Telstra’s long march into Asia
Gareth-Gareth Evans: Setting in motion the liberalisation of TelcoLand
When Andy Penn became CEO at Telstra he said he would bring his “particular passion” for doing business in Asia to the role. InnovationAus.com was last week reporting that Telstra’s latest foiled ambition might have been a case of dodging a bullet.
Also last week tech journalists unloaded on how the Australian Tech Leaders event illustrated the sheer contempt of the nation’s political leaders for the tech industry. The particular trigger was the inability of the Government to scrounge up a single Minister or even Parliamentary Secretary to send. Instead, government dispatched an almost-local backbencher with no particular interest or experience in the sector.
To put both these stories together we need to go back over a quarter of a century.
For policy wonks New Year’s Day is not only for recovering from the excesses of the night before, it is the day we get access to previously secret Cabinet documents. As the withholding period is being reduced from thirty years to twenty years, at the moment we are getting double the fun.
The Cabinet documents released in January 2015 gave us the detail of the decision making preceding Gareth Evans’ May 1988 statement which marked the start of the liberalisation of telecommunications in Australia.
The Government clearly had an international dimension to their policy making. The fifth of the stated objectives in the submission (also included in the public statement) was:
“to enable all elements of the Australian telecommunications industry (manufacturing, services, information provision) to participate effectively in the rapidly growing Australian and world telecommunications markets.”
The specific elements of the 1988 reform preserved the existing network monopolies, but opened up competition in value added services and customer premises equipment.
The reform of CPE arrangements included replacing Telecom’s Australian preference arrangements with new industry development arrangements. These were to be “consistent with the Information Industries Strategy….The objective of the arrangement will be to build a dynamic, export oriented industry which is effectively integrated into opportunities presented by world markets.”
The 1988 reforms also included a review of the future of the three then operators (Telecom, OTC and AUSSAT), a decision that was made by the Structural Adjustment Committee that differed from the Minister’s submission.
Thus a process known as ROSA – Review of Ownership and Structural Arrangements – commenced.
It was from the ROSA process that the 1991 reforms emerged. Then Minister Beazley’s submission was leaked and published in the AFR on 14 August 1990 under the heading ‘Beazley’s Megacom Submission.’
This submission also placed emphasis on international opportunities in the options of a merged OTC/Telecom competing against a competitor based on AUSSAT as it would create “a strong vertically integrated national carrier which is able to provide a one-stop-shop for Australia's telecommunications services both domestically and internationally, providing economies of scale and scope and the prospect of a unified and enhanced international profile.”
More detail on the international dimension was provided by then First Assistant Secretary for Telecommunications Policy in her contribution to the book Competition Policy in Telecommunications and Aviation.
Writing in 1992 she asserted that the telecommunications industry was generally considered to be one in which Australia has the potential to be a significant international player. Opportunities for international participation were expected to improve from technological change, innovation by providers and increasing deregulation.
She claimed there were opportunities in five specific areas; export of equipment, export of services (such as network management or entertainment and education services), turnkey activity (which Telecom and OTC were both engaged in at the time), equity participation in overseas companies and ‘network hubbing management’.
The review concluded that Australia’s success in penetrating overseas markets would depend on how effectively competition developed. This was based on a theory proposed by US strategy guru Michael Porter that a firm couldn’t expect to compete internationally if it didn’t first compete at home.
It was somewhere after 1991 and the high promise of the “Information Industries Strategy” that Government lost its interest in technology.
In part the failing was the naïve expectation that winds of competition would create a viable export oriented industry. In part it was the gullibility of Governments believing the entreaties of global comms and IT firms that they were committed to Australia as they pulled resources out of the country.
But there is a bigger answer and it can be seen in the tale of Telstra.
Telstra’s first three CEOs, Frank Blount, Ziggy Switkowski and Sol Trujillo, at various points developed international growth strategies. But over twenty years later the Telstra behemoth is still struggling to enter global markets.
Two significant factors have weighed on Telstra’s international ambitions to date. The first is that the overseas opportunities were not as extensive as originally envisioned, largely due to differing paces of liberalisation.
The second was that the introduction of competition was flawed. Maintaining Telstra as a large vertically integrated operation saw them spend twenty years focussed on leveraging its network monopoly.
With structural separation at last being achieved both David Thodey and Andy Penn have at least acted as if they take the international options seriously.
As we saw this week, when Telstra’s international options fail to materialise, the share price goes up. Ultimately institutional investors are “wary of major investments in the Asian market and would prefer to see more of its free cash spent on higher dividends.”
Australia simply has a crisis of belief in our own abilities.
When one of the world’s first digital telephone exchanges was developed at the PMG’s Research Labs it wasn’t commercialised because the owner (the Government) simply didn’t believe we had the capability to do something like that.
When Telecom’s engineers developed the Digital Radio Concentrator System as the first solution to telecommunications in the remote regions of Central and Northern Australia, it was licenced to NEC rather than developed locally.
But if we don’t start asking ourselves why the expectations of 1988 and 1991 weren’t fulfilled we won’t get anywhere. If Telstra just continues to be a very big fish in a fairly small pond then we are missing out on an important national opportunity.
We are in very real danger that the Ideas Boom will have the lasting impact of “Tony’s Tradies” from the 2015 budget; a small blip in the national accounts but of no lasting significance.