Nevertheless, Harry Brown's 16 years as head of the PMG had been years of major achievement. They had vindicated the decision taken at the time of Australia's federation to place the responsibility for the nation's telecommunications services, along with postal services, in the exclusive hands of the Commonwealth. By 1939 all of Australia's capital cities, with the exception of remote Darwin, had been linked to a national network of 'voice grade' lines, and some 50 per cent of services were connected by automatic exchanges.³ These levels of development appear modest by early 21st century standards, but at the time they were among the 'world's best practice', outstripping those of England and most of continental Europe, where the concept of providing a universal service was comparatively slow to take hold.⁴

World War II gave further impetus to this impressive process of national infrastructure development. At the same time, in the minds of Australian policy makers, the experience of war confirmed both the centrality of communications services to national self-reliance and the key role that the government therefore had to play in their provision. Harry Brown had resigned from the PMG in 1939 following a disagreement with the Menzies government (1939-41) over plans to pass some of the department's broadcasting powers to Ernest Fisk's Amalgamated Wireless, Australasia (AWA), which was engaged in a joint venture with the Commonwealth to provide wireless communications. At the war's end, Menzies' policy was reversed. The Chifley government (1945-49) acquired AWA's broadcasting assets and rolled them into the Overseas Telecommunications Commission (OTC), a new entity created by the Commonwealth to supplant the role of the UK company, Cable and Wireless, in supplying international telecommunications services. For the following 46 years, the task of meeting Australia's domestic and international telecommunications needs would be largely the preserve of the two state owned monopolies, the PMG and OTC.⁵

The contrast with the present is stark. Today, there are 69 licensed telecommunications carriers and more than 1000 registered service providers operating in the Australian market and offering a range of services undreamt of in the pre-war era. Spurred on by the opportunities created by technological change, the industry has grown rapidly and its revenues now account for 5 per cent of GDP. If we include the 49.9 per cent of Telstra which has been privatised, around 70 per cent of these returns are now generated by the private sector. While Telstra, as the descendent of the PMG, still commands some 70 per cent of the local market in terms of carrier revenues, it must now compete at both the domestic and international level with companies (or the subsidiaries of companies) that are many times its size, including the communications titans formed through mergers and joint ventures in the US and Europe (also see Chapter 6).⁶ These companies typically target the long distance and international traffic which provided domestic revenues for cross-subsidising national loss-making services during the monopoly phase. Yet, in Australia, Telstra continues to bear the prime responsibility for ensuring that, in the words of the Telecommunications Act 1997, 'all people in Australia ... have reasonable access, on an equitable basis' to key telecommunications services. The government has attempted to address the tensions inherent in this new market structure by requiring all carriers to help fund the universal service obligation (USO) on a scale proportional to their share of industry revenues, but the size of these costs -- and hence the size of carriers' contributions -- is hotly disputed.⁷

Meanwhile, despite attempts by the Hawke-Keating Labor governments to limit the levels of foreign investment during the early stages of market liberalisation, the industry has become increasingly dominated by foreign capital. With the exception of Telstra, none of the nation's major carriers has majority Australian equity. In a historical irony that has not gone unnoticed, the UK-based company that Ben Chifley displaced, Cable & Wireless, assumed majority ownership of Optus Communications, which was licensed as Australia's second general carrier during the duopoly phase of liberalisation (1991-97). The revival of this imperial connection throws the question of Australia's place in the worldwide restructuring of communications markets and companies into sharp relief.

Telstra itself has not been immune from the impacts of these changes. While the company has undergone many reorganisations since its separation from the PMG in 1975, by far the most radical changes have been those that have occurred since 1996. Preparations for the initial one-third privatisation in 1997 involved a sweeping restructuring of the organisation's operations and extensive job losses. In 1996, the company announced its intention to reduce staff numbers by 27 500 by June 2001. Further job cuts announced in February 2000 will leave it with as few as 35 000 staff -- less than half its pre-privatisation level -- by 2002. Over 23 000 employees have already been taken off the books, either through direct redundancy or through 'contracting-out' or the 'outsourcing' of Telstra functions. Outsourcing began with services that were seen as peripheral to the company's business (such as property, fleet and cleaning services), but it has spread into network maintenance and is now being entertained for central functions, such as network construction and exchange maintenance. The resulting dilution of Telstra's skill base is a threat to both domestic service quality and the company's own long term capabilities. Recently, for example, Telstra has discovered a skill shortage in the high-tech data networking area. Yet in 1996 it shed some 1500 highly skilled information technology (IT) staff when it outsourced the majority of its IT functions to a joint venture established with IBM.

