Joe Hendren

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Tuesday, February 21, 2006

Telecom should never have been privatised

Yesterday the Dominion Post published an article from Chairman of the Business Roundtable, Rod McLeod, arguing against the need for further regulation of Telecom. Yet McLeod and the Dominion Post failed to mention a blatant and obvious conflict of interest - Rod McLeod is also a Director of Telecom (hat tip DPF)

McLeod concluded, without citing any real evidence, that "New Zealand has benefited hugely by moving from a state-owned telecommunications monopoly to a competitive (sic) private industry with relatively light-handed regulation. We should keep it that way."

Bullshit. The current fracas over broadband is a direct result of the sale of Telecom by the Labour Government in 1990. While the Business Roundtable claim to be 'free marketeers' McLeod article is just yet another example of how often they run to the defence of private monopolies.

Richard Prebble sold Telecom in 1990 for $NZ4,250 million. Last year Telecom made a $NZ 1.3 billion dollar profit in 2005 alone. Even without some of the more extreme "efficiency" drives (read job losses) Telecom could have made a significant contribution to public funds over the past 16 years if it had stayed in public hands.

It would be nice if some people who support the privatisation of Telecom would actually admit that also selling the local loop was a big mistake, and it is a mistake we are still paying for. The Government could have made free local calling a condition of access to the local loop, and told Telecom that if they wished to charge for local calls they could create their own network (oh the irony). After all, Telecom did not create the local loop, it was created by at least two generations of taxpayers.

One argument that is often used in support of privatisation, especially in "capital intensive" industries, is that sometimes the private sector can provide greater investment than a Government (stop giggling..) Telecom provides a very good example of how this is often not the case. As CAFCA pointed out in their submission on the Overseas Investment Bill in 2005, since privatisation, Telecom have regularly run down their assets at the same time they gifted whopping big dividends to their overseas shareholders.
"Telecom’s overseas owners have failed to live up to the promise of making new technology available to New Zealanders. The company closed off options rather than developed new ones. Its overseas owners have sacked thousands of employees and have extracted billions from New Zealand in profits and capital, while over-charging for services (such as broadband networking to the home) which will be the backbone of the economy in the future, virtually killing others (such as ISDN) in the past, failing to develop services which are commonplace overseas until forced to, and using every possible means to keep out the competitors who would not have been necessary had it been providing a decent service.

From 1995 to 2004 it paid out more than its net earnings in dividends (reported earnings of NZ$6,464 million and dividends paid out of NZ$6,698 million), for most of that time, its capital expenditure barely covering reported depreciation. It was running down its assets. More recently it has used its cash to invest (rather unsuccessfully) in Australia rather than develop the extensive new services needed in New Zealand.

(my emphasis)

CAFCA also quote economic commentator Brian Gaynor who described the privatisation as follows (“Testing years ahead for Telecom”, NZ Herald, 26/5/01):
"The Ameritech/Bell Atlantic/Fay, Richwhite, Gibbs, Farmer syndicate walked away from Telecom with a realised capital profit of $7.2 billion. In addition, the telecommunications group paid over $4.2 billion in dividends in the 1991 to 1998 period, more than half to the consortium members.… These are extraordinary figures for a company that is supposed to be at the cutting edge of new technological developments."

No wonder Sir Michael Fay sang 'Sailing Away' - it is the perfect theme tune for a pirate.

Perhaps if people starting talking seriously about the renationalisation of the local loop Telecom might suddenly start being more reasonable. Given the fact Telecom have been ripping New Zealanders off for years, $1 ought to be adequate compensation. When the Government bought the rail tracks it actually ended up costing them $2 because an official did not have a $1 coin in his pocket. If officials are ever in the position of buying back the local loop they should ensure they have correct change - Telecom don't deserve $2.

Tags: Privatisation, New Zealand, Internet, Corporates, Telecom

PS: Why does the Microsoft Outlook dictionary refuse to recognise 'renationalisation' as a word, and suggest 'denationalisation' as an alternative? More bloody corporate newspeak!

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