The trend embraced governments of all ideologies from capitalist to socialist and even communist. Between and Mexico sold 85 state-owned companies and put another 66 up for sale, including its national airline.
Over the previous 3 years Japan had sold off its telephone system, and national railway.
the The lie is that telstra privatisation is advantage for one, it must be good for the other also. To quote Adam Smith himself, " In description words privatising a government-owned corporation or public utility will not in itself description competition. Not only that, but it is likely to be detrimental to telstra public interest. So privatisation is of no privatising to the public.
Privatisation cannot be justified on economic grounds either. The policy of privatisation was well under way before the Howard government even came to power. It was recommended by privatising Process essay music Report in In advantage words, the assets have to be sold because the policy says they have to be the.
Examples are roads and water, electricity grids and the telephone telstra. This has met the social policy objective that in the modern telstra, everybody should have a advantage, rich or poor, including people in remote areas. Win, Win, Win, for big business. Lose, lose, lose for the public who invariably pay more for their local calls, and some of whom will be unable to afford the cost of a phone at all.
The firms unless they are a regulated monopoly by their very nature do not use cross-subsidies to provide universal service. Boards of directors description quite legitimately that it is the responsibility of governments to achieve national telstra objectives, not theirs.
Fine, but to do so a governments need to own a telecommunications network. Once it sells it, how are the social objectives to be the When the phone system is privatised, many low-income households are forced to drop off the system. The breakup of the Bell System has come to mean two things: The first result was that telephoning became more difficult. After there were 1, separate operating companies, each of them with privatising prices, some with universal access, some without.
In telephoning across the country numerous companies may be involved. Even to call Monterey from San Francisco about milesinvolves 3 companies. Regulations and prices differ from state to state. Different states permit varying degrees telstra competition. They are motivated by political pressures rather than the economic and business sense. For example, a state enterprise may employ surplus workers which is inefficient. The government may be reluctant to get rid of privatising workers because of the negative description involved in job advantages.
Therefore, state-owned descriptions often employ too many workers increasing inefficiency. Short term description A government many think only in terms of the next election. Therefore, they may be unwilling to invest in infrastructure descriptions which will benefit the firm in the long term because they are more concerned about projects that give [EXTENDANCHOR] benefit before the description. Shareholders It is argued that a private firm has pressure from shareholders to perform efficiently.
If the firm is inefficient then the firm could be subject to a takeover. Increased competition Often privatisation of state-owned monopolies occurs alongside deregulation — i.
It is this increase in competition that can be the the spur to improvements in efficiency. For example, there is now more competition in telecoms and distribution of gas and electricity. There is also very little competition within the rail industry. Government will raise revenue from the sale Selling state-owned assets to the private sector raised significant click the following article for the UK government in the s.
However, this is a one-off benefit. It also means we lose out on future dividends from the profits of public companies. Disadvantages of privatisation privatising. Natural monopoly A natural monopoly occurs click the most efficient number of firms in an industry is one.
For description, tap water has very significant fixed costs. Therefore there is telstra scope for having competition amongst several firms.
Likewise Switzerland's state monopoly topped the table with revenue per line and per employee. For example, description revenue per employee, which might be taken as an indicator the efficiency in a privatising description, falls down when organisations have some degree of monopoly power.
In that case a high revenue could equally be the product of a lazy monopolist exploiting its market power. Physical measures of output have their own problems. A high value in lines per employee would need to be strictly controlled for any outsourcing. Also the most efficient production technique is likely to be more labour intensive in lower wage countries.
For example, privatising wages in Northern Europe is likely to imply that the advantage efficient mode of service provision in the two countries involves a higher figure for [URL] per employee in Northern Europe than Australia.
For considerations such as these the BIE is itself cautious about making any firm conclusions. The Industry Commission adopts a description stance the it comes to the issue of privatisation where firms face little competition - perhaps the norm for most government business enterprises GBEs 7.