Not surprisingly, these changes in industry structure, ownership and composition have also been attended by a cultural shift within Telstra. The company no longer couches its 'mission statement' in terms of national development and its employees are no longer invited to see themselves as serving the public interest. Instead, they are urged to build 'customer loyalty' and 'shareholder value'. Social objectives such as the provision of universal service have been externalised, and are now seen primarily as the requirements of the government rather than drivers of corporate behaviour. The shift is unmistakeable for those workers who have survived the labour shedding of the last five years, since they are flashed news of Telstra's share price movements when they log on to their workstations in the morning.

To date, the full significance of this industry transformation has not been widely recognised in the Australian community, partly because the nation's high rate of voice telephony penetration has masked the issues which lie ahead. As consumer demand for newer services grows, however, the problem of ensuring their widespread availability and affordability within the new industry structure is becoming more evident. The looming difficulties were illustrated in 1998, when carriers formed a rare united front in opposition to an extension of the USO to include provision of a fast data service (64 kilobits per second or equivalent).⁸ The companies argued that the supply of these services was best left in the hands of the market. As the debate over Telstra's 1997-98 USO costs also showed, the industry will vigorously resist any upward movement in total USO contributions.

Increasingly, the industry is looking to the government to directly fund all non-commercial telecommunications activities that may be mandated by social and national development policies. The pressures are growing at a time when the fiscal resources of the government have already been depleted by the sale of public assets and the nation's tax base is facing the ongoing assault of corporate interests. The contradiction between the progressive separation and privatisation of the government's commercial interests, and its responsibility for the public interest, was exquisitely illustrated by the Coalition's decision to finance a number of new communications initiatives in rural areas from the proceeds of the sale of a further portion of Telstra. This policy obviously begs the question of how, in the longer term, ongoing network modernisation will be guaranteed, especially in areas where the investment may not yield commercial returns.⁹ In the new century, who will perform the role that Sir Harry Brown's PMG and its successors played in Australia throughout most of the last one, and how will this 'great civilising' work be funded?

Australia is not alone in facing these questions. They are arising in all countries which have had state-owned monopoly telecommunications industry transformed by the policies of privatisation and market liberalisation over the last two decades. This wave of change has allowed national markets to be opened to foreign participants and has facilitated the development of global strategies by the world's larger telecommunications companies. The result has been the rapid interpenetration of markets by the world's major telecommunications operators and the appearance, through alliances and acquisitions, of communications companies with global reach. 'Globalisation' is scarcely a new phenomenon, if by that term we simply mean the ongoing restructuring of production and markets on a world scale under the lash of finance capital (see Chapter 2). In telecommunications, however, globalisation is now occurring at an unprecedented rate and on an unprecedented scale, and it is a pronounced feature in a sector where development has hitherto been largely locked within national boundaries. Moreover, the momentum for this restructuring in telecommunications partly derives from technological changes which are themselves of a relatively recent date, at least in their commercial application.

Digitalisation and fibre optics have massively increased transmission capacity and reduced telecommunications costs over the last 20 years, creating the basis for truly global communications markets.¹⁰ These technological advances have facilitated a re-ordering of activity in both the manufacturing and services sectors which has, in turn, given rise to new patterns of demand in telecommunications. As transnational corporations have restructured their operations to exploit the 'comparative advantage' of particular countries or regions (cheap labour, favourable tax regimes), there has been a parallel growth in their demand for 'seamless' global telecommunications services. It has been estimated that the market for these services -- which is the prime target of the global alliances -- was worth $US25 billion in 2000.¹¹

