1988-89 Cabinet Paper 5705

[1]
CABINET- IN -CONFIDENCE
Copy No.
C A B I N E T
44
M I N U T E
Canberra, 23 May 1988
No. 11187
Submission No. 5705
and Minute
No. 11000(SA)
Reform of Government Business

Enterprises - Australian
Telecommunications Commission
(Telecom)
The Cabinet agreed upon the following reform

package :(i)
refined incorporation of Telecom under statute,

along the lines of the Federal Airports
Corporation Act; the Australian
Telecommunications Commission to be renamed the
Australian Telecommunications Corporation and a
Board of Directors be constituted;
(ii)
the Directors of the Telecom Board continue to

be appointed by the Governor-General, and be
subject to dismissal by the Governor-General on
grounds which shall be expanded to include
ongoing underperformance;
(iii)
the Telecom Chief Executive Officer (CEO) be

appointed by the Minister after receiving a
... /2
This document is the property of the A ustralian G overn m ent and is not to be copied or repro duced
CABINET- IN -CONFIDENCE
[2]
CABINET-IN-CONFIDENCE
2.
No. 11187 (Cont'd)

recommendation from the Telecom Board, and be
subject to dismissal by the Board; the CEO to be
an ex-officio member of the Board; the statutory
position of Chief General Manager to be
abolished;
(iv)
an appropriate commercial financial structure

for Telecom be established prior to the
commencement of the new corporation by :(a)
converting 25 per cent of Telecom's

Commonwealth loans to equity;
(b)
the Board initially revaluing the

assets of Telecom in accordance with
normal commercial practices, with the
valuation process and outcome to be
agreed between the Minister for
Transport and Communications, the
Treasurer and the Minister for Finance;
(c)
following initial revaluation, the

Minister for Transport and
Communications, the Treasurer and the
Minister for Finance, determining an
appropriate debt:equity ratio and
overall financial structure on a basis
comparable to leading
telecommunications companies in other
parts of the world;
... /3
This document is the property of the Australian Government and is not to be copied or reproduced
CABIN ET-1 N-CON Fl D-ENCE
[3]
CABIN ET-1 N-CON Fl DENCE

3.
No. 11187 (Cont'd)

(v)
following establishment of the new corporation:(a)
Telecom's remaining Commonwealth loans

to be retired progressively over the
next ten years and replaced as
appropriate with private sector
borrowings;
(b)
subsequent asset revaluations by the

Board to be in accordance with
processes to be agreed between the
Communications and Minister for Finance
and to take place at least once every
five years;
(vi)
Loan Council processes presently applying to

Telecom be developed to :(a)
take into consideration the on-going

and longer term nature of capital
expenditure proposals by adopting a 3
year rolling borrowing program (subject
to annual review by the Government)
which would allow Telecom and its
subsidiaries and joint venture
companies to proceed with major
investments without the uncertainty
... I 4
[4]

4.
No. 11187 (Cont'd)
inherent in annual borrowing
allocations;
(b)
ensure sufficient flexibility to enable

additional borrowings to be considered
in a year where new commercial
opportunities for Telecom, its
subsidiaries or joint ventures are
identified; and
(c)
allow Telecom to increase its market

borrowings to convert part of
Commonwealth loans to private sector
loans, in the context of its capital
restructuring;
(vii)
remuneration of Board members remain subject to

the Remuneration Tribunal;
(viii)
remuneration of the Managing Director and other

senior executives be determined consistent with
Minute No. 11159 of 23 May 1988;
(vix)
subject to guidelines to be developed within the

course of the review of the Commonwealth
Superannuation Scheme (CSS) (due by March 1989),
Telecom be permitted to establish its own
superannuation schemes with any subsequent
movement beyond the guidelines subject to
approval by the Minister for Finance;
... I 5
[5]
5.
No. 11187 (Cont'd)

(x)
additional costs borne by Telecom due to

remaining CSS members be taken into account in
setting Telecom's financial target;
(xi)
Telecom remain subject to the Auditor-General

for commercial and accountability audits, but
the costs of any additional auditing incurred as
a consequence of Commonwealth ownership be taken
into account in setting financial targets;
(xii)
Telecom no longer be required to obtain approval

from the Treasurer to the terms and conditions
of individual borrowings;
(xiii)
Telecom no longer be required to seek approval

for its investment and banking arrangements;
(xiv)
Ministerial control over establishment of

subsidiaries, joint ventures and share purchases
be removed and replaced by strategic oversight
by the Minister, usually through monitoring
financial targets and the Corporate Plan;
(xv)
the Board be required to provide prior advice to

the Minister on any proposals to create or
acquire subsidiaries or to purchase a major
shareholding in another company and the Minister
to advise the Treasurer and Minister for Finance
of any proposals with substantial implications
for their portfolios;
... I 6
CABIN ET-1 N-CON Fl DE CE
[6]

6.
No. 11187 (Cont'd)
(xvi)
Telecom be obliged to report in a special

section of its Annual Report on the
establishment of subsidiaries and joint
ventures;
(xvii)
Ministerial control of specific charges be

exercised through determination of a pricing
formula for monopoly prices in the context of
the corporate planning process and subject to
independent regulatory oversight and monitoring;
(xviii) the requirement that Telecom obtain Ministerial

approval to enter into contracts be removed;
(xix)
Telecom continue to be subject to the offsets

policy and that continued application of the
policy to its competitive activities be
reviewed, prior to the end of 1990 (in
conjunction with the review for the aviation
industry), by the Minister for Industry,
Technology and Commerce and the Minister for
Transport and Communications with the intention
of exempting Telecom's competitive activities,
to the extent that its competitors are exempt
from offsets policy;
... 17
CABINET-I -CONFID-E CE
[7]
7.
No. 11187 (Cont'd)
(xx)
Telecom continue to comply with the National

Preference Agreement (NPA), and that the review
of the NPA (to be completed by 1 June 1989)
examine whether its competitive activities will
remain subject to the NPA;
(xxi)
Telecom adopt normal commercial purchasing

practices, the key elements of which would be
set out in the Corporate Plan;
(xxii)
the Telecommunications Act 1975 be amended to

remove the current employment conditions
provisions from the Telecommunications Act and
the Telecom Board determine the employment
conditions in consultation with relevant unions
and in accordance with normal commercial
practices;
(xxiii) Telecom to be exempt from compliance with the

Lands Acquisition Act, with the exception of
those provisions relating to compulsory
acquisition;
(xxiv)
Telecom to be exempt from compliance with the

Public Works Committee Act;
... /8
[8]
CABINET-IN-CON Fl DEN CE
8.
No. 11187 (Cont'd)
(xxv)
Telecom to be exempt from general, personnel and

administrative policies laid down by the
Government, except where specifically directed
to comply by Cabinet;
(xxvi)
Telecom no longer be required to use the

Construction Group of the Department of
Administrative Services for building
construction and maintenance programs;
(xxvii)
the current Ministerial power of direction to

Telecom be maintained;
(xxviii)in accordance with the Policy Guidelines of

October 1987, Telecom provide the Minister for
Transport and Communications, at not less than 3
yearly intervals, with a strategic corporate
plan for his consideration and response;
the Minister will provide the Prime Minister,
Treasurer and the Minister for Finance with
information from the corporate plan on matters
for which they are responsible or where
consideration by Cabinet may be necessary, and
in particular information on the overall
investment strategy and associated borrowing
intentions;
(xxix)
the Minister to be advised of any matter which

significantly affects the outlook as established
in the corporate plan as soon as possible after
such matters become known to the Corporation;
... /9
CABIN ET-1 N-CON FIDENCE
[9]
CABINET-I -CONFIDENCE
9.
No. 11187 (Cont'd)
(xxx)
consistent with the Policy Guidelines, Telecom

work towards an overall financial target agreed
in advance by the Minister for Transport and
Communications following consultation with the
Treasurer and Minister for Finance;
(xxxi)
Telecom Board to recommend, after consultation

with the Minister on the dividend proposed, a
dividend payment and this may be accepted or
varied by the Minister.
Consistent with the
objectives of the GBE reforms, Telecom should

aim to achieve a level of profitability
comparable with those of the leading
telecommunications companies in other parts of
the world;
(xxxii) Telecom's Annual Report give an account of
performance against previously established goals,
including financial and operational targets and
the performance of comparable telecommunications
companies in other parts of the world to the
extent practicable, assessments of the cost of
meeting Community Service Obligations and
observing residual non-commercial controls which
adversely affect profitability;
(xxxiii)Telecom's subsidiaries and joint ventures should
be subject to all taxes;
... I 10
[10]

10.
No. 11187 (Cont'd)
(xxxiv) Industrial Relations Co-ordination Arrangements
be altered as set out in the Attachment to this
Minute; these arrangements be announced in the
May Statement, and communicated to the affected
GBEs in terms consistent with the Attachment;
(xxxv)
given the extensive devolution to GBEs of

responsibility for management of their own
industrial relations, in the event of
significant breach and/or breaches of the
arrangements by a GBE, the Minister for
Industrial Relations may seek Cabinet approval
for the re-imposition of the co-ordination
arrangements as they existed before these
changes and seek approval for appropriate action
to be taken against managers or directors; and
(xxxvi) given that a major purpose of the guidelines is

to make the need for consultation with the
Department of Industrial Relations the exception
rather than the rule, and to place the primary
responsibility for management of industrial
relations in the hands of the GBE, if this does
not occur the Minister for Transport and
Communications may seek the reconsideration of
this matter by Cabinet.
. .. I 11
[11]

1 1.
No. 11187 (Cont'd)

2.
The Cabinet also agreed

(i )
that a further paper be provided by the

Treasurer to the Committee on appropriate Loan
Council and PSBR treatment of private sector
involvement in joint ventures with Telecom;
(ii)
specifically not to endorse the text at

paragraphs 3.137, 3.138 and 3.139 of Attachment
B to the Submission;
(iii)
the public announcement of this set of reforms

be made in the May Statement, as part of a
package of reforms on "Public Sector Structural
Adjustment";
(iv)
the consequential amendments to legislation be

implemented as follows:-
.s
(a)
amendments to the Telecommunications

Act 1975 and other relevant legislation
to review controls and to facilitate
transition to a new corporate structure
for Telecom be made in the Budget
sittings 1988; and
(b)
an Australian Telecommunications
Corporation Bill to establish the new
corporate structure for Telecom be
introduced in the Budget sittings 1988
for passage in the Autumn sittings
1989; and
... /12
This document is the property of the Au stralian Government and is not to be copied or reproduced
CABIN ET-1 N-CON Fl DE CE
[12]

12.
No. 11187 (Cont'd)
(v)
additional Departmental personnel resources (6

staff years) be provided at a cost of $250,000
in each of the years 1988-89 and 1989-90, to put
in place the above mentioned reform package.
3.
The Cabinet noted that Telecom's tax exemptions
would be as stated in Cabinet Minute No. 11054 of 4 May 1988.

(This endorses Minute No. llOOO(SA) of 27 April and 6
May 1988.)
Secretary to Cabinet
CABINET-IN -CONFIDENCE
[13]

ATTACHMENT TO
MINUTE NO. 11187
13.
INDUSTRIAL RELATIONS MONITORING ARRANGEMENTS FOR GBEs
Under the current Industrial Relations co-ordination
arrangements GBEs are required to consult with the Department
of Industrial Relations on a wide spectrum of industrial
relations issues from major wages and conditions matters to
initiatives on occupational health and safety and industrial
democracy. The Department can oppose initiatives and
proposals which it believes do not accord with Government
policy. The consideration of these matters inevitably
involves greater delays than if the authority could settle
them without the requirements to consult.
The present Industrial Relations co-ordination arrangements
will be substantially altered by devolving to the GBE greatly
increased responsibility and autonomy to develop wages and
employment conditions proposals.
It is proposed that standard guidelines on Government wages
and industrial relations policy will be established by the
Minister for Industrial Relations in consultation with GBEs
and portfolio Ministers. GBEs will be free to manage their
industrial relations within the scope of these broad
guidelines without being required to refer matters to the
Department of Industrial Relations.
The fundamental difference between the current arrangements
and those proposed is that GBEs will only be required to
submit proposals for clearance to the Department of
Industrial Relations in an extremely limited number of
circumstances as set out in (c) below.
The new arrangements will have the following features
(a)
GBEs will continue to be expected to comply with

Government wages and industrial relations policies and
guidelines will specifically apply to :
(i )
wages and conditions of employment matters

covered by the National Wage Case Principles
decided by the Conciliation and Arbitration
Commission from time to time;
(ii)
terms and conditions of employment with flow-on

implications such as leave, allowances, hours of
work and penalty payments;
(iii)
redundancy and retrenchment conditions;
(iv)
superannuation as an element of remuneration;

and
(v)
procedures fo r h Rndlin
T his docume nt is the pr~l..ff ~
Australian Governm
si a nif'ca t innn
t and IS no to e cop1t'Rfl
uced
[14]
ATTACHMENT TO
MINUTE NO. 11187
14.
(b)
Except as provided in (c) below the GBEs will not be

required to consult DIR where a proposal conforms with
guidelines;
(c)
GBEs will be required to consult with DIR only where, in

the opinion of either DIR or the GBE, there could be a
breach of guidelines. Where significant issues arise
outside of the scope of the existing guidelines there
should be consultation to determine whether additional
guidelines are needed;
(d)
Where a GBE consults with DIR in accordance with (c)

each party shall act promptly, and if practicable within
2 days, in providing to the other appropriate
information or advice;
(e)
Should a GBE refuse to accept advice given by DIR after

consultation, the Minister for Industrial Relations will
take up that issue with the appropriate portfolio
Minister.
The new Industrial Relations co-ordination arrangements will

operate for each GBE from the implementation date of its
reform package.
CABIN ET-1 N-CON Fl D-ENCE
[15]
CABINET -IN- CONFIDENCE

4..4. .
Copy No ............
B I N E T
MI N U T E
Structural Adjustment Committee

Canberra, 27 April and 6 May 1988
No. 11000 (SA)

Submission No. 5705
Reform of Government Business

Enterprises - Australian
Telecommunications Commission
(Telecom)
The Committee agreed upon the following reform

package ;. {i)
refined incorporation of Telecom under statute,

along the lines of the Federal Airports
Corporation Act; the Australian
Telecommunications Commission to be renamed the
Australian Telecommunications Corporation and a

Board of Directors be constituted;
(ii)
the Directors of the Telecom Board continue to

subject to dismissal by the Governor-General
grounds which shall be expanded to include

ongoing underperformance;
(iii)
the Telecom Chief Executive Officer (CEO) be

... /2
CABINET -IN-CONFIDENCE
[16]
2.
No. 11000 (SA)(Cont'd)
subject to dismissal by the Board; the CEO to be
an ex-officio member of the Board; the statutory
position of Chief General Manager to be
abolished;
(iv)
an appropriate commercial financial structure

for Telecom be established prior to the
commencement of the new corporation by :(a)
converting 25 per cent of Telecom's

Commonwealth loans to equity;
(b)
the Board initially revaluing the

assets of Telecom in accordance with
normal commercial practices, with the
valuation process and outcome to be
agreed between the Minister for
Transport and Communications, the
Treasurer and the Minister for Finance;
(c)
following initial revaluation, the

Communications, the Treasurer and the
Minister for Finance, determining an
appropriate debt:equity ratio and
overall financial structure on a basis
comparable to leading
telecommunications companies in other
parts of the world;
... /3
[17]
3.
(v)
following establishment of the new corporation:(a)
Telecom's remaining Commonwealth loans

to be retired progressively over the
next ten years and replaced as
appropriate with private sector
borrowings;
(b)
subsequent asset revaluations by the

Board to be in accordance with
processes to be agreed between the
Communications and Minister for Finance
and to take place at least once every
five years;
(vi)

Telecom be developed to :(a)
take into consideration the on-going

and longer term nature of capital
expenditure proposals by adopting a 3
year rolling borrowing program (subject
to annual review by the Government)
which would allow Telecom and its
subsidiaries and joint venture
companies to proceed with major
investments without the uncertainty
... I 4
[18]
4.
inherent in annual borrowing
allocations;
(b)
ensure sufficient flexibility to enable

additional borrowings to be considered
in a year where new commercial
opportunities for Telecom, its
subsidiaries or joint ventures are
identified; and
(c)
allow Telecom to increase its market

borrowings to convert part of
Commonwealth loans to private sector
loans, in the context of its capital
restructuring;
(vii)
remuneration of Board members remain subject to

the Remuneration Tribunal;
(viii)
remuneration of the Managing Director and other

senior executives be determined consistent with
Amended Cabinet Minute No. l0812(SA) of 22 March
and 27 April 1988;
(vix)
subject to guidelines to be developed within the

course of the review of the Commonwealth
Superannuation Scheme (CSS) (due by March 1989),
superannuation schemes with any subsequent
movement beyond the guidelines subject to
approval by the Minister for Finance;
/5
[19]
5.