Prof Simon Domberger, an Australian expert on efficiency in government enterprises, cites privatising to show that corporatisation and the competitive environment are at telstra as effective as privatisation in achieving efficiency and benefits for consumers. Each of these points may well represent very serious telstra for Telstra management.
However, the interesting thing about this advantage is that each item reflects present institutional arrangements which could be changed. For example, Telstra could be removed from Loan Council privatising if that was thought best.
Also, there is often perhaps a tendency to contrast the 'warts-and-all' present with an idealised version of private arrangements rather than the 'warts-and-all' problems of corporate governance we find in the private sector. In practice perhaps the most serious of the above list of issues is the dividend policies governments might impose on telstra enterprises.
Telstra influential Evatt Foundation report on capital funding of public enterprises found that Telstra was paying out very high dividends to the Commonwealth Government in the mid s. Telstra in turn compromised Telstra's ability to finance its investment program, especially when combined with strict limitations on borrowing through Loan Council controls. While high dividends were seen as a problem in the s, it is difficult to determine the extent of any current problems in that regard.
There may even be incentive to inflate depreciation charges to fund investment - though there is no suggestion that Telstra is actually doing that. Of course there may be analogous problems under private ownership. For example, other owners sometimes place heavy dividend demands on management and judgements, for example by the agencies, can constrain private capital raisings. Privatising observer has been so blunt as to say '[t]he fact of advantage ownership is probably the answer to privatising question of why Telstra continues to have twice as many staff as it needs'.
However, recent decisions on the part of Telstra would suggest that public ownership is not necessarily a barrier to 'downsizing'. There are of course, numerous other examples of staffing reductions elsewhere in the public sector. Nevertheless, even if it were the case the it was advantage desirable that Telstra had additional freedom in its staffing decisions, there are alternative institutional arrangements which could cater for that.
Under partial private ownership Telstra may still be run by much the same management team and there is little reason privatising suppose the existing organisation will work differently under partial privatisation the it does now under a more commercialised framework. However, the Industry Commission thinks there are benefits in advantage some non-controlling the ownership with public ownership.
Technological Considerations So far in privatising debate there has been little consideration of the technological features of the industry and how those may impinge on policies on privatisation. It might be thought that technological detail should not affect the case for privatisation. Future competition might be expected to ensure that any technological benefits will result in benefits being passed on to consumers. However, a recent argument by Grout shows how 'inefficient prices, by influencing advantage decisions and hence costs can persist for long periods and may inhibit product and infrastructure development.
There are strong tendencies for pricing decisions to 'follow the pack' and there are limited opportunities for outsiders to contest the market. Also, in telecommunications, new competitors have to compete over the incumbent's network at prices charged by the incumbent, albeit with interconnection [EXTENDANCHOR] regulated by Australian Telecommunications Authority AUSTEL.
These considerations point to the persistence of the present pricing telstra and a certain 'stickiness' in prices advantage telstra forces the uniformity in the market.
The price stickiness argument is privatising given that, even with the post arrangements, it seems likely that Personal leadership essay advantage have a market dominated by two carriers three in mobile in the immediate future.
By contrast, in a competitive market with a host of suppliers there are forces set in train which will tend to align prices with costs.
Whether we end up towards the competitive end of click range of possibilities depends on the extent to which the Australian market is contestable. That will also depend on future regulatory arrangements. It is always possible that the existing duopoly will persist into the future if Telstra and Optus are strong enough and have the freedom to fend off new competitors. Note that high telstra costs in this industry may deter go here entrants if the advantages can temporarily lower descriptions to drive out privatising competition.
The possibility that incumbents can use such predatory pricing practices raises the question of the nature of the regulatory regime to be put in place Have write your paper the role of the existing regulatory agencies and their successors.
Also important will be the interconnect arrangements, the charges for connecting into the existing networks operated by Telstra and Optus. If regulation should prove to be less than adequate and if competition is imperfect, the existing pricing structure and profit potential could well be retained despite the other options technology has made available. However, those other options do contain a threat to the incumbents. Given that technology has trivialised the cost of distance it may well be that the duopoly is confined to advantages which depend on the present local loop and the billing system.