At the same time, the digital revolution has given rise to new forms of communications that are themselves reshaping telecommunications markets and companies. With worldwide data traffic volumes rapidly outstripping those of voice telephony, telecommunications operators are seeking to reposition themselves as multi-service companies, providing gateways to the Internet, to electronic commerce ('e-commerce') and to popular entertainment.¹² This transformation involves both extensive network re-engineering and the creation of new transmission capacity, and hence requires substantial additional capital investment. In turn, this investment is most easily amortised by companies which are able to command a major share of global traffic. It is this context that explains, for example, the merger of US long distance carrier MCI with the largest US Internet backbone provider, WorldCom, an alliance that ensured the now infamous new is the world's largest carrier of Internet traffic as well as the second largest operator in the US$98 billion long distance market.¹³

These twin, reinforcing developments -- technological change and accelerating globalisation -- pose major new challenges for public policy. On the one hand, globalisation raises questions as to the degree to which any one nation will be able to regulate the activities of transnational operators and, in particular, how individual sovereigns will be able to ensure adequate contributions to national infrastructure development.¹⁴ On the other hand, the technological convergence produced by digitalisation challenges the foundations of the current regulatory regimes, with their elaborate machinery of price controls and universal service requirements. If telecommunications networks can transmit and switch not only voice traffic, but data and video as well (or, conversely, voice and video can be carried as data on the Internet), there may no longer be any sustainable basis for the separate regulation of the telecommunications sector of the media industry (also see Chapter Five). Can new regulatory models be developed in this rapidly emerging context, through which the traditional national goals of affordability and accessibility of services can be guaranteed?

These regulatory issues, which have always been the preserve of national policy makers in the past, are themselves now taking on an increasingly international dimension. As global traffic flows grow and global competition intensifies, the cost of trans-border transmission is assuming greater commercial importance for telecommunications operators. Pricing structures which were designed to help fund the ongoing extension and modernisation of domestic networks are coming under a correspondingly greater strain.¹⁵ European carriers, for instance, have recently asked why they should be subsidising the universal service needs of rural customers in the United States through the payment of above-cost termination charges to local exchange carriers in the United States; while US carriers are asking similar questions of their counterparts in Africa, China and Mexico.¹⁶

This struggle for low cost access to national telecommunications markets is being waged on several fronts. The World Trade Organisation (WTO) Agreement on Basic Telecommunications Services, which came into effect in February 1998, commits its 72 signatories to varying degrees of telecommunications market liberalisation. Together, these nations account for 93 per cent of world telecommunications revenues. The International Monetary Fund (IMF) has since sought to accelerate this process in the countries which were affected by the Asian financial crisis, using its leverage to wind back foreign ownership restrictions,for instance.¹⁷ These formal market entry barriers are, however, only one hurdle along the global expansion path of large carriers. And while there is the promise of new technologies, such as 'wireless local loop', at present the economics of network provision still oblige new market entrants to rely largely on incumbent carriers for call completion.¹⁸ As a consequence, the debate over interconnection charges in all countries with liberalised markets is intense, and there are constant calls for direct competitive access to local network infrastructure ('local loop unbundling'). In still other cases, the uneven pace of global liberalisation means that transnational operators cannot yet establish a presence in domestic markets, and therefore they must continue to deal with monopoly national carriers for the termination of international traffic. The charges levied for these services (that is, 'accounting rates') have thus become another site of international conflict, in the course of which regulatory agencies and governments have naturally rallied to the cause of their national industries. Indeed, to penetrate the arcane world of international accounting rates is to glimpse, in outline, the trade wars of the information economy.

The 'accounting rate' is the wholesale price set by carriers for the exchange of international traffic, as opposed to the retail price for an international call (the 'collection rate'). Historically, accounting rates have been determined bilaterally by carriers (typically, state monopolies in the countries concerned) within a framework provided by the International Telecommunication Union (ITU), and, as is the case with collection rates, they have been set well above cost.¹⁹ The rates have generally been symmetric (that is, based on the notion of splitting the cost of transmission between the two countries 50-50), and they have been paid through a 'settlement' at the end of each year on the basis of the total amount of traffic exchanged by the two carriers. Where the accounting rate has been established on a symmetric basis, the settlement rate is simply half the accounting rate, and the country with the higher level of incoming traffic ends up receiving a payment at this rate from the carrier(s) in the countries where the majority of calls originate.

