Bush Subsidies in the Spotlight

Just when the politicians are gearing up to turn the subsidy tap on the bush, Telstra has hit them with a dose of reality.

According to Telstra, the cost of subsidising rural telephone subscribers is currently about $1.8 billion per year.  This is over 6 times the estimate currently accepted by the government and is double the highest estimate proffered in the past by Telstra.

Now Telstra's estimates are not the last word the issue.  The other telecommunication companies (telcos) are disputing its figures.  However, one thing is clear -- the cost of rural subsidies are much higher than previously thought.

This presents the Government with a number of serious funding problems with only one real solution -- the full privatisation of Telstra.

First, it creates major difficulty in funding the existing level of subsidies.  Although the services are provided by Telstra, all the telcos are required to share the funding burden in proportion to their market share.  If Telstra figures were accepted, most of the other telcos simply go out of business.  For example, last year Optus was charged about $25 million for its share of the rural subsidy.  If Telstra's latest figure is adopted, Optus' level of reimbursement would balloon to $170 million or to almost four times the firms present level of profit.

The Minister, Senator Alston, has reacted by capping the subsidy at $252 million -- the previous estimate -- pending a review by the Australian Communications Authority (ACA).  This is, however, only a short-term solution.  If the ACA agrees with Telstra, the Minister will confront a real dilemma.  He cannot simply force Telstra to wear the higher cost on behalf of the other telcos, as this would be contrary to the rights of the Telstra's minority shareholders.  Not only would Telstra's board resist such action, but the minority shareholders themselves would undoubtedly seek legal redress.  The smaller telcos simply can not afford the bill.  The only solution would be to add the cost on to the Commonwealth budget.

Second, the Government has clearly identified the bush as a major priority and plans to significantly increase rural telecommunication services and ipso facto increase rural subsidies.  Indeed during the election the Coalition made a range of commitments which will increase the rural telecommunication subsidises by at least $1 billion.  And it clearly has more costly ideas in mind.

These plans will add to the funding problems.  There is no way Telstra and the other telcos should, or perhaps can, be required to foot the bill for high subsidies.  This would be tantamount to a "regulatory undertaking" requiring compensation under the law.  It would also add uncertainty and put investment at risk in the industry at a crucial time.

Again, the appropriate solution will be to include the subsidy in the Commonwealth budget -- which is where social and regional transfers payments belong.  The problem is, that after the tax package there will be no surplus left to fund these subsidies.

A logical approach would be to fund the subsides with the proceeds of the full sale of Telstra.  Although this is currently not a popular option, particularly in the bush, if the choice is between public ownership or better telecommunication services, most rural people would opt for the latter.