the net in
the era of competition?
page covers the shape and history of telecommunications
in Australia and New Zealand since the beginning of competition
in the 1980s.
It covers -
The period since 1982 has been marked by -
of competition in the provision of landline and mobile
privatisation of the publicly-owned (and still dominant)
carriers in Australia and New Zealand
deregulation of the telecommunications sector, with
major legislative changes and a move to industry self-regulation
(often characterised as co-regulation)
adoption of the net by Australian consumers, businesses,
government agencies and other entities (along with concerns
about digital divides
and expressions of irrational exuberance in both the
public and private sectors)
has also been marked by a blurring of the PSTN, with differing
expectations about ownership, revenue models, directory
services, critical information infrastructure, accessibility
and the emergence of private networks.
Overall, many Australians - particularly households -
still face an oligopoly, with the dominant operators echoing
St Augustine - 'give me competition, but not quite yet,
and not in a way that will seriously inhibit me'.
deregulation in New Zealand
In 1987 Telecom Corporation of New Zealand Limited (Telecom
NZ) was formed from the telecommunications arm of
the NZ Post Office as a 'state
owned enterprise' (ie a government business with a commercial
Full deregulation of the New Zealand telecommunications
market was introduced in April 1989 and Telecom NZ was
fully privatised in 1990 through sale to wholly owned
subsidiaries of Bell Atlantic and Ameritech
for NZ$4.25 billion. Those companies sold down their stake
(by NZ$1.45 billion) in 1991 and further reduced their
shareholding in 1993 to a combined 49.6% before exiting
In 1990 Clear Communications became the first network
to compete with Telecom NZ, with BellSouth New Zealand
launching the first competing mobile network in 1993.
Vodafone New Zealand acquired BellSouth NZ in 1998.
Telecom NZ launched the XTRA ISP in 1996: Xtra signed
up its 300,000th customer in 2000. In 1999, facing stagnant
markets and competition concerns at home it expanded across
the Tasman by acquiring 78% of AAPT,
Australia's third largest telco. It increased that holding
to 100% the following year. During 2001 it took a 19.9%
stake in Hutchison 3G Australia, set up to develop 3G
services in Australia.
As in Australia, there is widespread disagreement about
privatisation and deregulation processes and outcomes.
In 2000 for example a report (PDF)
for a Telecom NZ competitor commented that
10 years of deregulation, Telecom continues to dominate
the telecommunications sector. In particular Telecom
accounts for 75% by revenue of the total market for
telecommunications services, and over 90% of the local
voice, interconnection and directories sectors. Telecom's
profitability has improved steadily since 1989, the
company achieving a return on equity of 77% in 1999.
Telecom enjoys significantly higher margins than any
other major company in New Zealand.
and in Australia
In Australia the 1982 Davidson Enquiry regarding private
sector involvement in delivery of existing/proposed telecommunications
services recommended ending Telecom Australia's monopoly.
In the preceding year Aussat Pty Ltd, another government
agency, had been established to operate domestic satellite
telecommunication and broadcasting services.
In practice Aussat's charter restricted it from acting
as a competitor to Telecom, including a prohibition on
interconnecting public switched traffic with Telecom's
network. Aussat's viability was undermined through restrictions
on raising capital, of critical importance given tepid
government support and increasing costs. It was not until
1985 that Australia's first geostationary communications
satellite was operational; by late 1990 it had debts of
about $400 million.
The Australian Telecommunications Commission was restructured
as the Australian Telecommunications Corporation, trading
as Telecom Australia, in 1989. That year saw the last
domestic telegram handled by Telecom, with responsibility
for telegram operations handed over to Australia
Proposals for a merger of Aussat and OTC (thereby permitting
national delivery of telecommunication services in competition
with Telecom) were rejected in favour of disposal of the
satellite operator to a nongovernment entity that would
be allowed to compete with Telecom.
OTC and Telecom were accordingly merged as Australian
& Overseas Telecommunications Corporation Ltd (AOTC)
in 1992, immediately following the decision that Optus
Communications - a private sector entity owned by a consortium
that included BellSouth
- would be given Australia's second general carrier licence.
Cable & Wireless, privatised after several decades of
UK government ownership, took a controlling stake in Optus
in 1998 (under the banner Cable & Wireless Optus) before
control passed to SingTel in 2001.
Optus was initially allowed to enter the Australian telecommunications
marketplace for national long distance and international
telephone calls, with other players prevented from entering
the general telephone market until 1997 and 'pro-competition'
mechanisms - such as guaranteed access to Telecom's existing
infrastructure on reasonable terms - meant to ensure its
Telstra also faced competition in market niches such as
long distance corporate voice and data services, with
AAPT (a spinoff of the local AAP financial data/news service)
active from 1991. MCI Communications, later absorbed by
the ill-fated WorldCom,
was an early major shareholder of AAPT but departed in
1994. New Zealand's Todd Corporation took a 24.5% stake
in AAPT in 1992. In 1995 AAPT launched a mobile phone
service, using Vodafone as its network supplier, acquired
a 50% of Australian ISP connect.com.au Pty Ltd and bought
NewsNet ITN. In the same year SingTel acquired a 24.5%
shareholding in AAPT.