(x)
additional costs borne by Telecom due
~8

setting Telecom's financial target;
(xi)
Telecom remain subject to the Auditor-General

for commercial and accountability audits, but
the costs of any additional auditing incurred as
a consequence of Commonwealth ownership be taken
into account in setting financial targets;
(xii)
Telecom no longer be required to obtain approval

from the Treasurer to the terms and conditions
of individual borrowings;
(xiii)

for its investment and banking arrangements;
(xiv)

subsidiaries, joint ventures and share purchases
be removed and replaced by strategic oversight
by the Minister, usually through monitoring
financial targets and the Corporate Plan;
(xv)
t~e
Board be required to provide prior advice to
the Minister on any proposals to create or

acquire subsidiaries or to purchase a major
shareholding in another company and the Minister
to advise the Treasurer and Minister for Finance
of any proposals with substantial implications
for their portfolios;
.. /6
CABINET -I N-CO NFl DEN CE
[20]
6.
(xvi)
Telecom be obliged to report in a special

section of its Annual Report on the
establishment of subsidiaries and joint
ventures;
(xvii)
Ministerial control of specific charges be

independent regulatory oversight and monitoring;
(xviii) the requirement that Telecom obtain Ministerial

approval to enter into contracts be removed;
(xix)
Telecom continue to be subject to the offsets

policy and that continued application of the
policy to its competitive activities be
reviewed, prior to the end of 1990 (in
conjunction with the review for the aviation
industry), by the Minister for Industry,
Technology and Commerce and the Minister for
Transport and Communications with the intention
of exempting Telecom's competitive activities,
to the extent that its competitors are exempt
from offsets policy;
.. /7
[21]
CABINET -IN -CON Fl DE NCE

7.
( xx)
Telecom continue to comply with the National

Preference Agreement (NPA), and that the review
of the NPA (to be completed by 1 June 1989)
examine whether its competitive activities will
remain subject to the NPA;
(xxi)

set out in the Corporate Plan;
(xxii)
the Telecommunications Act 1975 be amended to

conditions in consultation with relevant unions
and in accordance with normal commercial
practices;
(xxiii) Telecom to be exempt from compliance with the

acquisition;
(xxiv)

Public Works Committee Act;
.. /8
CABINET -IN-C 0 NFIDE NCE
[22]
8.
No. 11000 (SA){Cont'd)
(xxv)
Telecom to be exempt from general, personnel and

administrative policies laid down by the
to comply by Cabinet;
(xxvi)
Telecom no longer be required to use the

Construction Group of the Department of
Administrative Services for building
construction and maintenance programs;
(xxvii)
the current Ministerial power of direction to

Telecom be maintained;
(xxviii)in accordance with the Policy Guidelines of

October 1987, Telecom provide the Minister for
Transport and Communications, at not less than 3
yearly intervals, with a strategic corporate
plan for his consideration and response;
the Minister will provide the Prime Minister,
Treasurer and the Minister for Finance with
information from the corporate plan on matters
for which they are responsible or where
consideration by Cabinet may be necessary, and
in particular information on the overall
investment strategy and associated borrowing
intentions;
(xxix)
the Minister to be advised of any matter which

significantly affects the outlook as established
in the corporate plan as soon as possible after
such matters become known to the Corporation;
This document is the property of the Australian Government and is not to be copit!c! '?'/"~produced
[23]
CABINET -IN-CONFlDENCE
9.
(xxx)
consistent with the Policy Guidelines,

work towards an overall financial
~elecom
targe~
agreed
in advance by the Minister for Transport and

Communications following consultation \vi th the
Treasurer and Minister for Finance;
(xxxi)
Telecom Board to recommend, after consultation

Consistent with the
objectives of the GBE reforms, Telecom should
aim to achieve a level of profitability

comparable with those of the leading
telecommunications companies in other parts of
the world;
(xxxii) Telecom's Annual Report give an account of
performance against previously established goals,
including financial and operational targets and
the performance of comparable telecommunications
companies in other parts of the world to the
extent practicable, assessments of the cost of
meeting Community Service Obligations and
observing residual non-commercial controls which
adversely affect profitability;
(xxxiii)Telecom's subsidiaries and joint ventures should
be subject to all taxes;
... /10
[24]
10.
No. 11000 (SA)(Cont ' d)
(xxxiv) Industrial Relations Co-ordination Arrangements
be altered as set out in the Attachment to this
Minute; t hese arrangements be announced in the
May Statement, and communicated to the affected
GBEs in terms consistent with the Attachment;
(xxxv)
given the extensive devolution to GBEs of

responsibility for management of their own
industrial relations, in the event of
significant breach and/or breaches of the
arrangements by a GBE, the Minister for
Industrial Relations may seek Cabinet approval
for the re-imposition of the co-ordination
arrangements as they existed before these
changes and seek approval for appropriate action
to be taken against managers or directors; and
(xxxvi) given that a major purpose of the guidelines is

to make the need for consultation with the
Department of Industrial Relations the exception
rather than the rule, and to place the primary
responsibility for management of industrial
relations in the hands of the GBE, if this does
not occur the Minister for Transport and
Communications may seek the reconsideration of
this matter by Cabinet.
/11
CABINET -IN -CON Fl DEN CE
[25]
CABINET -IN -CON Fl DE NCE

11.
No. 11000 (SA) (Cont'd)
2.
The Committee also agreed :(i)
that a further paper be provided by the

Treasurer to the Committee on appropriate Loan
Council and PSBR treatment of private sector
involvement in joint ventures with Telecom;
(ii)
specifically not to endorse the text at

paragraphs 3.137, 3.138 and 3.139 of Attachment
B to the Submission;
(iii)
the public announcement of this set of reforms

be made in the May Statement, as part of a
package of reforms on "Public Sector Structural
Adjustment";
(iv)

implemented as follows:(a)
amendments to the Telecommunications

Act 1975 and other relevant legislation
to review controls and to facilitate
transition to a new corporate structure
for Telecom be made in the Budget
sittings 1988; and
(b)
an Australian Telecommunications
Corporation Bill to establish the new
carporate structure for Telecom be
introduced in the Budget sittings 1988
for passage in the Autumn sittings
1989; and
... /12
[26]
12.
No. 11000 (SA) (Cont'd)
(v)
additional Departmental personnel resources (6

staff years) be provided at a cost of $250,000
in each of the years 1988-89 and 1989-90, to put
in place the above mentioned reform package.
3.
The Committee noted that Telecom's tax
exemptions would be as stated in Cabinet Minute No. 11054 of

4 May 1988.
Secretary to Cabinet
[27]
CABINET -IN-CON Fl DEN CE

ATTACHMENT TO
MINUTE NO. 11000 (SA)
13.
INDUSTRIAL RELATIONS MONITORING ARRANGEMENTS FOR GBEs
Under the current Industrial Relations co-ordination
arrangements GBEs are required to consult with the Department
of Industrial Relations on a wide spectrum of industrial
relations issues from major wages and conditions matters to
initiatives on occupational health and safety and industrial
democracy. The Department can oppose initiatives and
proposals which it believes do not accord with Government
policy.
The consideration of these matters inevitably
involves greater delays than if the authority could settle
them without the requirements to consult.
The present Industrial Relations co-ordination arrangements
will be substantially altered by devolving to the GBE greatly
increased responsibility and autonomy to develop wages and
employment conditions proposals.
It is proposed that standard guidelines on Government wages
and industrial relations policy will be established by the
Minister for Industrial Relations in consultation with GBEs
and portfolio Ministers. GBEs will be free to manage their
industrial relations within the scope of these broad
guidelines without being required to refer matters t0 the
Department of Industrial Relations.
The fundamental difference between the current arrangements
and those proposed is that GBEs will only be required to
submit proposals for clearance to the Department of
Industrial Relations in an extremely limited number of
circumstances as set out in (c) below.
The new arrangements will have the following features :(a)
GBEs will continue to be expected to comply with

Government wages and industrial relations policies and
guidelines will specifically apply to :
(i)
wages and conditions of employment matters

covered by the National Wage Case Principles
decided by the Conciliation and Arbitration
Commission from time to time;
(ii)
terms and conditions of employment with flow-on

implications such as leave, allowances, hours of
work and penalty payments;
(iii)
redundancy and retrenchment conditions;
(iv)
superannuation as an element of remuneration;

and
(v)
procedures for handling significant industrial

This document is the prop~rtf~ tH~~tlstralian Government and is not to be copied or reproduced
[28]
ATTACHMENT TO
MINUTE NO. 11000 (SA)
14.
(b)
Except as provided in (c) below the GBEs will not be

required to consult DIR where a proposal conforms with
guidelines;
(c)
GBEs will be required to consult with DIR only where, in

the opinion of either DIR or the GBE, there could be a
breach of guidelines. Where significant issues arise
outside of the scope of the existing guidelines there
should be consultation to determine whether additional
guidelines are needed;
(d)
Where a GBE consults with DIR in accordance with (c)

each party shall act promptly, and if practicable within
2 days, in providing to the other appropriate
information or advice;
(e)
Should a GBE refuse to accept advice given by DIR after

consultation, the Minister for Industrial Relations will
take up that issue with the appropriate portfolio
Minister.
The new Industrial Relations co-ordination arrangements will

operate for each GBE from the implementation date of its
reform package.
[29]
Submission No .
FOR CABINET
Title
Copy No
REFORM OF GOVERNMENT BUSINESS ENTERPRISES - AUSTRALIAN

TELECOMMUNICATIONS COMMISSION (TELECOM)
Senator The Hon Gareth Evans, QC,
Minister for Transport and Communications
Minister
Purpose/Issues
To implement a reform package aimed at removing Government

controls which inhibit Telecom's commercial competitiveness
and efficiency, while at the same time enhancing Telecom's
accountability.
Decision 10330 of 29 September 1987

Decision 10675 of 2 February 1988
Decision 10631 (SA) of 19 August 1987
SensitivityI Criticism
Yes.
Attorney-General's Department advises that legislation
would be necessary, including amendment to the
Telecommunications Act 1975, to implement the
recommendations in the Submission.
Legislation
involved
gency:
.Aitical/significant
dates
nsultation:
M inisters/Depts
consulted
Is there
agreement?
Timing/handling of
announcement
Cost
Insofar as any significant controls remain over key areas

(Loan Council controls, Industrial Relations Co-ordination,
and Superannuation) unions can be expected to resist.
Measures to improve efficiency of Telecom could be expected
to be generally supported.
Issues need to be resolved to allow announcement of details

to be included in May Statement
Prime Minister and Cabinet, Finance, Attorney-General's,
Treasury, Industrial Relations, Industry Technology and
Commerce, Employment Education and Training, Primary
Industry and Energy, Administrative Services, Arts Sport the
Environment Tourism and Territories, Auditor-General.
No.
See Attachment D, Page page 54.
Public announcement to be included in May Statement on

fiscal measures.
19813-89 )
FinYr(
198..9-90 )
FinYr( 199...0.-91
$250,000
$250,000
The Department will in the short term require additional
personnel resources (6 staff years) to put in place the
reform package arrangements.
Telecom's financial
performance should improve as a result of implementation of
the package.
FinYr(
I
I
[30]
-2-
BACKGROUND
1.
In 1975 the then Government decided that the departmental

style of administration of the long established PostmasterGeneral's Department was no longer appropriate and, on the
recommendation of the Vernon Royal Commission, established
by legislation the Australian Telecommunications Commission
(Telecom).
The enabling legislation provided Telecom with a
set of functions and responsibilities which it was required

to fulfill subject to the financial discipline of covering
from earnings all expenditure properly chargeable to revenue
and providing not less than one half of capital
expenditure.
These financial arrangements, while moving
Telecom off-Budget, fell short of a full commercial

mandate.
2.
In 1982 the Davidson Committee of Inquiry into

Telecommunications Services in Australia recommended to the
Government of the day an increased role for the private
sector in the provision of telecommunications in Australia.
3.
In October 1983 we rejected the major thrust of the

Davidson Report and endorsed Telecom's monopoly position as
the national telecommunications service provider.
4.
In September 1987 I announced a major review of

telecommunications policy.
Issues arising in that review
include the need to separate Telecom's regulatory, monopoly

and commercial functions, and exposing Telecom to
competition in more areas of its business.
A separate
submission deals with the work of the review.
It recommends
the continuation of Telecom's monopoly on the basic network,

the progressive introduction of additional competition into
the telecommunications market eg. for attachments to the
telecommunications network, and the separation of regulatory
functions from Telecom.
CAB I NET-IN-CON Fl DENCE
[31]
-3-
5.
In framing the Telecom reform package, the key consideration

has been to permit the highest level of operational and
financial efficiency by instituting greater commercial
accountability and removing unnecessary day to day controls
over Telecom's operations.
I consider that the package of
measures summarised in Attachment A to the Submission, and

explained in detail in Attachment B, will achieve this
objective.
6.
The package is premised on there being a need to recognise

explicit community service obligations we expect of Telecom
and our expectations that Telecom will adopt a more
commercial approach in an environment that recognises that,
while retaining a monopoly over basic facilities and
services, Telecom will progressively be subject to
increasing competition in the open market.
7.
I have asked Telecom to make its own assessment of an

appropriate reform package.
The executive summary of the
Commission's Submission to me is at Attachment
c, page 50.
The Commission is in broad agreement with, and supportive

of, the reform package at Attachment B.
CONSIDERATION OF THE ISSUES
8.
An important issue for Telecom is the intersection of the

regulatory reform proposals with the contents of the reform
package.
The Telecom unions have made it clear that an
essential prerequisite of moves towards liberalisation in

telecommunications will be a commensurate relaxation of a
full range of controls which might hamper Telecom's ability
to operate effectively.
The main controls, but by no means
the only controls, are seen as the subordination of
[32]
-4-
borrowing needs to Loan Council processes, inflexible

industrial relations co-ordination arrangements and the
continuation of Telecom's obligations under the Commonwealth
Superannuation Scheme. After the experience of the timed
local calls issue, where debate was primarily initiated by
Telecom unions, we should anticipate some action by those
unions.
9.
The telecommunications industry is experiencing high market

growth rates and continuing pressures to modernise
facilities as new technology emerges.
Financing these
requirements is a central issue to Telecom and its high

technology, export oriented subsidiaries.
Borrowings in
recent years have fallen short of new investment needs.

