Cabinet documents detail Howard government’s Telstra T2 sales plan
The release of the 1998-99 cabinet papers by the National Archives of Australia has detailed how the Howard government’s decision to list Telstra on the New York Stock Exchange (NYSE), which eventually took place in October 1999, was all part of its broader plan to partially sell the telecommunications giant that would become known as T2.
In a joint submission made by Minister for Finance John Fahey, Minister for Communications and the Arts Richard Alston, and Treasurer Peter Costello, they said an assessment carried out by CS First Boston (CSFB) had supported the recommendation that Telstra shares be listed on the NYSE as they believed it would “promote greater research on Telstra by specialist analysts; materially contribute to pricing; and provide long term quality investor base which should assist in stabilising trading shares after the sale”.
“A NYSE listing has been in virtually all other major international telecommunications company public share offerings in recent years and we propose to plan on the basis of a NYSE listing,” the submission said.
The proposal came off the back of results produced in the Telstra Scoping Study, which was performed to determine the potential partial sale, dubbed Telstra (T2), of the telco giant. The study examined the organisation and management of the sale process, the timing of the sale, the due diligence process, and various legal issues associated with the partial sale.
According to the submission by Fahey, Alston, and Costello, CSFB advised that timing the partial sale of Telstra would be crucial, suggesting that maximum results would be achieved if the sale took place in either mid-1997 or mid-1998. Despite this, the Coalition said it would schedule the sale for late-1997.
“While a sale in late-1997 would involve a delay from our election campaign target of mid-1997, it could permit higher proceeds as the additional time would allow clarification of areas of potential concerns to investors identified by CSFB,” the submission said.
Those areas of potential concerns included the requirement to remove Telstra’s franking credits and to settle an outstanding claim by Telstra with the Australian Taxation Office of around AU$2.5 billion in order to remove uncertainty and to safeguard tax income; Telstra’s capacity to reduce costs and downsize effectively; the need for a recapitalisation of Telstra to take place prior to its partial sale; and the transfer of government-guaranteed Telstra loans valued at approximately AU$426 million to the Commonwealth.
By November 1998, the federal government had began preparing for the sale of up to 16% of Telstra equity, valued at AU$11.2 billion during the second half of 1999, a process that was expected to cost the Howard government around AU$217 million, based on proceeds of AU$10 billion, the cabinet papers revealed.
According to Fahey, the sale, dubbed Telstra 2 (T2), would help achieve objectives such as an “optimum” financial return; promote an internationally competitive, low cost and innovative telecommunications industry; and provide a solid commercial and administrative basis for any further sales of Telstra by the government.
Although it was only 16% of Telstra’s equity, Fahey said, the sale would be “very significant in global terms, posing considerable, logistical, and marketing challenges”.
The intention of T2, according to the submission, would have helped the government setup for a Telstra 3 (T3), which was scheduled to be launched in late 2000 or immediately post-budget in 2001. T3 did not happen until 2006.
The submission also said in November 1997 that the government had raised AU$14.3 billion from the sale of one-third of Telstra as part of Telstra 1.
The final interim planning report for the sale of the government’s residual shareholding in Telstra were concluded based on market conditions at the time that the government would have received “sufficient demand to support a highly successful outcome” from T2. It also noted that when T2 was completed, “Telstra will be the largest company listed on the ASX (using share prices as at 30 June 1998)”.
The 1998-99 cabinet papers also said that in November 1996 there was an agreement to consider using legislation, if necessary, to ensure analogue mobile phones were phased-out and digital mobile phone services offered by telco carriers were the “same quality and available over the same geographical areas as current analogue mobile telephone services”.
By the time 1998 rolled around, the Coalition government proposed that charges to carriage service providers (CSPs) for the purchase of certain blocks of numbers from the Australian Communications Authority (ACA) be increased, noting the proposal would raise AU$50 million annually, an increase from the AU$30 million raised previously per annum from charges.
“Numbers are a valuable resource. The charging of numbers ensures that some of this value is recouped by government and is not a windfall gain to the CSP. A targeted increase in the charge for numbers will promote competition within the telecommunications industry by discouraging hoarding of these numbers by dominant CSPs,” the submission noted, pointing to Telstra, Optus, and Vodafone had by far the “greatest holders” of numbers.
In addition, there was a proposal to further clarify and simplify requirements and law enforcement and national security agencies by providing more timely and cost-effective access to telecommunications interception where it was appropriate.
“This policy addresses urgent problems of delay, high costs variable quality and uncertainty in the provision of telecommunication imperceptibility affecting both telecommunications industry, and the law enforcement and national security agencies,” the submission said.
During that same period of April 1998, Attorney-General Daryl Williams and Alston put forward the proposal to introduce reforms to the Copyright Act 1968.
Specifically, they wanted to see remedies be introduced to protect copyright owners from the abuse of “black box” technological devices and the liability of CSPs and internet service providers (ISPs) for copyright infringement limited, as well as provide copyright protection for computer software to facilitate growth of the information economy.
It came off the back of proposals that were made in a discussion paper, Copyright Reform and the Digital Agenda, which was released in July 1997.
The pair wrote in submission that such reforms to the Act would mean “improved copyright protection for copyright in the information economy while ensuring that users of copyright, including libraries and educational institutions, have reasonable access copyright material”.
At the same time, they believed their proposals would promote certainty for “owners, users, carriers, and ISPs; facilitate continued growth of content on the internet; and ensure that the technical processes underpinning the internet are not unduly impeded”.
Towards the tail end of 1998, Williams and Alston put forward another submission. At that time, it was around the need to develop a national “light-touch” legislation to protect personal data held by the private sector, as well as support and be a back-up for self-regulation.
The pair outlined how a national legislation would help address the concerns that the absence of an effective data protection regime was hampering the uptake of electronic commerce and online technologies, help avoid the fragmentation and compliance costs that would arise if states and territories enacted their own private sector data protection laws, and address problems of “free-riders”.
At the same time, they argued, the introduction of a light-touch legislative scheme would reduce costs for businesses by removing costs of developing a self-regulatory scheme.
“In effect, it would allow a continuation in the progress reached to date towards self-regulation, while addressing those elements that are undermining effective self regulation,” the submission said.
They proposed introducing the legislation would have come at a cost of just over AU$6 million over four years.
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