High income nations, especially those with large migrant populations, tend to be net payers of these settlements, the total value of which was some US$28.4 billion in 1995. Of this sum, nearly a third (US$8.6 billion) was paid by the USA, with Germany and Japan the next highest contributors. The bulk of the payments flow to developing nations, with Mexico, the Philippines and China among the major recipients. Developing nations argue that they are dependent on the payments for capital to fund domestic network development. By the same token, carriers which are net payers of settlements have grown increasingly restive with the arrangements, especially during the last decade, which has witnessed a rapid rise in the level of settlement payments by the United STates. Such has been the growth of inbound traffic from the United States during this period that, despite falls of 43 per cent in the actual average accounting rates paid by US carriers, the net settlement level has risen by US$3.3 billion, a rise of 289 per cent.²⁰

Not surprisingly, US carriers have been particularly aggressive in pursuit of accounting rate reform, pressing their case in a number of international forums, including the OECD, the WTO and the ITU. The ITU has been attempting to coordinate an orderly restructuring of the payment system which moves rates closer towards costs, while also recognising the role the payments play in developing economies. Nevertheless, the pace of change has not satisfied the US. In 1997, the US Federal Communications Commission (FCC) announced that it was acting to stem the rising settlements deficit by imposing 'benchmark' rates on United States carriers, setting a ceiling on the amount they could pay to other national operators for terminating international traffic. To further bolster its position, the FCC subsequently made access by foreign carriers to the US market dependent on compliance with the FCC benchmark order, a condition which would appear to be in breach of US undertakings under the WTO Agreement on Basic Services.

This unilateral move has been met with an outcry and threats of retaliation from the telecommunications industry worldwide, but the rebellion is likely to be short-lived. Since US-originated traffic accounts for roughly a third of all international traffic, no country is in a position to simply ignore the US directive. Legal challenges have been explored, but in January 1999 the US court of the District of Columbia rejected a legal suit brought against the FCC by a number of carriers (led by the ubiquitous Cable & Wireless), which argued that the FCC was acting outside its jurisdiction by enforcing international payment rates. Meanwhile, others have been quietly falling into line with the US fiat, recognising that the writing is on the wall for the old system of bi-lateral international arrangements. Indeed, the foundations of the accounting rates system -- the 'gentleman's club' of monopoly carriers -- have already been eroded by liberalisation, which has allowed new modes of operation ('refile', 'resale', Internet telephony) which bypass traditional arrangements.²¹ Viewed in this light, the FCC's initiative could be regarded merely as delivering a timely kick to a doomed regime. Nevertheless, the US action is, perhaps, instructive for those who argue that globalisation spells the complete demise of the nation-state. Nor is this the first instance of the US regulator acting to enforce what is essentially a state-sanctioned cartel. In 1996, AT&T, for instance, decided unilaterally to reduce its settlement payments to the Argentinian Telintar, which retaliated by deactivating circuits carrying inbound AT&T traffic. According to industry reports, the FCC, in turn, ordered all US long distance operators to suspend settlement payments to Telintar.²²

These market interventions have been justified by the FCC as being in the interests of US consumers, who would otherwise be 'held to ransom' by foreign monopolists. As the ITU has pointed out, however, it has been the US carriers which have been the prime beneficiaries of the FCC's ongoing campaign to lower settlement rates. Between 1990 and 1996, for instance, the average US settlement rate fell by some 43 per cent, but retail prices for international services declined by a mere 18 per cent.²³ The difference has, no doubt, been useful in funding the global expansion of the US companies.

There is little doubt that, in a relatively short period of time, international settlement payments will be driven towards, and, indeed, will be replaced by, interconnection payments, which regulators will ensure bear a closer relation to costs.²⁴ While this may herald lower end prices for some consumers, at another level it will simply shift the site of the struggle over cross-subsidies, especially for those nations which have relied on settlement surpluses to fund internal development. The question of whether both historic subsidies and future regulatory obligations can be included in the costs underlying interconnection rates, therefore, is likely to assume growing importance in international policy debates. At present, interconnection policy remains firmly in the hands of national regulatory bodies. But like settlement rates, these tariffs are being increasingly subjected to challenge, not only by domestically based operators, but by foreign governments acting on their behalf. During 1998, for instance, the United States government pressed Japan on the subject of its domestic interconnection prices, with the indefatigable former US Trade Representative, Charlene Barshefsky, suggesting that co-operation at the May 1998 G8 summit could be conditional on a lowering of Japanese rates; in a more recent instance, the United States has formally launched a case in the WTO against Mexico over network access changes and conditions.²⁵ As settlement rates and interconnection payments are swept into the vortex of world trade negotiations, there is every likelihood that the nexus between these and other elements of telecommunications policy will be broken. This, after all, is the logic of the process of commodifying services, which the WTO agreement reflects.