With Loan Council borrowing and Prices Surveillance
Authority constraints additional investment funds can only
come in the short-term from current earnings, leading to
pressure to increase prices and profits to generate
sufficient earnings in order to fund new investments.
This
approach leaves the Government open to superficial, but yet

damaging, criticism of profiteering.
It should be noted
here that Telecom may report a profit in excess of $750m in

1987/88, up 69% from the $443m earned in 1986/87.
10.
There is also a clear need in the case of Telecom to

constitute a Board of Directors, rather than a Commission,
to reinforce its accountability to the Government for the
conduct of Telecom's affairs.
The present web of controls,
coupled with a high level of direct interaction between the

Government of the day and senior Telecom management, has
allowed successive Commissions to adopt the attitude that
they were not in de-facto control.
They have been able to
justify not tackling some of the hard problems of commercial

performance and efficiency improvement by sheltering behind
the technical excellence of Telecom's engineering
achievements.
[33]
-5-
11.
It is important also to bear in mind that we are looking at

a package that contains measures that simultaneously offer
greater operating autonomy and enhanced accountability.
The
Policy Guidelines state that the onus for achieving

improvements in Telecom's performance rests with the Telecom
Board.
The Board therefore will be held accountable for
their contributions to Telecom's performance, with rates of

return being one relevant measure of performance.
There is
an impairment of the Board's ability to carry out the

mandate the Government has given them, to the extent
controls are retained - particularly over such fundamental
matters as borrowings, industrial relations, superannuation
and remuneration.
RESOURCE IMPLICATIONS
12.
The Department will in the short term require additional

personnel resources to put in place the reform package
arrangements.
The sheer size of the tasks involved in
implementing the reform package eg. revaluation of assets,

establishing financial targets and defining legislative
change, while at the same time continuing present regulatory
provisions dictate that the current, strained resources of
the Department need supplementation.
I also expect a need
to implement some transitional arrangements to process the

reform package in a complementary way with decisions we take
on the Review of Telecommunications Policy.
RECOMMENDATIONS
13.
I recommend that Cabinet agree that:

(a)
the reform package, as set out in Attachment B to the

Submission (and summarized in Attachment A), be
endorsed;
CABI ET-IN-CONFIDENCE
[34]
-6-
(b)
the public announcement of this set of reforms be made

in the May statement, as part of a package of reforms
on "Public Sector Structural Adjustment"i
(c)

implemented as follows:
(i)
amendments to the Telecommunications Act 1975 and

other relevant legislation to review controls and
to facilitate transition to a new corporate
structure for Telecom be made in the Budget
sittings 1988i and
(ii)
an Australian Telecommunications Corporation Bill

to establish the new corporate structure for
Telecom be introduced in the Budget Sittings 1988
for passage in the Autumn sittings 1989i and
(d)
additional Departmental personnel resources (6 staff

years) be provided at a cost of $250,000 in each of the
years 1988-89 and 1989-90, to put in place the
abovementioned reform package.
25 APRIL 1988
GARETH EVANS
[35]
ATTACHMENT A
-7-
TELECOM REFORM PACKAGE AT A GLANCE

CURRENT POSITION
PROPOSALS FOR CHANGE
Structure of the Enterprise

Telecom established by
Telecommunications Act 1975
A.
Refined incorporation of
Telecom under statute, along
the lines of the Federal
Airports Corporation Act.
The Australian Telecommunications Commission to be
renamed the Australian
Telecommunications Corporation
and a Board of Directors be
constituted (see para 3.8 of
Attachment B)
(Regulatory proposals for
change will be dealt with in
the context of a separate
submission on the Review of
Telecommunications Policy)
Commissioners, including
B.
Managing Director (ex-officio
Commissioner), union representative and departmental officer,
are appointed by the
Governor-General
The Directors of the Telecom

Board continue to be appointed
by the Governor-General, and
be subject to dismissal by the
Governor-General on grounds
which shall be expanded to
include ongoing
underperformance (3.11)
Managing Director and Chief

General Manager are appointed
by the Governor-General
c.
The Telecom Chief Executive

Officer (CEO) be appointed by
the Minister after receiving a
recommendation from the
Telecom Board, and be subject
to dismissal by the Board.
The CEO to be an ex-officio
member of the Board. The
statutory position of Chief
General Manager to be
abolished (3.11)
Financial structure comprises

"Reserves", Australian
Government loans and
other loans
D.
Establish an appropriate
commercial financial structure
for Telecom by:
(a) converting half of
Telecom's Commonwealth
loans to equity;
[36]
ATTACHMENT A
-8-
CURRENT POSITION

(b) revaluing Telecom's assets
according to prevailing
commercial practice; and
(c) retiring Telecom's
remaining Commonwealth
loans progressively over
the next ten years (3.19)
Removal of Controls
Subject to Loan Council
borrowing controls
E.
Loan Council processes

presently applying to Telecom
be developed to:
(a) take into consideration
the on-going and longer
term nature of capital
expenditure proposals by
adopting a guaranteed 3
year rolling borrowing
program (subject to annual
review and consistent with
the Corporate Plan) which
would allow Telecom to
proceed with major
investments without the
uncertainty inherent in
annual borrowing
all0cations;
(b) ensure sufficient
flexibility to enable
additional borrowings in a
year where new commercial
opportunities are
identified;
(c) recognise the separate and
distinct borrowings
requirements of Telecom's
subsidiary and joint
venture companies, and the
impact of Loan Council
processes on those
companies and its private
enterprise partners; and
[37]
ATTACHMENT A
-9-
CURRENT POSITION

(d) allow Telecom to increase
its market borrowings to
convert part of
Commonwealth loans to
private sector loans, in
the context of capital
restructuring of Telecom
(3.24)
Subject to industrial
relations co-ordination
arrangements
F.
Telecom be removed from the

industrial relations coordination arrangements
(3.33)
Remuneration of Commissioners
subject to Remuneration
Tribunal
G.
Remuneration of Board members

to remain subject to the
Remuneration Tribunal (3.41)
Remuneration of Managing
Director subject to
Remuneration Tribunal
H.
Remuneration of the Managing

Director and secior executives
to be removed from the
jurisdiction of the
Remuneration Tribunal and the
Telecom Board to determine the
remuneration packages in
accordance with Cabinet
Decision 10812(SA) of 22 March
1988 (3. 41)
Staff covered by
Commonwealth Superannuation
Scheme
I.
Telecom be permitted to
establish its own
superannuation scheme with
guidelines to be agreed from
time to time between the
Ministers for Finance and
Transport and Communications,
with any proposed movement
beyond the guidelines subject
to approval by the Minister
for Finance (3.45)
Additional costs borne by
Telecom due to remaining CSS
members be taken into account
in setting Telecom's financial
target (3.45)
Subject to Auditor-General
for commercial and
accountability audits
J.
The Minister for Transport and

Communications appoint the
auditor to Telecom, after
receiving a recommendation
from the Telecom Board (3.52)
[38]
ATTACHMENT A
-10-
CURRENT POSITION

K.
The costs of any additional

auditing incurred as a
consequence of Commonwealth
ownership to be taken into
account in setting financial
targets (3.52)
Subject to Treasurer's
approval of specific
borrowings
L.
Telecom no longer be required

to obtain approval from the
Treasurer to the terms and
conditions of individual
borrowings (3.57)
Treasurer approves new bank

accounts and investment of
short term funds
M.
Telecom no longer be required

to seek approval for its
investment and banking
arrangements (3.59)
Minister approves
subsidiaries, joint
ventures and share
purchases
N.
Ministerial control over

establishment of subsidiaries,
joint ventures and share
purchases be removed and
replaced by strategic
oversight by the Minister,
usually through monitoring
financial targets and the
Corporate Plan. The Board be
required to provide prior
advice to the Minister on any
proposals to create or
acquire subsidiaries or to
purchase a major shareholding
in another company (3.60)
Minister approves charges

for basic services
0.
Ministerial control of
specific charges exercised
through determination of a
pricing formula for monopoly
prices in the context of the
corporate planning process and
subject to independent
regulatory oversight and
monitoring (3.69)
Ministerial approval
required for contracts
above $6m
P.
The requirement that Telecom

obtain Ministerial approval to
enter into contracts to be
removed (3.70)
[39]
ATTACHMENT A
-11CURRENT POSITION
Subject to National
Preference Agreement
Q.
Telecom to be exempt from

compliance with the National
Preference Agreement for its
competitive activities (3.79)
Subject to purchasing
policy including public
tender system
R.
Telecom to adopt normal

commercial purchasing
practices, the key elements of
which would be set out in the
Corporate Plan (3.87)
Subject to Offsets Policy
s.
Telecom to
compliance
Policy for
activities
Standard public service

type employment conditions
apply under the
Telecommunications Act
T.
Telecommunications Act 1975 be

amended to remove the current
employment conditions
provisions from the
Telecommunications Act and the
Telecom Board determine the
employment conditions in
accordance with normal
commercial practices (3.95)
Subject to Lands
Acquisition Act
U.

compliance with the Lands
Acquisition Act, with the
exception of those provisions
relating to compulsory
acquisition (3.106)
Subject to Public Works

Committee Act
V.

compliance with the Public
Works Committee Act (3.113)
Required to comply \vi th

a range of Government
employment and administrative
policies and legislation
W.

general, personnel and
administrative policies laid
down by the Government except
where specifically directed to
comply by Cabinet (3.118)
Requirement to use
Construction Group of the
Department of Administrative
Services for building
construction and
maintenance programs
X.
Terminate the Ministerial

Agreement requiring Telecom to
use the Construction Group of
the Department of
Administrative Services for
building construction and
maintenance programs (3.121)
be exempt from
with the Offsets
its competitive
(3.91)
[40]
ATTACHMENT A
-12CURRENT POSITION
Minister has a power of

direction (Section 7 of the
Telecommunications Act)
Y.
Ministerial power of direction

be amended to allow for any
additional cost to be
compensated (3.126)
z.
Telecom to provide the

Communications with a
strategic corporate plan
covering periods of three to
five years, with relevant
information to be provided to
the Prime Minister, the
Treasurer and the Minister for
Finance, consistent with the
Policy Guidelines (3.129)
Accountability
Corporate Plan - Commission
only required to submit to
the Minister estimates of
receipts and expenditure
for each financial year
The Minister to be advised of

any matter which significantly
affects the outlook as
established in the corporate
plan as soon as possible
after such matters become
known to the Corporation
(3.129)
Financial Target - Commission
to meet all expenses
chargeable to revenue and
provide for at least 50%
of capital expenses
ZA. Consistent with the Policy

Guidelines, Telecom to work
towards an overall financial
target agreed in advance by
the Minister for Transport and
Communications following
consultation with the
Treasurer and Minister for
Finance (3.132)
Dividend - No current
provision
ZB. Telecom Board to recommend,

after consultation with the
Minister on the dividend
proposed, a dividend payment
and this may be accepted or
varied by the Minister
(3 .137)
[41]
ATTACHMENT A
-13-
CURRENT POSITION
Required to furnish the

Minister with Annual Reports
as soon as practicable
after each 30 June
zc.
Tax exemption - currently

only liable for custom
duty and sales taxes
ZD. Telecom's subsidiaries and

joint ventures to be subject
to all taxes.
Telecom's
existing tax exemption to be
maintained for at least two
years to enable accounting
separation of competitive and
monopoly activities. Any
future application of taxes to
be on a phased basis (3.141)
Telecom's Annual Report will

give account of performance
against previously established
goals, including financial and
operational targets, together
with assessments of the cost
of meeting CSOs and observing
residual non-commercial
controls which adversely
affect profitability (3.140)
[42]
ATTACHMENT B
-14-
TELECOM REFORM PACKAGE

1.
INTRODUCTION
1.1
The main reasons for initial government ownership of

telecommunication facilities included concern for
development nationally of essential communications services
and infrastructure, equity issues, efficiency and possible
abuse of monopoly power.
1.2
The Australian Telecommunications Commission (Telecom) was

established by the Telecommunications Act 1975 on 1 July
1975 taking over the telecommunications functions of the
former Postmaster General's Department; Telecom was
established in accordance with recommendations of the
Commission of Inquiry into the Australian Post Office (the
Vernon Committee).
1.3
The Act established Telecom as the national

telecommunications service provider, operating off-budget
and subject to the financial disciplines of covering from
earnings all expenditure properly chargeable to revenue and
providing for not less than one half of capital
expenditure. The statutory arrangements also conferred on
Telecom a responsibility for regulation and management of
the network, with the effect of providing Telecom with a
monopoly in the provision of telecommunications transmission
services in Australia.
It also provided Telecom the
regulatory power to authorise privately supplied equipment
to be attached to the telecommunications network.
1.4
Although the Davidson Committee of Inquiry into

Telecommunications Services (1982) recommended an increased
role for the private sector in the provision of
telecommunications services, at that time Government
rejected this approach.
1.5
In May 1983 the Government established an Interdepartmental

Committee to review the financial objectives and financial
structure of Telecom and its relationship with the
Government. However, the IDC was unable to reach agreement
on the substantive issues over a two year period. Ministers
agreed in late 1985 that the IDC cease work in view of the
impending Policy Discussion Paper on Statutory Authorities
and Government Business Enterprises.
1.6
In September 1987 the Government announced a Review of

Telecommunications Policy to address the following issues:
(a) the nature and extent of telecommunications monopoly;
(b) possible private sector involvement;
(c) extent of Government controls and effects on
competition; and
[43]
ATTACHMENT B
-15(d) the economic and technical regulation of the industry.