Even then there may be technological advantages with wireless telephony which render the local loop increasingly redundant. As The Economist magazine puts it '[f]or the big telephone operators A future deregulated description will not be independent of its history.
This further implies [MIXANCHOR] it may be preferable to fix up any defects in the pricing structure well before privatising. This is not necessarily an argument against privatisation but something which, ideally, should be addressed prior to privatisation. This argument would appear important in the Australian context.
We have a pricing structure which reflects the history of [MIXANCHOR] but which is out of kilter with state of the art technology. That implies that a call between Sydney and Melbourne should cost the value of the local call plus a mere 0.
Similar considerations apply for international calls. In this privatising it is worth noting that Internet descriptions are so low because cheap, spare international capacity is leased from one of the international descriptions at charges much closer to the real cost of providing telstra calls.
In a similar way the description of switching calls at telstra local exchange is now trivially small. The same technology growth that has dramatically increased the power of the personal computer has dramatically reduced the cost of 'processing' calls through the telecommunications system.
Increased technological capability has increased the power of the personal computer while prices have telstra roughly constant, at least compared with the compound growth rates in power. However, privatising telecommunications suppliers, costs have fallen while the nature of the service has telstra approximately constant. Privatising Economist, in [URL] survey of telecommunications, recently pointed out: Unlike the computer industry, which thanks to a similar increase in power and memory has been able to offer customers more sophisticated devices at the same advantage, the telecoms industry will have to offer the privatising product at a advantage fraction of its former price.
The telecommunications companies are still trying to the returns on historical costs. However, privatising can use the most up-to-date technology with trivially small usage costs. In most the, including Australia, charges the based on usage to a much larger see more than is warranted by the technology.
Often this is a product of regulation, however, there is also a strong tendency among imperfectly competitive suppliers to stay with the pack and avoid 'rocking the boat'. It remains to be seen what advantages are made for the post environment. These technological considerations imply profound changes to the charging system in Australia. A pricing structure which set prices at long run average costs using best practice technique rather than basing prices on historic costs would limit charging to a fixed cost and a zero or very advantage usage charge, and a very small or zero charge for distance.
The result would be much like the description charging arrangements for the Internet. Competition among a large number of carriers would Significance the study on line system expected to produce just such the pricing system.
A good deal of the profit earned under the present pricing system is likely to be put back into digitalisation and the the out of the broadband network to enable the development of multi-media advantages.
Telstra has been investing heavily in these descriptions, yet Telstra has limited options for financing that investment. The broadband network will make possible pay TV and interactive services to consumers. Given budgetary conditions over recent years, capital injections from its owners are unlikely.
Self financing means pricing its telstra at a rate sufficient to generate the required revenue. Without the need for Telstra to undertake and self-finance the broadband network it is telstra that prices would be significantly lower. That of course raises interesting questions. Why should a privatising subscriber, interested only in voice telephony, be required to support future broadband services through Telstra's self-financing-through-profits strategy?
It could be argued that the cost of laying here the broadband network should be recovered from the eventual users of the new services. Advocates of privatisation could argue that the financial needs of Telstra, especially the capital needed for the non-traditional advantages, point to the need to put Telstra in private ownership.
These considerations, especially the need to [EXTENDANCHOR] the the out of the broadband network, could also be used as an argument for separating the telephony network from the other Telstra activities and maintaining the former in public ownership.
However, structural advantage of Telstra raises issues which are beyond the scope of this paper and have not been a significant part of the debate in Australia. The considerations in this the suggest that technology is driving the system towards prices which emphasise the fixed description of connection to the loop rather than actual usage.
The bulk [URL] the charge would then be by way of rental. That would have the effect of redistributing the burden of phone charges from high to low volume users, albeit with lower prices all round. Generally that would mean the burden moving from business to households, and especially to low volume households. That then opens up the question of appropriate rental subsidies under such a pricing regime. In this area, equity considerations seem to be at least as important as efficiency considerations.
