheme was different to the comparatively simple centralised system used by Qantas or TAA. If the airlines removed unprofitable routes from its service, the entire service infrastructure would not be significantly weakened. However, if the trunk cable feeding Coober Pedy was removed from the network, Darwin subscribers would arguably be screaming before nightfall. As discussed in the previous section, the telecommunications network is a complex organism consisting of interconnected nodes and appropriately likened to a living organism. In addition the airlines were funded directly from the Federal Budget whereas Telecom was regulated by the Loans council from where it drew its funds at the time.
Despite the differences in application of funding between the airlines and telecommunications, Walsh's antagonism towards what he saw as the inefficiencies of large Government monopolies later influenced Gareth Evans in the restructuring of the Government Business Enterprises (GBEs) (Davies, 1990, 53).
Arguably, from 1987 the Labor party, influenced by economic rationalist theory, began adopting traditional Liberal approaches in planning fiscal management of the economy. But there are clear differences between the two political approaches and conflicting views of the role of Government:
Both Labor and Liberal are essentially economic rationalist parties now, but there are differences between them on the role of government. In the Liberal view, government facilitates the private sector. Labor still sees government as involved in helping the disadvantaged, especially those suffering from recession. It may be increasingly cost-conscious how it does this, but the fundamental commitment remains, (Hughes, 366, 1995).
As argued above, one of the principle actors in advancing laissez-faire philosophy in the Labor Government was Peter Walsh. In December 1984 Walsh became the Minister for Finance and therefore placed in a position where he could implement economic rationalist theories. Walsh claimed the need for the structural reform of Government assets. Underlying Walsh's position was his view of the public as shareholders in the public services (Walsh, 1995, 106). Added to this perspective was a concern that senior bureaucrats viewed the funds they received as free capital instead of shares of public equity which were expected to return reasonable dividends to their owners, the public taxpayers. In short, Walsh claimed that Government organisations and senior bureaucrats had to become more efficient and accountable. (Walsh, 1995, 106).
In 1986 Walsh tabled a green paper which called for major structural changes to 'the structures of Government enterprises, such as the telecommunications carriers and the airlines(Davies, 1990, 53). The green paper proposed that Government enterprises be made more accountable and that they follow private sector guidelines of efficiency and profitability. Davies claimed that Walsh's green paper was the driving policy behind Gareth Evans' Government Business Enterprise (GBE) reform package which was announced as part of his statement in May 1988 (1990, 53).
The GBE reform package was the essence of the micro-economic strategy for the Labor Government. It targeted structural changes to key industries and focussed on the interrelationships between them with a goal for strengthened and sustained long term growth (Fanning, 1990, 37).
To facilitate the structural changes to the communication and transport services, a super portfolio was created after the July 1987 elections which saw the return of the Hawke Labor Government. The new Department of Transport and Communication was the amalgamation of the three ministries of transport, communications and aviation. Gareth Evans was given the portfolio of the previously three separate ministries.
It is interesting that economic reasons were responsible for placing the postal, transport and communication departments into the same ministerial portfolio. Arguably, when last combined technological considerations were a key motivating factor for the union. This was demonstrated by the early parallel technological developments of the railways and the telegraph. The event could be seen to be a turning point from a technological emphasis on technical efficiency with maximum capacity to a structure designed to emphasise cost efficiency and maximise profits.
Arguably, both imperatives signify the dominance of scientific discourses with measurable objectives in telecommunications policy processes that do not adequately provide for social priorities for the respective areas. That the social dimensions of policy were being ignored is indicated further by a disastrous by-election result for Labor in 1988 that was directly attributed to citizen dissatisfaction to muted changes to telecommunications policy (Davies, 1990; pers. comms. PDPIA; CTNPA, 1997).
Labor slowed its reform of telecommunications in 1988 as a result of an electoral backlash against the pace of change. In what Davies records as a `spectacular feat of public relations mismanagement', Telecom announced the introduction of timed local calls on the eve of the Adelaide by-election (Davies, 1990, 55). Labor suffered a nine percent swing against them which was attributed largely to the unpopular policy. Bowing to public opinion and political interest Labor reversed the decision (Davies, 1990, 55). The significance of timed local calls is important as it is linked to dismantling the cross-subsidy which funds Telecom's universal service (Reinecke and Schultz, 1983, 220-221). Consequently, it is argued that policy was directly influenced and reversed by the Government for reasons of political necessity. The timed-local calls issue was also the catalyst for the consumer consultative councils, a joint initiative between Telecom and consumer groups (pers. comm. EDAFCO, 1997; Johnstone, 1995, 42).
This chapter has analysed policy decisions occurring at the political macro- level of analysis and how they influenced the structural reform of several major Government Business Enterprises. It has argued that economic rationalists within the Government challenged the philosophy which supported large government monopolies and required them to compete with the private sector without protective regulation by the state. The pressure resulted in the formation of a superportfolio for the previously separate departments of postal, communications and aviation. As Minister over these enterprises, Gareth Evans restructured them under conditions of cost-efficiency and profit-maximisation as explained further in the following chapter.