1.7
Telecom is now one of Australia's largest businesses with

total assets of $14.5 billion, an annual capital works
program of $2.8 billion and an average full time staff of
94,000.
1.8
To date Telecom's product and service range has kept pace

with world developments.
In some areas Telecom is among the
world leaders eg. ISDN, electronic funds transfer, and QPSX
- a joint venture company with the University of Western
Australia, set up to develop new telecommunications
switching technology.
However, under present controls,
Telecom's ability to continue to innovate, export and
maintain a world standard telecommunications infrastructure
would be limited. There is now the need to focus on
Telecom's efficiency, operating structure and participation
in a range of future ventures.
1.9
The Telecommunications Act of 1975 has not been

substantially changed since its enactment.
2.
OBJECTIVES
2.1
The Telecommunications Act requires Telecom to perform

its functions in such a manner as will best meet the
social, industrial and commercial needs of the Australian
people for telecommunications services. The Act also
requires Telecom to make its telecommunications services
available throughout Australia for all people who
reasonably require those services.
2.2
In interpreting its Act, Telecom has adopted the following

objectives:
(a)
to give all Australians the opportunity to access

telecommunications services at a fair cost;
(b)
to maintain a level, range and quality of

telecommunications services which permit Australian
industry and commerce to remain internationally
competitive;
(c)
to achieve growth in telecommunications services at

least comparable with that of other developed countries
as a means of providing employment in the
telecommunications industries and in the many
industries which employ those services;
(d)
to ensure that the benefits of technological innovation

in telecommunications and related information services
are made available as widely as possible throughout the
Australian community;
(e)
to promote a sustainable industry base for local

manufacture, assembly, product development and software
adaptation and development; and
[44]
ATTACHMENT B
-16-
(f)
to ensure maximum reliability of telecommunications

services.
2.3
Although the Telecommunications Act does not require Telecom

to provide basic services at affordable prices and so far as
possible uniform prices, Governments have long endorsed this
objective. This requires Telecom to maintain some services
which are unprofitable or uneconomic in terms of return on
investment. The costs of these services are met by cross
subsidy from profitable services and by exemption from
taxation (now reduced by exposure to customs duties and
sales taxes) . The Community Service Obligations include
the operation of loss making public telephone services,
equity for non-metropolitan users, national infrastructure,
etc.
Over many years Telecom's tariff schedules have become
mis-aligned in terms of costs and prices.
Currently Telecom
is over-dependent on income from its highly profitable trunk
routes, which is the segment of its business most
potentially vulnerable to predatory pricing.
3.
ELEMENTS OF THE REFORM PACKAGE
3.1
In 1975 the telecommunications market was not, nor envisaged

to be, a competitive market.
Since then, rapid and far
reaching market and industry changes have occurred,
reflecting the impact of technology and fundamental shifts
in customer demand. There is increasing substitutability
across the whole range of Telecom's services and direct
competition across an increasing part of Telecom's business
operations.
3.2
Telecom's present operating environment, with its burdens of

bureaucratic regulation and control, is a major inhibitor
to realising identified efficiency gains. Under current
controls the Telecommunications Commission and management
have not come to grips substantially with significant
changes required in work practices, organisation and
overhead structures, particularly in the Customer Access
Network.
3.3
There is therefore now a need to more clearly define

Telecom's objectives and functions, particularly the
Community Services Obligations (CSOs) imposed upon it, its
financial structure, the regulatory environment governing
its market place, and to distinguish more clearly the
ownership and management roles of Government and the Telecom
Board and management.
Consistent with thi s approach there
is the need to address whether Telecom should be required to
pay income and other taxes if its business structure is to
be more closely aligned with that of a private commercial
enterprise.
3.4
The reforms proposed for Telecom are discussed below in

relation to the following four main elements:
[45]
ATTACHMENT B
-17(a)
regulatory environment;
(b)
structure of the enterprise;
(c)
removal of controls; and
(d)
accountability
(a)
REGULATORY ENVIRONMENT
3.5
Under the Australian Constitution, and through judicial

decisions, the Commonwealth Government has legislative and
executive powers in respect of postal and
telecommuniqations matters including radio and television
broadcasting and management of the radio frequency
spectrum.
3.6
The legislative base for regulation of telecommunications

in Australia is the Telecommunications Act and the
Radiocommunications Act 1984. Under the former, Telecom
has legislative monopoly over the provision of domestic
services. Telecom may authorise a person to erect,
maintain or operate a telecommunications installation and
author~se the attachment of a line, equipment or apparatus
to a telecommunications system.
Private networks may
interconnect with the public switched network under
conditions and prices determined by Telecom.
3.7
The Review of Telecommunications Policy (announced in

September 1987) has established that there is a strong and
consistently agreed case for the necessary technical and
economic regulatory functions being vested wholly with an
independent specialist agency.
Consequently, there is
scope to review the Telecommunications Act with a view to
ensuring this legislation solely relates to the business
operations of Telecom.
(b)
STRUCTURE OF THE ENTERPRISE
Incorporation of Telecom
Proposal A:
3.8
Refined incorporation of Telecom under

statute, along the lines of the Federal
Airports Corporation Act. The Australian
Telecommunications Commission to be renamed
the Australian Telecommunications
Corporation and a Board of Directors be
constituted.
Telecom is already incorporated under Section 21 of the

Telecommunications Act 1975. It is proposed that the
Telecommunications Act be amended to change Telecom into a
corporation, the Australian Telecommunications
Corporation. Telecom's efficiency and accountability could
be improved in the first instance by the updating of other
provisions of the Telecommunications Act 1975.
[46]
ATTACHMENT B
-18-
3.9
This would provide a starting point for mapping out an

appropriate evolutionary path for Telecom, more clearly
defining the Government's role as owner, the Board's role
as manager of the business on behalf of the owner; and will
enable the Government to develop an appropriate capital
structure for Telecom. Removing regulatory provisions from
the Telecommunications Act, will enable the refinement of
that Act into a corporate instrument relating solely to
Telecom's operations.
3.10
It would also involve a clear restatement of the

Government's business objectives for Telecom and the csos
it considers Telecom should provide.
Top Manag ement Structure
3.11
3.12
Proposal B:
The Directors of the Telecom Board continue to

subject to dismissal by the Governor-General
on grounds which shall be expanded to include
ongoing underperformance.
Proposal c:
The Telecom Chief Executive Officer (CEO) be

subject to dismissal by the Board. The CEO to
be an ex-officio member of the Board. The
statutory position of Chief General Manager to
be abolished.
Under present provisions of Telecom's legislation, the

Commission comprises seven Commissioners:
(a)
the CEO (Managing Director)
(b)
a Departmental Officer
(c)
a representative of officers and employees of the

Commission; and
(d)
four other Commissioners.
The Commissioners are appointed by the Governor-General,

the Managing Director is appointed as a full-time
Commissioner and the others as part-time Commissioners. A
Commissioner must be appointed for a period not exceeding
five years, but may be re-appointed. The Departmental
officer holds office during the pleasure of the GovernorGeneral. There is a longstanding arrangement to appoint a
Commissioner to represent rural interests.
[47]
ATTACHMENT B
-19-
3.13
The present appointment provisions allow for appointment

of sectional interests to the Commission. This reinforces
the view that the Commission then acts as an extension of
Government, rather than being at arms length with the
business.
It detracts from the need to appoint hard-nosed
business managers to the Board of this GBE.
3.14
It is proposed that the Board of the new Corporation

would continue to be appointed by the Governor-General.
3.15
To bring the responsibilities and accountability of the

Telecom Board more into line with that of a board in the
private sector, it is proposed that the power to hire and
fire Telecom's Chief Executive Officer (the Managing
Director) change to allow the Managing Director to be
appointed by the Minister after receiving a recommendation
of the Telecom Board, and subject to dismissal by the
Board.
3.16
It is also proposed that the reference to the position of

Chief General Manager in the Telecommunications Act be
deleted as it would be a matter for the Board and the CEO
to determine the internal management structure of
Telecom.
3.17
The proposed measures would reinforce the distinctions

between ownership and management of the enterprise, by
ensuring that the Board of Telecom would be accountable to
the Government of the day, and the management of Telecom
accountable to the Board.
3.18
It is proposed to expand the Telecom Board from seven up to

nine members, consistent with the size of the enterprise
and the needs to develop commercial and industry specific
expertise at Board level.
Capital Structure
Proposal D:
Establish an appropriate commercial financial

structure for Telecom by:
(a) converting half of Telecom's Commonwealth
loans to equity;
(b) revaluing Telecom's assets according to
prevailing commercial practice; and
(c) retiring Telecom's remaining Commonwealth
loans progressively over the next ten
years.
[48]
ATTACHMENT B
-203.19
On establishment in 1975, the Government provided no

funding contribution for its equity interest in Telecom.
Telecom's liability for funds advanced by the Australian
Government on establishment was determined by the Treasurer
under the Telecommunications Act at $3,894m, representing
the difference between the historical cost of assets and
liabilities. The Government's equity in Telecom,
amounting to $3,262m as at 30 June 1987, is.represented by
accumulated reserves as shown below.
Abbreviated Balance Sheet for Telecom as at 30 June 1987
Non Current
Liabilities
current Liabilities
Commonwealth Loans
Shareholder's Funds
4,653.3
2,198.3
4,352.2
3,262.2
14,466.0
Non Current
Assets
Current Assets
13,346.7
1,119.3
14,466.0
(Note: The current balance sheet values assets at historic

prices, net of depreciation.
It includes some land and
buildings assets which have scope for considerable upwards
revaluation to reflect market prices.
It also includes
assets which are subject to technological obsolescence and
therefore subject to downwards revaluation to reflect
current values.)
3.20
The development of an appropriate commercial, capital base

for Telecom is a critical element in the development of
the package to place the enterprise on a publicly
acknowledged business-like basis. The Government has
clearly acknowledged the need for an appropriate capital
structure in other GBEs eg. Qantas, Australian Airlines
and the Australian National Line. Excessive reliance on
debt finance is uncommercial and runs counter to Government
policy that business enterprises be increasingly run along
commercial lines. A desirable level of gearing in
Telecom's case would require careful consideration, but it
should be noted that Telecom's interest payments ($1,028m
or 18% of expenses) are relatively large compared to profit
($443m), leaving profitability relatively vulnerable to
interest rate volatility and shortfalls in business
revenues, and depriving it of the flexibility to exploit
business opportunities.
3.21
It is proposed that 50% of the present Commonwealth

loans be converted to equity with a concurrent provision to
base future dividend payments on the interest formerly
associated with the converted debt. This proposal, together
with Telecom's reserves, would provide an appropriate
gearing ratio and more importantly a prudential cushion of
shareholder's funds to enable the effects of asset
revaluation to be absorbed in the event that competition
and technical obsolescence require the
[49]
ATTACHMENT B
-21-
significant writing down of telecommunications assets.

In
order to subject Telecom to the maximum critical scrutiny
by the commercial capital markets it is proposed to place
the remaining Commonwealth debt on a phased ten year
retirement schedule with the aim of transferring all
Telecom's borrowings to the commercial market.
(c)
REMOVAL OF CONTROLS
3 . 22
The Government's Policy Guidelines for Commonwealth

Statutory Authorities and Government Business Enterprises
note that in the program of efficiency, decontrol and
accountability, the Government intends, among other things,
to reduce existing direct controls on GBEs on case-by-case
assessment.
3.23
A number of these controls raise issues which apply to all

transport and communications GBEs, and hence have been the
subject of Cabinet Memoranda - the "generic controls".
These controls have already been considered by Cabinet in
the context of the GBE reform packages for QANTAS,
Australian Airlines, Australian National Line and
Australian National.
Loan Council Controls
Proposal E:

Telecom be developed to:
(a) take into consideration the on-going and
longer term nature of capital expenditure
proposals by adopting a guaranteed 3 year
rolling borrowing program (subject to
annual review and consistent with the
Corporate Plan) which would allow Telecom
to proceed with major investments without
the uncertainty inherent in annual
borrowing allocations;
(b) ensure sufficient flexibility to enable
additional borrowings in a year where new
commercial opportunities are identified;
(c) recognise the separate and distinct
borrowing requirements of Telecom's
subsidiary and joint venture companies,
and the impact of Loan Council processes
on those companies and its private
enterprise partners; and
{d) allow Telecom to increase its market
borrowings to convert part of Commonwealth
loans to private sector loans, in the
context of capital restructuring of
Telecom.
[50]
CABINET-IN-CONFIDENC
TACHMENT B
-223.24
Telecom's borrowings fall within the Loan Council's global

limits approved for Commonwealth authorities. The
procedures involved have disadvantaged Telecom in a number
of ways. Given that Telecom does not presently have a
proper, commercial, capital base, it has relied largely on
borrowings to fund capital expenditure. The annual
approach for borrowings through Loan Council processes
places Telecom in a position of being unable to finalise
its planning for the year ahead until just prior to the
start of each financial year. Given the capital intensive
nature of the telecommunications industry, Telecom's
requirement is for security of funding over periods of one
to five years. Once particular projects (eg. expansion of
the network) have commenced, Telecom's funding requirements
for those projects cannot be easily varied without
substantial costs. Subsequent restrictions to Loan Council
allocations in future can require Telecom to cut programs
in short lead time areas of investment with a comparatively
greater loss in economic efficiency.
3.25
The Government is also moving towards less regulation and

more competition in certain areas of Telecom services,
particularly for customer premises equipment and value
added services. As this competition increases, so will
Telecom's need to have the flexibility to make quick
commercial decisions in the face of rapidly changing
technology, products and customer demand.
These decisions
could require significant capital investment funded by
borrowings, which were not necessarily foreseen at the time
Telecom bid for borrowings in the Budgetary/Loan Council
processes. The processes need to be sufficiently flexible
to take such situations into consideration.
3.26
A further difficulty encountered by Telecom in its funding

is the application of Loan Council constraints to joint
ventures and subsidiary companies. All borrowings of its
joint ventures and subsidiaries are wholly included in
Telecom's global borrowing limits irrespective of equity
position (ie. if Telecom has a 50% equity, 100% of the
joint venture's borrowings are counted in Telecom's global
limits approved by Loan Council). The situation is
therefore one where the whole range of financing mechanisms
of a joint venture is subject to Loan Council approval,
regardless of the fact that it is not operating in the
public sector and that one partner may be from the private
sector.
3.27
The imposition of Government constraints on such private

companies operating in competitive markets is wholly
inappropriate. Such constraints can be a disincentive to
the development of Australian technology and exports in
global telecommunications/information technology markets,
by discouraging joint venture participation with Telecom.
[51]
"
ATTACHMENT B
-23-
3.28
An example of the situation faced by Telecom is QPSX

Communications Pty Ltd, a joint venture between Telecom and
Unicom Research Pty Ltd (the commercial arm of the
University of Western Australia) which is moving to the
next stage of development that of manufacture. Any form of
funding, equity injection by Telecom or borrowings of QPSX,
will count against Telecom's global limit.
If these funds
are not available, the potential development of
manufacturing and related exports could be curtailed. This
also creates an environment of extreme uncertainty for
business planning. On the basis of current business plans
for QPSX, the borrowing constraint could lead to a
potential loss of $20m-$50m initially, depending on the
levels of overseas orders.
3.29
There is also a lack of flexibility within the current year

once borrowing levels have been approved, precluding
Telecom from reacting in the most efficient manner to
changing economic and financial conditions.
Consequently,
Telecom is unable to take advantage of economic or market
opportunities that may arise during the year.
3.30
Annual capital expenditure is expected by Telecom to

increase at a higher real rate of growth than past trends from $2,800m in 1987/88 to around $4,000m (current prices)
in 1990/91. Telecom estimates that its new money borrowing
program would need to continue to increase substantially in
current terms, rising from $745m in 1987-88 to about $880m
in 1990-91. The balance of capital expenditure would be
met from retained earnings (under present policy, Telecom
retains 100% of earnings; company tax and dividends are not
payable). The maintenance of Telecom's current operating
conditions requires a growing need for funds from
borrowings and tariffs.
3.31
A further effect of borrowing being constrained below

commercially viable levels is the risk of uneconomic
migration of advanced network functions from the public
network into customer premises, despite there being a scope
for these functions, eg. switching network management
services, nebvork intelligence, etc., to be provided more
cost effectively within the Telecom system.
3.32
It is therefore proposed that the present Loan council

arrangements applying to Telecom be substantially reviewed
and amended to provide Telecom with the flexibility to
respond efficiently, and in a sound commercial manner to
its changing borrowing requirements in the market place.
[52]
')
ATTACHMENT B
-24Industrial Relations Co-ordination Arrang ements