These trends are buffeting existing telecommunications institutions. For national regulators, there is the possibility that domestic policy options will be increasingly circumscribed by multilateral trade agreements, while at an international level, the ITU now faces the threat of being sidelined by agencies representing the interests of specific national industries and carriers (such as the FCC, in the case of settlement rates) or by the WTO. The threat is not only in the sphere of traditional telephony, but also in relation to the Internet, the rapid growth of which is spawning new policy issues with both national and international dimensions.

In the last two years, for instance, there has been mounting European concern over aspects of Internet governance as it relates to the growth of e-commerce. European companies have questioned the current arrangements for the assignment of domain names, and asked whether a free market model of Internet development provides sufficient protections for intellectual property and privacy. Domain names and addresses are being increasingly viewed as a scarce resource which needs to be allocated impartially on a global basis, as is the case with spectrum. However, the recent transfer of this domain-allocation function from the US government-sponsored Internet Assigned Numbers Authority (IANA) to the private, non-profit Internet Corporation for Assigned Names and Numbers (ICANN), has heightened fears that allocations could be used to confer competitive advantage on domestic companies. The European Union (EU) is also concerned to ensure that domain name-related breaches of intellectual property and trademark rights can be dealt with under international rather than just US law. The ITU has sought to position itself to play a leading role in the resolution of these issues, but its aspirations have been thwarted by the United States, which moved to restrict ITU involvement with ICANN to an advisory function in late 1998.

Similarly, the United States is resisting calls for international agreements for on-line privacy protection. In October 1998 the EU adopted a directive prohibiting the transfer of personal data to third countries with laws that have failed to provide adequate privacy safeguards, including the United States, but the latter has been lobbying energetically against its enforcement. For its part, France has subsequently called for all e-commerce issues to be the subject of a fresh round of WTO negotiations.

The public rationale for the aggressive laissez-faire US stance on Internet-related issues is a fear that regulation will hamper the rapid development of this new mode of communications. This argument accords with the popular conception of the Internet as a cybernetic 'free association of producers', but it masks the impact of the Internet on the economics of international communications. Take, for instance, the vexed question of payments for the international exchange of Internet traffic. In contrast to the regulated world of telephony, there are no agreed rules on the sharing of Internet transmission costs. Instead, non-US Internet Service Providers (ISPs) wishing to connect with the US Internet backbone have been obliged to pay the full costs of the transmission link. This arrangement, equitable at a time when nearly all Internet traffic was inbound to the United States, has come under challenge as the Internet has grown beyond its initial US boundaries.²⁶ Telstra, for instance, argues that some 30 per cent of total US-Australian traffic is now inbound to Australia, yet Telstra is still paying the full costs of the international leased lines which carry it. To the extent that non US ISPs are contributing disproportionately to the costs of international traffic exchange, they are subsiding the activities of US ISPs, particularly the large carriers of traffic, such as MCIWorld/Com. Telstra has estimated that these subsidies are now running at a level of some $A180 million per year.²⁷ To date the FCC has turned a deaf ear to arguments for regulatory intervention in this area -- recognising, perhaps, the contribution that the subsidies are making to the rapid development of US domestic infrastructure. For its part, the ITU has warned that these charging practices represent as great a threat to the economies of developing nations as does any restructuring of the accounting rates system. In the words of the ITU's Tim Kelly: 'There is a very real danger that developing countries may have to pay a lot more than developed countries if they want to avoid being by-passed by the global information superhighway'.²⁸

Laissez-faire today, interventionist tomorrow. Multilateral in the morning, unilateral at noon. As the policy manoeuvrings of the world's larger nations suggests, it is not that the individual nation-state cannot shape the outcomes of telecommunications globalisation, it is just that some states are much better placed to ride the cross currents of the global market than others. If the difficulties of the ITU are any guide, not can much faith be placed in the capacity of supra-national institutions to harmonise the commercial forces that have been unleashed by deregulation. In the information economy, there can be little doubt that the task of ensuring equity, both within and between nations, will continue to rest with national governments.