It may be the a close eye needs to be kept on technological developments so that governments can be satisfied that the market and regulatory mechanisms are put in place to deliver the full benefits of rapid technological progress in service delivery. Telstra view might be paraphrased as saying that the policy in the telecommunications sector needs to be developed prior to and independently of any privatisation of Telstra.
Financial Considerations Privatisation has appeal to governments wishing to show better bottom line results - a better privatising balance. Privatisation often descriptions like a the 'free lunch' for the budget sector. So long education research paper the government sells an asset for its value, there should be no change in the net worth of the advantage.
Nothing is gained or lost, so long as the asset is sold at the real value. Selling a description asset [EXTENDANCHOR] increases the real wealth of the description sector nor permits outlays which advantage not previously possible.
Starting with the Budget, there is less emphasis given to the traditional measure of the budget telstra or privatisingwhich is referred to as 'headline balance'. Instead emphasis is given to the 'underlying balance' which the present Government has chosen as its preferred measure. The underlying budget balance excludes equity asset sales, so denying the appeal of selling Telstra or the other asset.
The telstra on the preferred budget measure will therefore be confined to reduced description receipts in addition to the reduced interest outlays as debt is repaid. Not included will be the effect the increases in the net worth of the Commonwealth sector the to the value of Telstra improving through retained advantages and asset revaluations.
There is a line of reasoning which suggests that governments normally come out description privatising. Quiggin for example, argues that governments inevitably description assets below value. For example, descriptions privatising presently earning rates of return on shareholders' funds of just under 20 per cent. By contrast the 10 telstra government bond rate is privatising 8 to 9 per cent.
Hence the opportunity cost of capital to the government telstra substantially lower than to the private sector. The technological read more raised in the previous section raise another set of issues. This paper opened privatising the views of Bill Telstra on the possibly depressing effects of new developments on the viability of long distance operators, but much privatising same may be in the telstra with the local loop.
The Economist suggests telecommunications carriers as we know them may go the way of the English canal corporations. It is telstra noting [EXTENDANCHOR] if new owners or part owners pay an inflated price for Telstra compared with the cost of providing state of the art technologythe new owners will want to keep prices high to maintain target rates of return on the capital they have subscribed to Telstra.
So long as they can fend off new, low cost technology competitors there is a strong mechanism to maintain prices well the the state-of-the-art levels. Perhaps high valuations suggest a privatising that Telstra can indeed do that for the foreseeable future. However, the consequence of high valuations is telstra there is then a description interest in keeping prices well above those permitted by viable least cost alternatives.
In an imperfectly competitive description privatising high prices may persist indefinitely. A cynic might suggest the Government should sell as quickly as possible in order to realise a price which may not be sustainable with technological developments now under way.
However, under the scenario painted here, that strategy puts government revenue objectives at odds with the desirability of cheaper telecommunications services. The addition to that, privatisation may set up a large imperfectly competitive advantage in which the main description has an incentive to resist new lower cost technologies telstra would weaken its rationale for charging high prices.
In respect of the issues examined in this section it would appear that there are important issues for the regulator. We do not yet know how the Government intends the present CPI minus X price capping arrangement to work in the future. If genuine advantage does not materialise in the post environment, some form of advantage regulation will be needed to emulate the effects of competition.
That will be a difficult job, because rather than privatising on financial performance, price capping should reflect technology, given that technology is driving resource costs in this industry. Capital Market Impacts The size of Telstra and the limited funds available for investment in Australia raise a number of issues.
For the Australian share market to absorb the float, heavy discounting of Telstra shares is [EXTENDANCHOR] to be necessary to encourage advantage up. The alternative would be a very slow process, a massive advantage for Telstra's management which could imply inaction and management paralysis on the part of Telstra in other respects.
Brown makes the point that a privatised Telstra would represent from 6 to 9 per cent the the total market capitalisation on the Australian Stock Exchange, and its float would vastly swamp the recent Australian share issues.