Proposal F:
Telecom be removed from the industrial

relations co-ordination arrangements.
3.33
Telecom is required by Government to participate in these

arrangements. There is a general obligation on Telecom to
apply consistently the Government's wage and industrial
relations policies, to submit to the Co-ordination
Committee industrial matters with possible flow-on or
policy impact and to abide by all decisions involving
significant industrial matters.
3.34
In practice Department of Industrial Relations, with the

role of administration of the co-ordination arrangements,
asserts authority across virtually the whole range of
industrial matters including all salaries and conditions of
service issues.
3.35
This has had the effect of negating Telecom's statutory

responsibility to determine such matters, weakened its
negotiating position and undermined its accountability.
3.36
Some of the practical effects have been:

(a) Telecom has been unable to develop its technician
remuneration package in line with the rapidly
increasing complexity and value of the work in
maintaining advanced electronic equipment. As a
consequence Telecom has experienced difficulty in
retaining the services of the highly trained, better
technicians in the face of demands from the largely
unregulated labour market in the computer maintenance
industry. Telecom is training and supplying the trade
labour for this industry.
(b) Telecom has been unable to adjust its labour supply
and work practices to reflect the rapidly increasing
productivity that is available with the new technology
that it is installing.
This entrenches inflated cost
structures and has distorted pricing.
(c) Generally Telecom has not been able to react quickly
enough to employment and industrial issues.
3.37
In practice Telecom has usually been able to secure

agreement to its initiatives. However, securing agreement
has frequently been a time consuming process generating
substantial costs, although these are difficult to quantify
objectively. Examples of cases where Telecom considers
such costs have been incurred are:
(a) Optical Fibre Cables - Negotiations with APTU
[53]
ATTACHMENT B
-25-
(b) Paid Rates - Minimum Rates Awards

(c) Sales Force Remuneration
(d) Performance Based (Incentive) Pay
3.38
Whilst the major costs of co-ordination arrangements relate

to the operational cost burdens, there are also
administrative costs associated with preparing, meeting and
negotiating the progression of proposals. These annual
costs have been conservatively estimated at around
$280,000.
3.39
Telecom as a organisation charged with trading profitably

in the most efficient manner should be free to exercise
authority to determine all terms and conditions of
employment for its staff, without being required to secure
agreement from those who carry no accountability for
.
Telecom's commercial operations.
It would be consistent
with the approach in this reform package to make the
Telecom Board responsible for such operational matters by
making it fully accountable for industrial relations
decisions.
3.40
It is possible to maintain a continuing obligation on the

Telecom Board to adhere with overall Government industrial
relations policies and decisions of the Australian
Conciliation and Arbitration Commission. The Board will
keep Government fully informed on significant industrial
matters.
3.41
Proposal G:
Remuneration of Board members to remain

subject to the Remuneration Tribunal.
Proposal H:
Remuneration of the Managing Director and

senior executives to be removed from the
jurisdiction of the Remuneration Tribunal and
the Telecom Board to determine the
remuneration packages in accordance with
Cabinet Decision l08l2(SA) of 22 March 1988.
Under current arrangements the Remuneration Tribunal

determines the salaries and allowances of two groups of
statutory office holders in Telecom - firstly the
Managing Director, the Chief General Manager, the part-time
Commissioners, and secondly the Chairpersons, Promotion
Appeals Board and Disciplinary Appeals Board.
This section
only deals with the first group.
It is proposed that the
remuneration of Board members continue to be subject to
determination by the Remuneration Tribunal.
[54]
ATTACHMENT B
-263.42
The absence of any Board responsibility for incentive

payments, performance bonuses, market based salaries, etc.
for its Managing Director effectively removes the ability
of the Board to exercise meaningful control over that
position.
Political sensitivities arising from
Remuneration Tribunal responsibility have meant that the
Tribunal'sfindings have invariably been structured to
satisfy criteria other than the needs of GBEs to encourage
commercial performance in the market place.
3.43
The effect of unrealistic capping of the Managing

Director's salary restrains and distorts the salary of
other executives to a non-competitive level and affects the
recruitment, retention and movement of such staff.
It does
not allow the Board to reward and motivate key executive
management.
3.44
The Telecom Board should be free to determine the terms and

conditions of employment of all staff, from the Managing
Director downwards, accepting the concept that market and
business forces should dictate the level of remuneration
and associated terms and conditions of employment of its
employees. The Board could advise the portfolio Minister
of the details of the Managing Director's remuneration
package on a confidential basis.
Superannuation
Proposal I:

superannuation schemes with guidelines-to be
agreed from time to time between the Ministers
for Finance and Transport and Communications,
with any proposed movement beyond the
guidelines subject to approval by the Minister
for Finance.
Additional costs borne by Telecom due to
setting Telecom's financial target.
3.45
The Telecommunications Act requires that Telecom provide

superannuation benefits under the terms of the
Superannuation Act.
Superannuation must be provided
through the Commonwealth Superannuation Scheme (CSS).
3.46
This requirement is inhibiting Telecom in its operation.

The css does not provide the necessary flexibility in
relation to the recruitment and retention by Telecom of
specialist staff with executive, marketing, sales and
finance skills. With the change in Telecom's operating
environment, there is increasing need for highly
[55]
ATTACHMENT B
-27specialised staff in these areas but under the present

constraints on salaries and superannuation Telecom does not
have the flexibility to offer such staff attractive
superannuation as part of their total remuneration package.
Its competitors do have flexibility.
Staff dissatisfaction
with the benefits of the CSS has also been evidenced, with
demands from staff associations and unions for the reform
of the css. This dissatisfaction is most evident amongst
lower level salary groups.
3.47
There is also a substantial cost penalty imposed on Telecom

by the current css superannuation arrangements which can be
illustrated by reference to contribution rates paid in the
private sector. A study by Telecom's consulting actuaries
shows employer contributions in the range of 6-11 per cent
compared to Telecom's contribution to the css in 1987-88 of
14 per cent. This is a substantial cost differential.
3.48
An additional cost to Telecom of the constraint of the CSS

is the associated allocation rate (or crediting rate) of
the Superannuation Fund Investment Trust (SFIT). This rate
is the rate applied to member contributions as well as
being the rate applied by the Australian Government Actuary
(AGA) in constructing Telecom's notional account.
The SFIT
crediting rate has disadvantaged Telecom and its members as
opposed to the application of earnings rates achieved by
comparable large funds.
3.49
The financial impact on the Government of Telecom starting

a new scheme is not a significant issue. These funds do
not have to be transferred from the Government on
commencement of a new scheme.
If the Government pays its
pre-transfer liability as and when benefits fall due, the
timing of payments would be similar to that under the css
and hence there would be no additional burden.
3.50
Telecom would also ensure asset transfer arrangements for

the SFIT (if any) would minimise any cash flow or
liquidation problems.
3.51
The removal of the present superannuation constraint would

have substantial benefits for Telecom - with Telecom, on
the basis of actuarial advice, forecasting the achievement
of ongoing savings up to some $200m per annum as well as
unquantifiable benefits in terms of more effective staff
recruitment, retention and satisfaction.
Audit
Proposal J:
The Minister for Transport and Communications

appoint the auditor to Telecom, after
receiving a recommendation from the Telecom
Board.
[56]
CABINET-IN-CO FIDENCE
ATTACHMENT B
-28Proposal K:
The costs of any additional auditing incurred

as a consequence of Commonwealth ownership to
be taken into account in setting financial
targets.
3.52
Under the Telecommunications Act 1975, the Auditor-General

is required to inspect and audit the accounts and financial
transactions and records relating to assets of Telecom.
Telecom cannot appoint a private auditor of its choice
instead of the Commonwealth Auditor-General.
3.53
This requirement raises concerns about:

(a)
the monopoly position of the Auditor-General, with no

scope for competitive tendering for audit services.
In addition to Audit fees ($1.lm in 1986) Telecom also
provides accommodation for Australian Audit Office
staff in six State offices and headquarters which is
estimated to cost around $100,000 p.a.;
(b)
the public disclosure of commercially sensitive

material by the Auditor-General;
(c)
the quality of the Auditor-General's advice on

acceptable accounting treatments; and
(d)
the organisation and inflexibility of the Australian

Audit Office resulting in delays, audit results, etc.
3.54
While private sector auditors are concerned almost

exclusively with confirming the truth and fairness of
financial statements, the Auditor-General as a public
sector auditor has the important function as a provider of
information essential in ensuring accountability
of GBEs to the Parliament.
3.55
There are a number of services which the Auditor-General

cannot provide that a commercial auditor could provide
Telecom, including international links into
telecommunications companies overseas, which is an
advantage in determining acceptable accounting practices
and provides a broader viewpoint than that provided by the
Auditor-General. Telecom also requires expert advice on
the commonly used and accepted commercial accounting
treatment for particular sets of transactions. The
Auditor-General does not provide this advice on the basis
that the provision of such consultancy services could cause
a conflict of interest to arise with his audit
responsibilities.
Consequently, there could be additional
cost and delay involved in Telecom obtaining advice from a
private sector consultant and the Auditor-General
subsequently examining the accounting treatment decided
upon.
CABINET- IN-CONFIDENCE
[57]
ATTACHMENT B
-29-
3.56
Allowing Telecom to recommend its mvn auditor would allovl a

more commercially oriented audits and should also achieve
savings in audit fees, particularly when negotiated in
conjunction with other services.
The requirements of the
Auditor-General could be taken into account by an auditor
from one of the large accounting firms.
There are adequate
provisions in the auditing standards and regulations of the
accounting bodies to ensure a private auditor can guarantee
full public accountability. Where there is a special
accountability requirement for audit, over and above normal
commercial audit, this could be undertaken by the AuditorGeneral and the costs would be taken into account in
determining Telecom's financial target.
Treasurer's Approval of Specific Borrowings
Proposal L:
Telecom no longer be required to obtain

approval from the Treasurer to the terms and
conditions of individual borrowings.
3.57
Under the Telecommunications Act, Telecom may, with the

Treasurer's approval, borrow moneys necessary for the
performance of its duties.
This control was, inter-alia,
meant to ensure that the terms and conditions of the
borrowings were equivalent to those obtainable elsev1here in
the market place and did not disadvantage the
Commom1eal th.
3.58
Given the degree of accountability implied by the reform

package proposals and Telecom's considerable experience
with individual loan raising in Australia and overseas,
Telecom's Board can now be relied upon to use its judgement
to borrow funds on the best available terms.
Continued
oversight is an unnecessary impediment to efficient
commercial operation by imposing additional layers of
approval on the Telecom Board. Any concerns about the need
to minimise risks to the Commomvealth could be met by
developing appropriate guidelines within which Telecom
should operate when entering into borrowing arrangements.
It is expected that Telecom will inform the Treasury of the
details of each borrowing after it is finalised.
Controls over Bank Accounts and Investment
Proposal M:
3.59

for its investment and banking arrangements.
The Treasurer's approval is currently required for Telecom

to open accounts with specific banks and to invest shortterm surplus funds in specific instruments. These
requirements were intended to give the Government the
opportunity to ensure that banking and investment decisions
about to be entered into by Telecom were consistent with
its statutory functions and do not put Commom1eal th
resources at unnecessary risk. However, given the measures
to place Telecom's operations on a commercial basis, the
requirement to seek approval for routine banking and
management investment decisions is seen as no longer being
appropriate.
[58]
ATTACHMENT B
-30Subsidiaries, Joint Ventures and Share Purchases

Proposal N:

subsidiaries, joint ventures and share
purchases be removed and replaced by strategic
oversight by the Minister, usually through
monitoring financial targets and the Corporate
Plan. The Board be required to provide prior
advice to the Minister on any proposals to
create or acquire subsidiaries or to purchase
a major shareholding in another company.
3.60
Under the Telecommunications Act, Telecom has the power to

enter into joint venture activity with external partners
and to establish subsidiaries with the approval of the
Minister. Approval to do this has been accompanied by wide
ranging constraints on this activity many of which are
directly linked to the range of constraints which bind
Telecom. The three major constraints which cause most
concern to Telecom are borrowings, personnel arrangements
and Ministerial approvals.
3.61
Joint ventures are seen by Telecom as an important business

development mechanism which recognises the positive synergy
which can be achieved by the private sector and Telecom
working together. Such arrangements are recognised
overseas and used extensively. For example by September
1987 Japan's NTT had established 112 companies whilst
swedish Telecom had established 12 companies.
3.62
The current regime of constraints on Telecom joint ventures

can provide a disincentive to the development of Australian
owned technology. This may lead to a situation where
benefits to the Australian economy are lost to overseas
firms, because the prospective partner sees the constrained
environment within which they must operate as a partner
with Telecom as being unacceptable.
3.63
Telecom's joint venture activity has the following positive

outcomes for the Australian economy:
(a)
stimulation of private sector technological

innovation and enhancement of international
credibility in this area;
(b)
creation of Australian owned industrial property

which may be exploited in international markets;
(c)
establishment of contacts with overseas

corporations; and
(d)
creation of significant and valuable high technology

exports.
[59]
ATTACHMENT B
-313. 64
The difficulty facing prospective Telecom joint ventures is

that they are formed as independent, commercial entities to
operate in competitive markets, yet they are constrained by
Government requirements more suited to a non-commercial
public authority.
(a)
3.65
The impact of Loan Council constraints on borrowings by

joint ventures is discussed in Proposal E, Loan Council
controls.
(b)
3.66
Borrowings
Personnel arrangements
Superannuation is a key part of remuneration packages and

needs to be tailored to match the commercial environment in
which the individual is working as well as the needs of the
individual. Flexibility in this area of remuneration is
required in order to attract and retain key personnel.
Joint ventures need to be in a position to offer this at
the individual level, when and as the need arises.
(c)
Ministerial approval
3.67
The high degree of Ministerial and bureaucratic involvement

in the approval process means that the formal process for
obtaining approval takes up to twelve weeks.
Telecommunications is a rapidly changing area with new
technology opening up opportunities which are quickly
seized upon. Timing can be of critical importance in some
ventures so that delays of this magnitude may mean the
difference between success or failure.
3.68
If Telecom's joint ventures comply with its Act, power for

approval of a joint venture project should rest with the
Telecom Board, consistent with commercial practice.
Ministerial oversight of these activities would be
maintained by monitoring proposals within the Corporate
Plan, and the Board formally advising the Minister of
individual proposals prior to their being entered into
formally by Telecom.
Ministerial App roval of Basic Charg es
Proposal 0:
3.69
Ministerial control of specific charges

independent regulatory oversight and
monitoring.
Section 11 of the Telecommunications Act requires the

Minister to approve charges for basic services. Telecom
accepts the need for an independent a ~ sessment of basic
charges whilst it retains a monopoly over the provision of
these services. Details of the pricing formula will be set
[60]
ATTACHMENT B
-32in the context of the establishment of the independent

regulator.
Telecom should have scope to adjust and
rebalance its tariffs, and be encouraged through the price
control formula to reduce the substantial distortions from
cost which presently exist and to enable productivity and
other efficiency improvements. There would also be scope
for Telecom to achieve changes in charges through
improvements in its cost structure which could be expected
to flow from measures in this reform package. Telecom
will be subject to price control on monopoly services
through the independent regulator.
Contract Controls
Proposal P:
The requirement that Telecom obtain

Ministerial approval to enter into contracts
to be removed.
3.70
Section 79 of the Telecommunications Act 1975 requires

Telecom to obtain the Minister's approval before entering
into a contract involving an amount exceeding $6M. In
1986/87 there were forty-seven contracts totalling $625M
referred to the Minister.
3.71
Since 1975 advice has been provided to Ministers on