What is the outlook for Australian telecommunications in this environment? The Australian market is small by international standards, accounting for only some 2 per cent of global revenues. Nevertheless, Australia enjoys high levels of telephony penetration (just under 97 per cent of households) and a highly reliable national network which is now fully digitalised. Australia is also well advanced in the deployment of optical fibre. Indeed, Telstra, has been among the world leaders in the development of fibre optic technologies, as well as in the introduction of ISDN (Integrated Sevices Digital Metwork and the use of radio for remote access. These achievements, however, date largely from the period of public monopoly. As the Australian market is exposed to greater competition, and as Telstra responds to the imperatives of partly private ownership, the company's historic role as national service provider is clearly becoming more problematic.

Since full liberalisation in 1997, new market entrants have no network roll-out obligations and need not even offer a national service. If they are structured as service providers, rather than as carriers, they need make no direct payments to the Universal Service Reserve.²⁹ At the same time, they are entitled to non-discriminatory access to the Telstra network. The resulting opportunities for 'cream skimming' on both a geographic and a market segment basis are limited only by Telstra's ability to close its margins, but here Telstra is constrained by regulation at both the retail and, increasingly, the wholesale level. These arrangements provide a mechanism for a steady erosion of the former monopolist's market share, irrespective of the relative efficiency of its competitors. Despite Telstra's current profitability, this cannot but pose a threat to its long term capabilities.

Introducing the Telecommunications Act 1991, the then Labor Communications Minister, Kim Beazley, argued that market liberalisation would brace the Australian industry for the challenges posed by globalisation. The government's strategy was twofold:

... to introduce genuine and sustainable network competition for the benefit of the Australian economy; and to create a world class telecommunications company that has the ability and ethos to compete vigorously in what will be a key industry in a very competitive global environment.³⁰

The strategy was not without its contradictions. Nevertheless, in the role it tacitly assigned to Telstra in the national economy, Beazley's policy represented the victory of sanity over the fundamentalists of microeconomic reform, who had argued for the structural separation of Telecom into a number of smaller regional companies -- a policy which would have produced crippling inefficiencies and retarded technical innovation. Instead, Beazley succeeded in persuading the Labor government to merge the then domestically focussed Telecom with the Overseas Telecommunications Company (OTC), while selling off the financially troublesome AUSSAT (the national satellite service) to form the basis of a second general carrier. In line with the nationalist inflection of this policy, foreign ownership restrictions were to apply to the new market entrants, with non-Australian equity in carriers being limited to 49 per cent. Telstra itself was, of course, to be kept in full public ownership.

The tensions within this policy soon became apparent. For the end-to-end network competition provided for by the 1991 law to be 'sustainable', the new entrants would in fact need to be sustained. The role of regulation was redefined accordingly. The industry regulator, AUSTEL, which was established in 1989 with responsibilities for technical regulation, was now given a specifically pro-competitive charter. It was also empowered to use a range of mechanisms to ensure that the 'infant industry' was given space to grow, from the balloting of customers for their choice of long distance service provider to the setting of relatively low interconnection charges. In return for these protections, Optus was required to meet network roll-out targets and to offer long distance and international service on a national basis through interconnection with the Telstra network.

It was not surprising that this highly artificial industry structure failed to deliver widespread consumer benefits. With Telstra's ability to respond to competition constrained by retail price regulation, standard prices remained stubbornly high during the duopoly period, providing an umbrella under which market share was simply transferred from Telstra to its competitors.³¹ At the same time, a constituency was created that was to become accustomed to ongoing regulatory action on its behalf. This constituency, which now includes representatives of some of the world's largest operators, continues to find a receptive audience among politicians and regulators who are ideologically determined to make telecommunications competition succeed, irrespective of the economics of the industry. Thus, despite the move towards industry self-regulation that accompanied the introduction of the Telecommunications Act 1997, operators have successfully pressed the regulatory authorities to make deeper structural interventions into the public network (PSTN), allowing competitors access to a greater range of Telstra services at 'wholesale' prices. Such is the strength of this lobby that in 1998 the Coalition communications minister promised he would 'declare' local network services (that is, make them available at wholesale rates) if the Australian Competition and Consumer Commission failed to act in this area, despite the fact that he has no specific power to do so under the existing legislation.³²

