The case for the full sale of Telstra

After many months of doubt, negotiation and bitter feuding, the Australian Senate has finally given the go-ahead for the full sale of Telstra, Australia’s largest telecommunications corporation. While the fate of the sale has now been sealed, I thought I’d throw in my two cents worth and present my arguments as to why privatisation is desirable.

Domestic competitiveness

It is only through a competitive market place that the best interests of consumers will be represented. The long term objective of government policy, whether it be in the telecommunications sector or otherwise, should therefore be to create a competitive telecommunications environment. When an industry is effectively nationalised under a publicly owned monopoly, there is very little room for competitors to enter the market. In the immediate short term, it is very difficult to say whether a privatised Telstra will serve the best interests of consumers. However, in the long term, by effectively opening the telco sector to competition, we can realistically expect more private investment to flow in, and the development of the industry to be expedited.

International competitiveness

While Telstra’s reach is primarily within Australia, it is a very large corporation with much potential for extending its reach into overseas markets. Foreign governments are typically very hostile to competition from foreign publicly held companies, since there is a perception, whether it be true or not, that such companies are anti-competitive by nature. There are many examples, mostly notably in the defence sector, where this limits companies from engaging in overseas market. By fully privatising Telstra we can ensure its future viability as a player in the global telecommunications industry.

The elimination of conflict of interest

The most fundamental role of government in a market economy is as regulator. This is an inherent conflict of interest when the government is simultaneously the regulator of an industry and the primary stakeholder in a monopoly over that industry. This is likely to distort government decision making in favour of maximizing its profits by maintaining that monopoly, which conflicts with its requirement to ensure a competitive market place.

Efficiency and good management

Without getting caught up in the arguments as to why or why not this should be the case, it’s an empirical fact that privately held companies tend to be better managed, more profitable and more growth-centric than government owned ones. When a company is in a situation where it cannot rely on the government to bail it out of problems and protect it from competition, it will inherently operate more efficiently and competitively.

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