Government policy aspects of contract proposals submitted
by Telecom for Ministerial approval.
These included
implications for calling of public tenders, tender
procedures, tender evaluation and offsets and preference
policies.
3.72
For contract proposals exceeding $6 million, legal advice

is that the Minister has a wide discretion in considering
applications for contract approval and may have regard to a
Government purchasing policy designed to foster Australian
industry.
3.73
In practice, compliance with the Government's preference,

offset and other relevant policies, has been a condition to
Ministerial approval.
3.74
The contract approval process causes delays of many weeks

and these delays inhibit Telecom by:
(a) imposing time constraints which reduce Telecom's
ability to respond to emerging market or customer needs;
(b) increasing ordering lead times, making the forecasting
and the matching of purchases with ultimate requirements
more difficult and risky; and
(c) limiting Telecom's ability to carry out continuous
negotiations with prospective suppliers to obtain the
best commercial deal.
CABIN ET- 1N-CON Fl DENCE
[61]
ATTACHMENT B
-333.75
The approval process has provided the mechanism for

Government intervention in decisions which have not always
been in Telecom's commercial interests (see para 3.84(b)).
The Telecommunications Act requires Telecom to operate as
efficiently and economically as practicable.
3.76
The approval process has proven complex and time consuming

for Ministers, the Department and Telecom, it has caused
delays in placing contracts and unnecessarily involves the
Minister and Department in the day to day operations of
Telecom.
3.77
Under this proposal the Telecom Board would be held

responsible and fully accountable for all contractural
matters including approval in accordance with normal
commercial practice. Under this proposal the Minister
could no longer be seen to be responsible for contractual
arrangements entered into by Telecom. The Board would
account to the Minister who would have strategic oversight
through the Corporate Plan.
3.78
The Board would keep the portfolio Minister fully informed

of all relevant contractural matters through reports sent
after Board meetings and would pay due regard to relevant
Government policies affecting Telecom's purchasing of goods
and services.
National Preference Agreement
Proposal Q:

National Preference Agreement for its
competitive activities.
3.79
Telecom is subject to the NPA by Government decision. The

Telecommunications Act prohibits the automatic application
of preference in purchasing decisions.
In practice,
preference is able to be applied in contracts requiring
Ministerial approval.
For contracts valued at less than $6
million, Telecom complies with the spirit of the NPA in so
far as it is economically and technically feasible.
Telecom purchases from local sources as far as practicable
having regard to the economies involved and applies its own
preference margins where circumstances are relevant.
3.80
In assessing purchases, recognition is given to the

Government approach as applied to purchasing Departments,
that there is a 20% preference margin for Australian
content.
3.81
This inhibits Telecom in that:

(a)
it may lead to purchases with higher local content to

meet Government policy, resulting in higher prices to
Telecom and ultimately customers for the product; and
[62]
ATTACHMENT B
-34(b)
the 20% preference margin has a protective effect for

suppliers resulting in higher prices being paid by
Telecom.
3.82
Private sector competitors are not subject to this policy

and hence Telecom is disadvantaged through higher purchase
costs.
3.83
Many other GBEs are already exempted on the basis that

major trading activities are undertaken in competitive
markets.
3.84
The total additional cost to Telecom arising from the

application of preference margin is not easily
quantifiable, but can be illustrated by example:
(a)
In order to achieve a 65% local content on NEC PABXs,

Telecom has to pay a surcharge of 12%.
Based on
proposed purchases of NEC PABXs for 1987/88, the
additional cost to Telecom will be $5m. A nonquantifiable cost of the 12% surcharge is the reduced
market share faced by Telecom due to the increased
cost structure of its NEC PABXs.
(b)
In April 1986, a proposed purchase of four wheel drive

vehicles valued at $3.8m was delayed by over 4 months,
due to consideration being given by Departments
to the possible purchase of an alternative vehicle
with a higher local content. As a result the
originally recommended vehicles were delivered later
than required and also cost 5% more due to a price
escalation during the period of delay.
3.85
Removal of the application of the preference margin to

purchasing operations would enable Telecom to reduce its
purchases costs and administrative procedures, reduce
prices to customers and compete on even terms with the
private sector competitors. At least, this constraint
should be removed from Telecom in areas where it faces
competition.
3.86
The NPA also provides monitoring and grievance procedures.

Under the grievance procedures, an unsuccessful tenderer or
supplier can appeal, with the potential result that
Commonwealth and State officials become involved in
adjudicating the claims. This is a costly procedure and
may involve the disclosure of commercially confidential
information.
[63]
ATTACHMENT B
-35-
Purchasing Policy - Public Tender System

Proposal R:

set out in the Corporate Plan.
3.87
There is no legal requirement that Telecom buy by public

tender. However, Telecom purchasing practices closely
align with Government policy as applied to Departmental
purchasing. This provides that contracts shall not be
entered into nor orders placed for supplies and services
where the estimated cost exceeds $20,000 unless tenders
have been publicly invited.
3.88
The public tender system restricts Telecom by:

(a)
forewarning competitors of new products or

initiatives;
(b)
imposing time constraints which reduce Telecom's

ability to respond to emerging market or customer
needs;
(c)
preventing purchases of specific brands of equipment

vlhich may be necessary to comply \lith a customer 1 s end
to end communications need;
(d)
requiring the open provision of commercially sensitive

information to enable a potential supplier, who may
also be a competitor, to submit a meaningful tender;
(e)
increasing ordering lead times, making the

forecasting and the matching of purchases with
ultimate requirements more difficult and risky, not
permitting contract negotiation; and
(f)
restricting Telecom's flexibility to negotiate on

price and other aspects of the tender, so necessary in
a competitive environment; this is not possible
without further re-tendering, re-specification, renotification and re-evaluation of tenders.
3.89
Current exceptions to the public tender system include

those ins tances where a Telecom Manager certifies that it
is impractical or inexpedient to invite tenders for reasons
such as on competing suppliers or urgency of demand.
3.90
The public tender system is inappropriate as the primary

method of purchasing for Telecom, which must operate as
efficiently as possible in an increasingly competitive
environment.
It is proposed that Telecom's purchasing
procedures move away from the public tender system as
[64]
ATTACHMENT B
-36applied to purchasing Departments by administratively
extending the grounds for issues of Certificate of
Inexpediency to call public tenders beyond that currently
provided. However, Telecom will have full regard to the
underlying concepts and principles of public tendering
which have served Telecom well over the years. The Board
will be held fully accountable for decisions to by-pass the
public tender system for its competitive activities.
Offsets Policy
Proposal S:

Offsets Policy for its competitive
activities.
3.91
Under the Offsets Policy, overseas suppliers who sell goods

to Australian Government bodies, including Telecom, attract
an offsets obligation. To discharge this obligation they
must direct activities of technological significance to
Australian industry.
Department of Industry, Technology
and Commerce (DITAC) negotiates offset requirements with
individual overseas suppliers.
3.92
Compliance with the Government's offsets policy has been a

condition of Ministerial approval for contract proposals
exceeding $6 million. With removal of the requirement that
Telecom obtain Ministerial approval (Proposal P) there
would be no requirement for Telecom to comply with the
policy under existing legislation.
3.93
In practice the policy inhibits Telecom in that it:

(a)
requires proposed purchases of over $2.5m to be

cleared by DITAC - a step not required of Telecom's
competitors;
(b)
increases ordering lead times, making the forecasting

and the matching of purchases with ultimate
requirements more difficult and risky;
(c)
may reflect a penalty on Telecom by an increase in

tender prices, caused by the cost to Telecom suppliers
of arranging/providing offsets; and
(d)
if a lower priced tenderer cannot satisfy offsets

requirements then purchase arrangements may be
necessary with a higher priced tenderer.
It is noted that many GBEs are exempt from the policy.

3.94
The current review process and ongoing technological

imperatives will expose Telecom to increased competition
across a range of its services and, it would be iniquitous
for Telecom to be subject to constraints on purchases such as offsets policy - that do not apply to its
competitors.
[65]
CABINET-IN-CONFIDE CE
ATTACHMENT B
-37Employment Conditions - Telecommunications Act

Proposal T:
Telecommunications Act 1975 be amended to

conditions in accordance with normal
commercial practices.
3.95
Sections 39 to 69 of the Telecommunications Act require

Telecom to apply, in effect, historic public service
employment conditions in a number of areas. These include
employment provisions or powers dealing with separation
from the service, discipline and related matters,
appointment and employment of staff, classification of
position, selection and the promotion of staff.
3.96
Provisions dealing with separation from the service are

designed to provide a mechanism for handling the transfer
or retirement of an officer who is excess to requirements
or who is inefficient or incompetent. They are
bureaucratic, involve lengthy processes and rarely serve
the needs either of Telecom or the staff member.
3.97
In the case of surplus staff, Telecom's operational

effectiveness and control of cost overheads would be
enhanced by an improved and simplified arrangement to
allow business needs to determine employment numbers. The
only practical constraints applicable should be those which
derive from community standards of fairness and
reasonableness and from industrial standards in relation to
the quantum of any redundancy payments.
3.98
It is proposed that a three-phase process should apply for

inefficient or incompetent staff:
formal counselling,
final warning (transfer, reduction, dismissal), and
implementation of consequences.
3.99
No formal appeal or review process would exist internally,

but the external avenues of appeal through conciliation and
arbitration, common law, etc. would remain.
3.100 The process for disciplinary action is costly and timeconsuming, taking from four weeks to 12 months depending on
the circumstances of the case in question.
The process is
inappropriate to an employment environment which requires
increasingly speedy resolution of staffing concerns. To
obtain an indication of the costs involved, a recent
disciplinary case in Telecom which went to a Disciplinary
Appeal Board (DAB) was analysed.
Costs to Telecom were
estimated in the order of $50,000 with total costs to the
community exceeding $78,000. Since the DAB process the case
has been the subject of two Federal Court applications
generating additional costs to date of around $10,000. The
matter is not yet finalised.
CABI ET-IN-CO FIDENCE
[66]
ATTACHMENT B
-383.101 The provisions of the Act dealing with the creation and
classification of positions, the selection and promotion of
staff and related appeal mechanisms are highly prescriptive
and impose upon Telecom a number of operational, procedural
or mechanistic obligations in relation to the staffing of
the organisation. Most of the provisions are based on
Public Service Legislation.
3.102 The timing mechanism for promotions involves a maximum
period of 12 weeks to fill vacant positions with gazettal
and Promotions Appeal Board (PAB) procedures involving
approximately six weeks each (in fact the average time
taken to fill a job is twice that).
The costs are
estimated at over $5m annually. The direct cost of the PAB
for 1985/86 was $1.3m and for the same period the provision
of the Commonwealth Gazette cost $1m.
The additional cost
of administrative and operational time spent has been
casted at $2.5m.
3.103 It is not appropriate for the various employment conditions
to be stipulated in the Telecommunications Act or by
regulation.
Determination of employment conditions should
be the responsibility of the Board and is consistent with
the principle of letting managers manage. The appropriate
policy for Telecom, in line with private and some public
sector approaches, is to employ necessary staff according
to business needs with the terms, conditions and status of
employment being determined by the Telecom Board or its
delegate. The necessary guarantee of stability, fairness,
etc. for staff should be provided through common law
contract rights and the processes already available through
the Conciliation and Arbitration Commission.
3.104 It is noted that the Federal Airports Corporation Act
provides that the Corporation may employ such persons as it
thinks necessary for the performance of its functions or
the exercise of its powers and that the terms and
conditions of employment including remuneration will be
determined by the Corporation. A similar provision is
proposed for the Telecommunications Act.
3.105 Such an approach would provide flexibility in the
engagement of staff to better meet the needs of Telecom.
Tenure would be subject to performance.
The antiquated
notions of "permanent appointment", life-time employment
and position ownership as a right would cease, reflecting
standards which exist in external commercial enterprise.
[67]
ATTACHMENT B
-39Lands Acqu isition Act
Proposal U:

acquisition.
3.106 Under the Lands Acquisition Act the approval of the

Minister for Administrative Services or the Minister's
delegate, is necessary for the acquisition through purchase
or lease of land. Under Government policy, disposals are
also required to be provided through the Department of
Administrative Services (DAS).
3.107 The approval process results in duplication of work and
delays in acquisitions, leasing and disposals with
resultant operational and financial penalties and lost
revenue to Telecom.
3.108 Recent reviews of the property management functions of DAS
have found that, apart from the inefficiencies noted above,
there is a conflict of responsibility between DAS and its
user authorities with respect to requirements, priorities
and constraints. Recommendations from these revie'illS have
included exemption of Telecom from the Lands Acquisition
Act.
3.109 DAS Property Group procedures are Public Service oriented.
They do not have a commercial basis in their operations.
This often results in protracted written negotiations and
lost opportunities. Telecom cannot obtain redress from DAS
for poor performance.
3.110 Of some 200 disposals effected during the period 1983 to
1985, the average processing time was 18 months.
Revenue
gains through earlier disposal (six months average) and
receipt of revenue, would De about $1m per annum.
The cost
of real estate work would decline by about $1.2m per annum.
There would be staff savings to DAS.
3.111 A 1987 report by an Interdepartmental Committee revie1ving
Government real property administration concluded that
there were no benefits from DAS oversight of GBE's
property activities through the Lands Acquisition Act and
that Telecom, Post and OTC should be exempt, saving DAS
approximately 55 staff positions.
3.112 Although exemption from the Lands Acquisition Act is
proposed, Telecom would not be empowered to obtain land by
compulsory process. Any acquisition through compulsory
process would be carried out by the relevant Commonwealth
Department and then only if there had been no efforts to
acquire by agreement. These procedures acknowledge the
Australian La1v Reform Commission's recommendations on the
matter of land acquisition. Telecom would be directed to
observe Government policy in this regard.
[68]
ATTACHMENT B
-40Public Works Committee

Proposal V:

Public Works Committee Act.
3.113 All works costing $6m or more must be referred to the

Public ~'larks Committee (PWC). Work cannot commence until
after the PWC has reported to both Houses of Parliament and
the House of Representatives has resolved that the work
should be carried out.
3.114 This constraint can delay a project by months with
consequent increases in contractual costs. The cost of
delays due to PWC are illustrated in the following
examples:
(a)
Charlotte Telephone Exchange.