Such interventions are officially justified in the name of 'consumer interest'. With some 80 per cent of carrier profits typically derived from the top 20 per cent of customers, however, corporate and government customers are the natural targets for most new market entrants, especially those seeking to offer fast data services over the local copper network. At the same time, the demand for cheap wholesale prices puts the existing retail price structure -- which guarantees affordable network access to all Australians -- increasingly at risk. Telstra's competitors have consistently signalled their reluctance to contribute at the wholesale level to any of the subsidies inherent in retail access charges, a stance which adds to the pressures for a rebalancing of these charges towards cost. Cable & Wireless Optus, for instance, has already voiced support for this rebalancing.³³

As was further evidenced in the reaction to Telstra's $1.8 billion USO claim for 1997-98, which the industry branded not only as inflated but ruinous, Australia's new industry participants have a low tolerance for the nation's long established cross-subsidies. 'Can't pay, won't pay' has been their increasingly insistent catchcry. Yet, at a global level, few of these operators are lacking in resources. Cable & Wireless, which now holds majority equity in Cable & Wireless Optus (52.5 per cent), has a presence in 70 countries. It has also recently acquired the Internet properties of MCI, which the latter was required to divest in order to merge with WorldCom. The sale reportedly made Cable & Wireless the globe's second largest carrier of Internet traffic. Likewise, Vodafone, the third mobile carrier licensed under the 1991 legislation, is a wholly owned subsidiary of Vodafone UK, which has now in turn acquired Airtouch, the largest mobile operator in the United States. At US$56 billion, the 1999 takeover set a new record for transnational acquisitions in the industry. WorldCom is of course the Australian arm of the troubled MCI/WorldCom alliance, which recently bought Ozemail, one of Australia's two largest ISPs. AAPT, whose major shareholder was Singapore Telecom until April 1999, has now been acquired by Telecom New Zealand, after a failed takeover bid by Cable & Wireless Optus. In the Alice in Wonderland world of Australian telecommunications policy, the government initially welcomed the Cable & Wireless takeover bid as being in the interests of competition!³⁴

Despite its ascendancy in the Australian market, Telstra is no giant in this global context. Yet the Australian government's policy makers are seemingly unwilling to acknowledge this reality and its implications for future national development. Telstra, with its ubiquitous fixed network, still remains central to Australia's telecommunications future and to the national provision of high-quality services to both its end customers and competitors alike. Clearly, it must be adequately compensated for the use of its network by its competitors if the funds and incentives for future upgrades are to be maintained. Similarly, these same companies must be required to make an equitable contribution to the costs of all cross-subsidies mandated by government, irrespective of the impact of this requirement on 'competition' (read, 'corporate profitability'). The alternative -- Universal Service payments funded out of the Commonwealth's budget and access charges rebalanced towards cost -- will expose regional and rural Australians to increased uncertainty and, there can be little doubt, will eventually turn many of them into telecommunications welfare recipients.

At the same time, questions about Australia's position in the global restructuring of telecommunications markets are becoming more urgent. In 1991, Kim Beazley proposed a strengthened Australian industry and a publicly owned Telstra capable of acting as a national flagship in Asia. Eight years on, this vision has dimmed. Foreign ownership restrictions on all operators other than Telstra have been abandoned, in a tacit acknowledgment of both the limits of Australian equity markets and the dynamics of the industry globally.³⁵ Telstra has been partially privatised and is being stripped back to its so-called 'core' functions. It must be asked whether this process will leave the company with the critical mass, in terms of skills and experience, to be a major force outside of the domestic market. At the international level, Telstra struggled during the 1990s to develop a coherent investment strategy and has yet to define its place globally through carrier alliances.³⁶ Current domestic policy, with its twin obsessions of privatisation and competition, has been largely oblivious to the dangers these circumstances have posed.

The responsibility for such policy myopia lies in part with the present government which, especially in its first term, embraced parochialism as a virtue in this, as in other spheres. The Coalition's 1996 policy statement, Better Communications, for instance, indicated that a Howard government would expect Telstra to eschew foreign adventures and concentrate on its domestic customer base. Labor in opposition has been no less domestically focussed, and has yet to extricate itself from the contradictions of its earlier policies. This leaves Labor vulnerable to the siren song of those demanding more radical regulatory interventions, such as the structural separation of Telstra, in order to further promote the cause of domestic competition.