In 1996 AAPT bought 40% of Cellular One Communications,
followed by QNET Communications. In that year it gained
a carrier licence, offering long distance services to
the residential market and building communications networks
for the South Australian and Victorian governments. It
subsequently moved to 100% of CorpTEL Communications,
its AAPT Sat-Tel satellite joint venture, connect.com.au
and Cellular One. US operator Primus acquired Axicorp
(rebadged as Primus Telecom) in 1997, gaining a carriers
license and expanding into internet services.
In 1999 Telecom New Zealand became the major shareholder
(subsequently moving to full ownership); a year later
it acquired an Australian national high bandwidth network
from Optus and sold AAPT Sat-Tel.
Optus began using its own infrastructure in 1993. On the
recommendation of industry regulator Austel UK-based Vodafone
was permitted to enter the mobile phone market with an
exclusively digital licence in 1992, competing with Optus
and Telecom (offering mobile services from 1987). By the
end of 1999 Telecom's share of the GSM mobile market had
declined to around 50%.
In contrast to the US, where the cable
television industry was actively challenging the three
major free to air broadcast networks by the mid 1980s
and possessed a substantial infrastructure, at the beginning
of the 1990s Australia had only a handful of cable sites
- generally servicing small geographical areas where aerial
transmission was poor.
Establishment of a domestic pay-tv sector - with program
delivery by cable, satellite and microwave - was seen
as a way of satisfying media barons, dealing with embarrasments
such as Aussat and potentially providing new telecommunications
infrastructure in the major urban centres.
Australian legislation for the introduction of pay-television
passed in 1992. Over 1,300 licences had been issued to
pay-tv operators such as Galaxy and Australis by 1997
but underwhelming financial performance had seen the industry
consolidate around two majors - Optus Vision (a consortium
of Optus and various media interests) and Foxtel (a consortium
of Telstra, Murdoch's News
During 1996 Telecom NZ began rollout of a fibre-coax cable
network in parts of Auckland and Wellington under its
First Media pay television plan. First Media was abandoned
in 1998, the year in which the company claimed 500,000
mobile customers connected to its network (climbing to
one million in 2000).
Telstra and beyond
AOTC was rebadged as Telstra Corporation in 1993, trading
internationally as Telstra from that year and domestically
as Telstra from 1995. Expansion into Indonesia and other
Asian markets was not strikingly successful, with the
group winding back overseas involvements in 1997-98. In
1996 Telstra recorded the largest profit in Australian
corporate history, some $3.8 billion and was partly privatised
in November 1997 through sale by the Commonwealth of around
33.3% of its shareholding.
Privatisation followed formal opening of Australia's telecommunications
markets to full competition in July 1997. A further 16.6%
was sold by the Commonwealth in September 1999; sale of
the government's 50.1% stake involves legislation. The
new regime featured a single national phone numbering
scheme and any-to-any connnectivity requirements, with
the expectation that mobile, phones, fixed-line phones
and other devices would be able to communicate with each
other irrespective of whether the service was provided
by Telstra or one of its competitors.
In 1996 Telstra moved across the Tasman by offering services
in the New Zealand business market. In 1999 it merged
its New Zealand operations with those of Saturn Communications
(offering residential connectivity in competition with
Telecom NZ since 1997) to form TelstraSaturn. In 2001
TelstraSaturn in turn acquired Clear to form TelstraClear
In July 1997 the Australian telecommunications sector
was opened for full competition with removal of restrictions
on the number of licensed operators and anti-competition
mechanisms (replaced by general competition law under
the oversight of the Australian Competition & Consumer
By the end of 1998 there were over 20 licensed telecommunications
controlling facilities in Australia; several hundred other
entities used those facilities to provide services. That
had climbed to 99 by May 2002 (with 11 licences surrendered);
the Australian Communications Authority estimated
that the benefits to consumers of telecommunications services
from competition in 2000/1 were between $5.5 billion and
Telstra's recurrent overseas adventures had proved unsuccessful,
with withdrawal from some South East Asian markets and
major writedowns of joint venture investments such as
the $2.7bn Reach undersea cable with Hong Kong-based PCCW.
Recurrent takeovers in the software/services sector (eg
Solution 6, Sausage Software) have proved disappointing,
with Telstra buying Kaz Group in 2004 for over $250 million.
In 2004 Telstra paid $636 million for the Australian operations
of Trader Classified Media NV: two classified ad print
publications, five complementary online sites, two automotive
inserts and the Trading Post brand.
Telstra however retained a dominant position - particularly
in the residential market, through ownership of infrastructure
- and much public debate centred on
advisability and timing for disposal of the Commonwealth
government's remaining stake
of 'basic service' (to be provided by Telstra and competitors,
in some circumstances on a subsidized basis).
management encouraged sale, others called for retention
of the stake (or even purchase of private holdings), still
others called for various splits of services and assets
(with for example public ownership of the infrastructure,
to be substantially enhanced to bring broadband to all
Australians - regardless of cost).
Industry specialists noted the difficulties facing Telstra's
smaller competitors, often perceived to be undercapitalised
(or with uncertain support from ailing overseas parents),
poorly managed and without much scope for the national
introduction of compelling new services.
Optus for example sold its ailing Dingo Blue arm to utilities
group AGL for $22 million in 2000; AGL shuttered that
acquisition two years later. One.Tel
was founded in 1995, attracted high profile investment
from the Packer
families, expanded overseas and collapsed ingloriously