P~ii'C delay
July 1987 to February 1988
Project cost $20m
(b)
Resource Management Centre St Leonards

PWC delay
March 1986 to June 1986
Project cost $85m
(c)
Dalley Telephone Exchange

PWC delay
August 1985 to May 1986
Project cost $13m
(d)
Kent Telephone Exchange

PWC delay
November 1984 to September 1985
Project cost $27m
3.115 The delays to these projects caused costs to increase by

approximately $6.7m. Additionally, each proposal
submitted to the PWC costs in the order of $100,000.
3.116 Telecom should be treated similarly to the large number of
GBEs which are already exempted from the Act and on the
basis of it being engaged in competition with other
bodies.
3.117 This constraint infringes on the independence and authority
of the Telecom Board and if removed would allow the Board
greater responsibility and accountability for its day to
day operations. This constraint does not apply to the
general business community.
[69]
ATTACHMENT B
-41Government Employment and Administrative Policies
Proposal W:
Telecom to be exempt from general, personnel

and administrative policies laid do<Nn by the
to comply by Cabinet.
3.118 Telecom is presently required to comply with a wide range

of general, personnel and administrative policies and
legislation which are more appropriately applied to bodies
directly dependent on Budget funds for day to day
operations and the normal Departmental structure.
3.119 Such policies do not usually take into consideration the
administrative and cost burdens imposed when applied
indiscriminately to trading enterprises engaged in selling
services to the public, as does Telecom. The application
of these policies in this way could have implications for
Telecom's pricing policies.
3.120 It would be consistent with the thrust of the measures in
this reform package for the Government to exempt Telecom
from the automatic applications of such policies.
Department of Administrative Services - Construction
Group
Proposal X:
Terminate the Ministerial Agreement requiring

Telecom to use the Construction Group of the
Department of Administrative Services for
building construction and maintenance
programs.
3.121 Telecom is required by a longstanding Ministerial Agreement

to use the services of the Construction Group of the
Department of Administrative Services (DAS) for building
construction and maintenance programs.
3.122 Telecom is not satisfied that DAS provides the service
Telecom requires on the more complex projects and believes
such work should be open to competition to ensure Telecom
can obtain the best service.
3.123 In addition DAS as 'Agent' is not legally liable to
Telecom as 'Principal' in building contract activities.
3.124 Building construction and maintenance activity is an
integral part of Telecom's business and should not be
subject to this control.
3.125 Under this proposal the Telecom Board would be held
responsible and fully accountable for all matters relating
to Telecom's building construction and maintenance
program.
[70]
ATTACHMENT B
-42-
Ministerial Power of Direction

Proposal Y:
Ministerial power of direction be amended to

allow for any additional cost to be
compensated.
3.126 Under the Act the Minister, after consultation, may in the
public interest direct Telecom in the performance of its
functions and powers. However, the Minister is not
authorised to direct Telecom in relation to rentals or
charges for telecommunications services.
3.127 The Po licy Guidelines env isage that the responsible
Minister should be able to direct even where a financial
loss would be incurred. The present provision in the Act
will need amendment to bring it in line with the Guidelines
to enable the Minister to issue a direction relating to
rentals or charges for telecommunications services and to
allow for compensation from the Budget or in the financial
target.
(d)
ACCOUNTABILITY
3.128 A major plank of the Policy Guidelines is to permit the

removal of direct controls over authority activities by
instituting an appropriate level of accountability, through
the use of:
(a)
a strategic corporate plan;
(b)
an annual financial targe t;
(c)
the payment of annual div idends; and
(d)
appropriate annual report disclosures.
Corporate Plans
Proposal Z:
Telecom to provide the Minister for Transport

and Communications with a strategic corporate
plan covering periods of three to five years,
with relevant information to be provided to
the Prime Minister, the Treasurer and the
Minister for Finance, consistent with the
Policy Guidelines.
The Minister to be advised of any matter which
significantly affects the outlook as
established in the corporate plan as soon as
possible after such matters become known to
the Corporation.
[71]
ATTACHMENT B
-433.129 Telecom will provide the Minister with a Corporate Plan

containing information regarding broad intentions,
objectives and estimates as well as relevant underlying
assumptions.
Information is already provided to the
Minister in various forms such as the "Service and Business
Outlook'' and Forward Financial Estimates and essentially
constitutes an overview of Telecom's functional forward
plans taking full regard of Government policies and
legislative requirements.
Future versions of the Corporate
Plan will have regard for the requirements of the industry
regulatory arrangements, eg. performance requirements.
3.130 The Corporate Plan is a valuable means of informing the
responsible Minister of longer term issues and expectations
that are relevant to his role and responsibilities for
oversight as defined by enabling legislation and providing
the Minister with a basis for assessing Telecom's
performance.
In addition, the Corporate Plan would serve
as an important vehicle for gaining forward commitments
from the Government on issues requiring Government
consideration.
3.131 In accordance with the Guidelines, agreement will be
reached between the portfolio Minister and the Prime
Minister, the Treasurer and the Minister for Finance on
arrangements to give them appropriate access to relevant
information from the Corporate Plan on matters for which
they are responsible or where consideration by Cabinet may
be necessary.
Briefings could be arranged to allow them to
develop a better understanding of the enterprise's
operations. These could occur on an annual basis, or more
frequently if circumstances warranted it.
Financial Targets
Proposal ZA: Consistent with the Policy Guidelines, Telecom
work towards an overall financial target
agreed in advance by the Minister for
Transport and Communications following
consultation with the Treasurer and Minister
for Finance.
3.132 Telecom will, in accordance with the Guidelines develop
appropriate financial targets for consideration by the
Minister. The determination of appropriate financial
targets will initially be a matter for Board
consideration. The Telecom Board will be accountable to
the Minister for Telecom's financial performance, and the
recommendation of appropriate dividends consistent 'I.Ti th
this performance. As an initial step, a range of financial
targets has been developed and published in Telecom's
"Service and Business outlook" September 1987. These
include a rate of return target which is defined in terms
of operating profit before interest and before abnormal and
extraordinary items as a percentage of total assets.
[72]
ATTACHMENT B
-443.133 A rate of return target may conflict \vith other existing

controls and objectives particularly those regarding
borrowings and prices.
Consequently, it is essential that
Telecom develops and sets financial targets consistent with
its overall financial and operating plans, its business
objectives, its constraints as well as its external
environment.
3.134 Telecom should work towards reflecting the effects of
Community Service Obligations (CSOs) in its financial
targets.
3.135 A CSO arises where a Government requires a business
enterprise to carry out activities which it would not
elect to provide on a commercial basis, or which could
only be provided at commercially higher prices. The
principal csos carried out by Telecom relate to established
Government policies with respect to universal access,
equity for non-metropolitan users, national infrastructure
and local manufacture. These policies result in the
uneconomic provision of basic access service for the
majority of residential metropolitan users and for most
country users, and in loss making services like public
telephones.
3.136 Given that CSOs are a national policy issue, then it
follows that these objectives should be explicitly set out,
with endorsement for, and accountability against, the
necessary programs and operational mechanisms to
implement these objectives. Whether CSOs are services in a
competitive environment, or supported on the basis of
exclusive operating licences, they should be made as
clearly identifiable and accountable as possible.
Dividends
Proposal ZB: Telecom Board to recon~end, after consultation
[73]
ATTACHMENT B
-45-
3.137 In determining the appropriate level of dividend, the

Board should balance Telecom's financial objectives and
requirements, the internal and external pressures which
influence its financial performance as well as the
requirement to provide the Government Hith an adequate
financial return. As a fundamental objective, the Board
must ensure that Telecom maintains its financial viability
and be able to compete effectively for funds in Australian
and overseas capital markets at minimum cost. An effective
dividend policy must take into consideration the
interdependent effects which the level of dividends would
have on capital structure, cash flow, capital expenditure
requirements, tariff increases, borrowing levels and profit
growth as well as the ensuing financial ratios upon which
Telecom's financial performance is judged. At the same
time, the Board should ensure that its dividend policy does
not impose additional constraints which would impair
Telecom's financial planning.
3.138 It is thus evident that the Board must have a significant
degree of flexibility in recommending the level of
dividend to the Government and must not be constrained by
the Government's annual budgetary considerations.
Flexibility and longer term planning are essential for an
effective dividend policy.
In order to make informed
judgements regarding the levels of the dividend payout
policy, comparisons with the private sector would be
useful.
Such comparisons however must take into
consideration not only Telecom's social obligations and
relatively high capital requirements but also its capital
structure levels since in general dividend payout would be
lower for companies with a high debt ratio.
3.139 The proposed reform package would enhance Telecom's
efficiency, and given an appropriate industry structure,
would permit sustainable revenue streams and profits.
Under such a scenario, Telecom should anticipate that the
initial dividend, adjusted for any increased taxjimpost,
should be at least equal to the interest that would have
been payable prior to a capital restructure.
Proposal ZC: Telecom's Annual Report will give account of
performance against previously established
goals, including financial and operational
targets, together with assessments of the cost
of meeting Community Service Obligations CSO's
and observing residual non-commercial controls
Hhich adversely affect profitability.
[74]
ATTACHMEN'l' B
-463.140 Section 99 of the Telecommunications Act requires Telecom

to provide the Minister with an annual report of its
operations each year.
This report in addition to
containing financial data also contains a statistical
supplement and performance indicators.
Telecom also
publishes a Service and Business Outlook which provides
extensive information on its financial and operational
target~ and its future activities.
In accordance with the
Policy Guidelines, Telecom's Annual Report will be upgraded
to include the information specified in this proposal.
Taxation
Proposal ZD: Telecom's subsidiaries and joint ventures to
be subject to all taxes. Telecom's existing
tax exemption to be maintained for at least
two years to enable accounting separation of
competitive and monopoly activities. Any
future application of taxes to be on a phased
basis.
3.141 Telecom currently pays customs duty, sales tax and fringe
benefits tax.
3.142 Where Telecom's competitive activities are structurally
separated eg. subsidiaries and joint ventures, then these
activities can be subjected to the full range of taxes.
3.143 For financial, administrative and planning reasons it is
difficult to apply taxation to Telecom as a whole. Telecom
is of the view that it would need an initial lead in period
of three years after which taxes could be phased in.
(a)
()
Financial
3.144 Telecom is aiming to achieve a level playing field status

with competitors.
Once achieved, Telecom would be in a
more financially viable position to pay all taxes.
In
order to achieve a financially level playing field, Telecom
should improve its financial structure and performance
while funding its community service obligations.
This tvill
take some years to achieve.
3.145 Consistent with the objectives of the GBE reforms, Telecom
should aim to achieve a level of profitability and
financial structure comparable with those of the leading
international telecommunications companies in other parts
of the world.
It should ensure that its financial ratios
and performance meet the requirements of international
credit rating agencies in order to maintain its long-term
viability and enhance its ability to raise funds at minimum
cost in both domestic and international financial markets.
Furthermore, it should aim to achieve the above while
maintaining a cap on tariff increases.
[75]
ATTACHMENT B
-473 . 146 Telecom needs time to be able to pay some $20 million per
annum of excise tax, $250 million in State and Municipal
taxes and company income taxes which could range up to $300
million by 1991/92. Without such lead time, Telecom's
financial viability and performance would be undermined.
Thus in the short term substantial tariff increases, of the
order of four to eight cents on local calls depending on
the assessed tax liability, would be required if these
imposts were implemented over the next three years.
3.147 Accordingly it would be more prudent to defer further tax
exposure until efficiency improvements are realised. This
would take at least three years and would depend on the
outcome of the reform package including the release from
controls, the competitive environment, the extent of
capital restructure, the level of dividends, the impact of
csos, etc.
(b)
Administrative and Planning Issues
3.148 There is a need for lead times to plan for the

introduction of taxation.
3.149 Telecom's organisation and supporting information and
accounting systems were designed in a tax exempt
environment. Consequently a substantial amount of work
would need to be undertaken to ensure the appropriate
systems were operating to provide the data that would be
required.
In addition Telecom would have to build up
skills and expertise throughout the organisation to en~ure
that appropriate systems and procedures for tax compliance
would be established and understood. Without an
appropriate lead time such administrative and planning
difficulties would impact severely on efficiency and on the
effectiveness of coping with the changes.
3.150 Telecom's experience to date with the imposition of sales
tax and customs duty has shown that the administrative
effort required to implement required changes has been far
greater than originally anticipated.
Costs have been
estimated to be as high ~s $20 million in the first year.
[76]
ATTACHMENT B
-48-
3.151 The introduction of State, Territorial and Local Government

taxes would also involve a great deal of effort and
understanding.
Telecom operates in all States and
Territories and 836 municipalities. The legislation in
each State/Territory differs.
Because of the range of
State, Territorial and Local taxes and the differences in
legislation, work would be required to identify
liabilities, to educate staff on the liabilities and method
of accounting for them and to implement system changes
required to capture data for accounting purposes.
In many
cases, because of the complexity of existing computerised
accounting and recording systems, changes could not be
quickly implemented, particularly as requirements in each
State and Territory would differ.
3.152 Similarly the imposition of company tax also requires long
lead times in order to permit changes necessary to ensure
that appropriate systems and procedures for tax compliance
are established.
Phasing of company tax would allow
adequate time for consultation with the Australian Taxation
Office on acceptable methods of accounting for tax in an
organisation of Telecom 1 s size.
3.153 Such implementation issues mean additional costs over and
above the direct cost of the taxes, of some tens of
millions of dollars, particularly where systems require
extensive modifications. Additional staff with appropriate
skills would need to be attracted from the private sector
and the Australian Tax Office and other administrative
resources would need to be diverted away from normal
activities.
4.
IMPLEMENTATION
4.1
These reforms taken together with the telecommunications

regulatory review changes mean the Act in its present form
would no longer be appropriate.
Substantial work will be
needed to implement the reform package particularly in
terms of revaluing assets, quantifying CSOs, refining the
Act, setting financial targets etc. The objective would be
to have the bulk of the reforms come into effect from
1 July 1989.
[77]
-49-
A'ITACHlill'lT C
AUSTRALIAN 'I'ELECQ'-MJNICATION cet-MISSION I s

SlJB.'1ISSION - TELECOM'S CP.SE FDR STRUCTURAL AND OPEP-...i\TIONAL REFDRM
SXECUT:!:VE
SUM!'t:\.~Y
I NTRODUC:'I ON
Telecom's view that there should be clear distinctions between

ownership, control and management, provides the foundation for this
reform package. Ownership in itself is not an issue; the issue is
how best for the Government to exercise its ownership rights.
Telecom believes that its Board should be clearly and fully
accountable to the Government for the performance of the enterprise.
Management should be accountable to the Board.
It is an unfortunate feature of the current debate over the
accountab1lity and efficiency of G3E's, that government imposed
'controls' tend to be spoken of in the pejorative sense, and the
solution is often seen as more 'freedom'. Far from taking this view,
Telecom, in presenting this reform package argues for a range of
disciplines more appropriate to efficient performance in meeting
Australia's market imperatives.
It is in this context that Telecom believes that a more appropriate
range of disciplines would need to be based upon:
a licence to operate in reserved markets in order to meet
Government policy objectives and to fund social contracts.
an explicit declaration of the Government's social objectives in
order to ensure an informed market place, eg. in terms of the
impact that these objectives might have on financial ratios and
quality of service indicators.
the re-structuring of Telecom's capital to an a~propriate mix of
debt and equity and as a consequence of this, a re-structuring
of Telecom's cash outflows to Government.
2.
ENVIRONMENT
Telecom's Reform Package cannot be considered independently of, or in
i.solation from, the parallel Telecorr.rnunications Policy Review. Any
outcomes must be consistent not only in terms of policy direction,
but also with respect to implementation actions and timing.
Recognition must be given to the fact that the current legislative
framework and the related scheme of administrative controls was set
in place in 1975. At that time the telecommunications market was
not, and was not envisaged to be, a competitive market. Since that
time there has been rapid and far-reaching market and industry
changes, reflecting fundamental shifts in the impacts of technology
and customer demand. This has produced a far more competitive
marketplace through, for example:
5907n
[78]
CABIN ET-1 N-CO~FI DENCE
ATI'ACHMENT C
the steady liberalisation by Telecom of the customer equipment