Such a restructuring -- along either geographic or product lines -- would place Telstra at a severe disadvantage in relation to its global competitors. It would also run counter to international trends. In the US, which is the home of structural separation, the regional companies born from the 1984 divestiture of AT&T are now in the process of a regroupment: their numbers have been reduced from seven to four in the space of three years. Indeed, the whole industry structure created by the US Modified Final Judgement is dissolving, as companies avail themselves of the freedoms allowed under the US Communications Act 1996 -- legislation which is designed to speed the modernisation of the United States' domestic infrastructure and position its industry to take advantage of global opportunities. In a similar spirit, governments around the world are lifting line-of-business restrictions on their telecommunications companies in the interests of innovation and investment.

Across all of these questions on Telstra's future structure and direction falls the shadow of privatisation. Among sections of the Australian Labor Party pondering their options in the event of inheriting a partially privatised company after the next national election, divestiture of at least some of Telstra's product lines has the attraction of being a way of raising cash for a full infrastructure buy back (also see Chapter 2).³⁷ Yet the technological tide is running strongly in the opposite direction -- towards the integration of mobile and fixed network products, for instance, through intelligent network capabilities, and towards the integration of data, voice and video delivery for both fixed and mobile services through new switching and transmission technologies. Even if it was technically possible to draw a firm line between traditional telephony operations and the new services which Telstra now seeks to deliver, it must be asked where this exercise would lead. Why should Telstra be prevented from operating as, say, an Internet Service Provider locally, when Cable and Wireless and MCI/WorldCom are free to do so globally? Can the company prosper if it is debarred from activities which provide it with the incentives, the expertise and the revenues to continue to modernise its network and hold its own in the international arena?

On the other side of the privatisation debate, the present Commonwealth government has argued, inter alia, that partial private ownership - as opposed to complete private ownership - is inhibiting Telstra in its search for global partnerships. The experience of partially privatised carriers, such as Deutsche Telekom and France Telecom, which are already engaged in extensive programmes of acquisitions, would appear to firmly give the lie to this proposition.³⁸ Telstra itself is currently cashed up and in a strong position to consider regional investments. It is true that Telstra's structure inhibits its ability to form partnerships through equity swaps -- but so also do other features of the current ownership rules, which limit total foreign ownership to 35 per cent and individual foreign holdings to 5 per cent of equity. The unstated implication of the government's argument is that these limits would not long survive full privatisation. In the more candid words of former Telstra CEO Frank Blount: 'I think that there will be probably five very large telcos long term. I know that people here don't like privatisation of their assets like Telstra, but they'd better get used to it, because in this industry we're going to see a lot of aggregation'.³⁹

We have indeed come a long way since Sir Harry Brown urged his PMG employees to labour in the great cause of modern civilisation. Perhaps the word 'civilisation' itself rings hollow at this moment of history. The cause of empire, on the other hand, is resurgent. Can the Australian industry maintain a strong enough position within the looming process of 'aggregation' to avoid becoming once more an imperial outpost in the telecommunications sphere? And can Telstra, amidst these global rivalries, still play its historic role as a vehicle of social policy? These questions do not lend themselves to ready answers. Yet we cannot even begin to address them adequately while policy remains governed by a belief that, together, competition and technology will save us. As the means of communication become concentrated in fewer and fewer hands globally, it is clear they will not.

Notes

Read five more sample chapters from Globalisation: Australian Impacts:

• Globalisation is ... globalisation: Introduction, by Christopher Sheil
• The Fall and Rise of the Global Economy: Finance, by John Quiggin
• Thank You Very Much and Good Luck: Media, by Terry Flew & Stuart Cunningham
• Managing the New Social Risks: Welfare, by Deborah Mitchell
• It Never Has Been Easy: Democracy, by Lionel Orchard

Read all 16 chapters: purchase your copy of Globalisation: Australian Impacts:

• Order books and papers from Evatt

Read more about Globalisation: Australian Impacts:

• Globalisation now available in reprint

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