market
the proliferation of customer private networks using Telecom
leased facilities
the establishment of Aussat as an alternative facility supplier
for leased circuits
Now there is increasing substitutability across the whole range of
Telecom services, and direct competition in at least one third of
Telecom's business operations.
3.
STRUCTURE
Telecom is already incorporated - under Section 21 of the
Telecommunications Act 1975 it is a 'body corporate with perpetual
succession' - but clearly it is not incorporation per se, which
guarantees an appropriate control environment. The corporate form of
commercial GBE's has evolved significantly since 1975, and it is now
appropriate to redefine the structure of Telecom through changes to
the 1975 Act. This effectively means 're-incorporating' Telecom
under Statute.
4.
CONTROLS
The Government presently requires the arms of its bureaucracy to
interfere unduly in the business of Telecom whilst demanding
equivalent private sector performance. Stewardship review, policy
formulation, and control of Telecom are carried by a common
bureaucracy. Conflict of interest is apparent.
Telecom continues to believe that the status quo is not sustainable.
It is a fact that Telecom's day-to-day operations, and its management
accountability, is unduly and inappropriately constrained by a wide
range of direct administrative government controls. This
bureaucratic regulation of Telecom's operations acts to reduce its
accountability for business results, and leads to operational
inefficiencies, and limits its ability to take advantage of
commercial opportunities.
Despite widespread recognition within Telecom of the need for
significant efficiency gains in the local customer access networks,
persistent efforts over numerous years have failed to secure anything
but minimal efficiency gains. It has not proved possible to come to
grips with the significant changes in work practices, organisation
and overhead structures that are needed. It is becoming increasingly
evident that the present operating environment, with the burden of
bureaucratic regulation and control, is a major inhibitor to
realising identified efficiency gains.
Often the 'cost' of a constraint cannot be easily quantified. The
inability to quantify the cost, or foregone revenue, in no way
diminishes its importance. Also where the direct cost of a control
can be objectively calculated, there are often wider consequences
which, while difficult to quantify, can be understood as being real
and substantial. Examples would be lost business opportunities, and
reinforcement of an overly risk-averse culture which makes subsequent
change difficult, stifles innovation, and blurs accountability.
5907n
-51-
A'ITACHMENT C
[79]
Those controls on Telecom which permit objective quantification are in the region of
$260m per annum. The non-quantifiable implications would be more substantial in
terms of the impact on Telecom's effectiveness and efficiency.
The following is a checklist which outlines an appropriate structure of controls for
Telecom, given the near term industry environment, together with Telecom's minimum
requirements as part of its reform package. This checklist addresses critical
controls. Other important controls are discussed in the detailed reform package.
APPROPRIATE STRUCTURE OF CONTROLS

FOR TELECOM AUSTRALIA
MINIMUM REQUIREMENTS FOR

REFORM PACKAGE
1. Board must provide a focus for

overall accountability of the
enterprise.
. Board accountability, membership

and functions must be clearly spelt out.
Managing Director to be appointed by the
Board~ no legislative provision for
statutory appointments other than Board
membership
2. Superannuation. Provide a
competitive, cost effective scheme(s)
tailored to Telecom's requirements.
3. Board to determine aggregate borrowing
levels by prudent financial management
considerations.
4.
J
5.
6.
7.
As far as is practicable, Telecom's

social objectives are to be made explicit
(to allow for realistic review
of Telecom's Commercial performance)
Remove Telecom from the Commonwealth
Superannuation Scheme.
Progressively remove Telecom from Loan
Council control, remove Treasurer's
approval of specific borrowings, with
Government approva l of a 3 year forward
borrowing program linked to corporate plan.
Telecom's investme nt in joint ventures, such
as QPSX Communications, quarantined from
any global borrowing controls.
Remove Telecom from Industrial Relations
Coordination arrangements.
Investment in joint ventures consistent

with market and commercial imperatives
such as timelines, clarity of purpose.
Industrial Relations arrangements as
they apply to the whole industry (ie.
are determined by ACAC and appropriate
awards.)
Employment conditions determined by
Remove employment conditions currently
stipulated in Telecom's Act.
the Board.
Remuneration of Managing Director set by Remove from ambit of Remuneration
the Board. Minister advised of details
Tribunal.
of remuneration package.
Board to be accountable for joint
Board to determine the appropriate
venture/subsidiary initiatives
management accountabilities of JVs on
consistent with the business
a case by case basis.
activities of Telecom Australia
Focus any approvals for specific JVs
on the responsible Minister, rather than
Cabinet or Finance/Treasury.
5907n
-52-
A'ITACHMENT C
5.
TEE BOARD'S ACCOUNTABILITY TO THE MINISTER

Stewardship Review Role
It is critical that the Government's stewardship review role
exercised through the Department, does not become an additional de
facto regulation of Telecom. Stewardship review should focus on
assessing performance and avoid creating additional constraints
leading to an over-specified environment.
Corporate Plans
Telecom regards the corporate plan as a valuable means of informing
the responsible Minister of longer term issues and expectations that
are relevant to his role and responsibilities for oversight as
defined by enabling legislation and providing the Minister with a
basis for assessing Telecom's performance. In addition, the
Corporate Plan could serve as an important vehicle for gaining
forward commitment from the Government on issues requiring Government
consideration.
Performance Indicators
Telecom agrees with the policy guidelines to provide the Minister
with a balanced set of performance indicators relating to both
commercial and social performance objectives. These would be
relatively few, non-technical and customer oriented.
Financial Targets
Telecom is prepared to develop and set appropriate financial targets
for consideration by the Minister. The determination of appropriate
financial targets will be a matter for Board determination, since
under this reform package, Telecom's Board will be accountable to the
Minister for Telecom's financial performance, and the recommendation
of appropriate dividends consistent with this performance.
Asset Revaluation and Rate of Return Reporting
Telecom believes that the important issue of asset revaluation is a
matter for Board determination. In practical terms, Telecom strongly
disagrees with the need or desirability for asset revaluation and
rate of return reporting based on current cost accounting, as
proposed by the Department of Finance in its recent discussion papers.
Dividends and capital Structure
Telecom generally supports the above view that dividends (if any)
should be recommended by the Board. Consistent with the principles
of accountability, the Minister will be required to formally table in
Parliament any changes which are made counter to the Board's advice.
5907n
[80]
-53-
ATI'ACHMENl' C
Telecom's current capital structure constitutes a very high

proportion of debt when compared with the capital structures of
companies in the private sector. A major portion of this debt is in
the form of Commonwealth advances which are not subordinate to public
borrowings. such a high proportion of debt increases Telecom's
financial risk to current and potential bond investors and
significantly reduces its ability to issue debt on reasonable terms
without reliance on Government guarantees. This matter will become
more urgent as Telecom increases its exposure to overseas capital
markets.
Telecom recommends that the Government seriously consider the
restructuring of Telecom's Commonwealth advances to equity in order
to reflect a prudent proportion of debt in Telecom's capital
structure. The resultant proportion of debt to equity would be
consistent with international private sector norms in the
telecommunications industry as well as international rating agencies
requirements.
Restructuring Telecom's Payments to Government
It is clear that the proposed reforms will necessitate a restructure

of the cash outflows to the Government. A capital restructure of
Commonwealth advances to equity for example, will require the
consideration of dividend payments to the Government. Similarly, any
proposals for a phased introduction of additional indirect and income
taxes, will require a detailed assessment of the cross-impacts on
borrowings, dividends, and price structures and levels.
Telecom is confident that its reform package, if implemented, would
enhance efficiency, and given an appropriate industry structure,
would permit sustainable revenue streams and profits for Telecom.
Under such a scenario, Telecom would anticipate that the initial
dividend, adjusted for any increased tax impost, would be at least
equal to the interest that would have been payable prior to a capital
restructure.
5907n
[81]
-54-
A':L'TACHNENT 0
[82]
Co-ordination Comments
The Structural Adjustment Committee's Officials' Group on
Government Business Enterprises suggests that the Minister's
recommendation for additional Departmental personnel
resources to implement the reform package be resolved between
the Ministers for Finance and Transport and Communications.
The Group takes the following views on reforms proposed to
Telecom:
Proposal A
Refined Act
support
Proposal B
Appointment of Directors
support
Proposal C
Appointment of CEO
support
Proposal D
Conversion of debt to equity
Departments, other than Treasury, Finance and Industrial

Relations, support conversion of half of Telecom's present
debt to equity, subject to a commitment that the lost
income to the Budget from interest payments will be
balanced by dividend payments.
Departments of Treasury, Finance and Industrial Relations
consider that the question of conversion of debt to equity
should be deferred until after asset revaluation when a
clearer picture of capital structure will be available.
All Departments support the proposed asset revaluation.
The Department of Finance considers further that regular
asset revaluation at 3 year intervals should be specified.
Proposal E
Loan Council process
All Departments have no objections to Loan Council

processes applying to Telecom being reviewed to canvas
points (a), (b) and (d) in the Minister's submission.
In relation to point (c), Treasury, Finance and Prime
Minister and Cabinet note that while Telecom remains
subject to global limit arrangements it would be
inappropriate to allow out of these arrangements Telecomcontrolled subsidiaries and joint ventures on the basis of
a minority private interest in them.
Treasury and Prime Minister and Cabinet further consider,
in respect of (c), that the same arguments for retaining
Telecom within global limit arrangements apply equally to
Telecom-controlled subsidiaries.
-55-
[83]
ATTACHMENT D
Proposal F
Removal of IR Co-ordination
arrangements
All Departments note that the matter of industrial

relations co-ordination arrangements for a number of GBEs
in full competition is currently under consideration by
the Ministers for Industrial Relations and Transport and
Communications.
The Department of Prime Minister and Cabinet believes that
there is considerably less scope to ease industrial
relations co-ordination arrangements for public sector
monopolies like Telecom (which have greater scope for pace
setting in wages) than there is for competitive entities
(like Qantas). Accordingly that Department opposes the
removal of co-ordination arrangements, although
acknowledging scope for some streamlining.
Proposal G
Proposal H
Proposal I
Board members to remain in

support
Chief and Senior Executive

Officers' remuneration set
by Board in accordance with
Cabinet Minute 10812(SA),
of 22 March 1988
support
Telecom to develop private

superannuation subject to
approved guidelines.
All Departments, other than Finance and Industrial

Relations, support the proposal.
Finance and Industrial Relations note that the
Commonwealth Superannuation Scheme (CSS) is to be reviewed
in 1988. The review will commence following the May
Statement and is to be completed by March 1989. ATC, OTC
and APC essentially want separate superannuation schemes
because they want lump sum schemes. Should agreement be
given to such schemes now, this would lead to probably
irresistible pressure for a lump sum superannuation scheme
for all other Commonwealth sector employees. Such schemes
would inevitably become the model for a new CSS.
In
effect, the form and quantum of the lump sum CSS would be
settled between ATC, APC, OTC and the unions.
Rather, Finance and Industrial Relations believe that
superannuation benefits for Commonwealth public servants
should be determined by Ministers on the basis of all
relevant policy considerations. Accordingly, they believe
that Cabinet should consider the outcome of the CSS review
before taking a decision on whether these authorities
should establish separate schemes.
-56-
ATTACHMENT D
[84]
Financial target to take account of costs

of residual CSS members
All Departments acknowledge that the CSS generally imposes
additional costs on GBEs compared with private schemes and
note that the cost to Telecom could be reduced by up to
$60m if all its employees were transferred to new schemes.
However, if the Government agrees to allow the
establishment of separate schemes and to compulsory
transfer from the CSS, then Telecom would be in position
to decide whether or not staff could remain in the CSS and
any additional costs of staff who do stay could not be
considered a Government imposed restraint.
Indeed,
Government underwriting of those costs regardless, would
insulate Telecom from the full costs of its decisions on
superannuation. However, should Ministers not be prepared
to allow transfers from the CSS, any net addition to
overall labour costs should then be included in the
assessed cost of controls.
Proposal J
Minister for Transport & Communications to

select auditor
All Departments oppose the proposal. GBEs which are

public monopolies, have significant CSOs or provide
significant unprofitable services, should be audited by a
body most responsive to notions of public accountability.
Departments note that there is no impediment to Telecom
obtaining the services of private financial auditors in
areas where the Auditor General is not skilled,
particularly as Departments accept that Telecom should not
be obliged to pay for the Auditor General's services where
they exceed normal private audit functions.
Proposal K
Proposal L
Proposal M
Proposal N
Additional auditing costs

considered in setting
financial target
support
Treasurer's approval for

individual borrowings
support
Investment and banking

approvals
support
Subsidiaries, Joint Ventures

and share purchases
support
The Department of Finance considers that prior advice on

major purchases not envisaged at the time of the corporate
plan should be provided to the Minister for Finance and
the Treasurer.
CABI ET-IN-CONFIDENCE
-57-
ATTACHMENT D
Approval of prices
support
Proposal P
Contracts approval
support
Proposal Q
National Preference Agreement
Proposal
All Departments note that Cabinet Minute Nos 10833, 10834

and 10835 of 29 March 1988 agreed that the Ministers for
Industry Technology and Commerce and Transport and
Communications would determine the continued adherence of
certain transport GBEs to the NPA. Departments agreed
that the question of continued adherence by Telecom be
resolved in a similar manner.
Proposal R
Abandon formal public tendering
Proposal S
Offsets Policy
support
All Departments except Industry, Technology and Commerce

would make the same comment as for proposal Q. The
Department of Industry, Technology and Commerce considers
that Telecom should be subject to offsets obligations in
respect of its monopoly activities. In other areas it
could be exempted in respect of activities where such a
constraint does not apply to its competitors. The
Department proposes that the Minister for Industry,
Technology and Commerce in consultation with the Minister
for Transport and Communications be authorised to
determine those activities in respect of which offsets
obligations should not apply.
Proposal T
Remove standard Public Service

employment conditions
Proposal U
Exemption from Lands Acquisition

Act
support
Exemption from Public Works

Committee
support
Proposal V
support
Proposal W
Exemption from general

administrative policies
support
Proposal X
Exemption from use of DAS

construction group
support
Proposal Y
Compensation for costs of

power of direction
support
[85]
-58-
[86]
ATTACHMENT D
Corporate Plan
support
Proposal ZA
Financial Target
support
Proposal ZB
Dividend
support
Annual Report, including CSO

costs
support
Proposal
Proposal
zc
Proposal ZD :
Taxation
All Departments agree that current and future subsidiaries

or joint ventures should be subject to all taxes including
company tax in order that Telecom subsidiaries not have an
advantage over their competitors.
Departments further agree that efficient resource
allocation objectives may be distorted if some parts of
Telecom are subject to tax and others not.
Telecom would
have a greater incentive to avoid placing its marketcompetitive operations in subsidiaries if company tax is
only payable by subsidiaries, and this would defeat one of
the broader objectives of the Government's liberalisation
of telecommunications.
Departments suggest that payment of full taxation be
phased in progressively over two years having regard to
administrative needs and ability to pay, with full tax
liability taking effect no later than 1 July 1990.
Treasury considers that the question of timing needs to be
considered in the light of budgetary and other practical
considerations.
The Department of Primary Industries and Energy supports the
thrust of the submission to commercialise the authority.
It
notes that while there is nothing in the broad framework
established by the reform packages to suggest that rural
areas will be disadvantaged, charging policies adopted and
the setting of financial targets will be critical in the way
these reforms impact on rural areas particularly in relation
to community service obligations.
Detailed attention will need to be given to these aspects
during implementation of the reform arrangements requiring
consultations with affected portfolios.
[87]
-59-
ATTACHMENT D
Auditor General
The purpose of the package is twofold; to remove controls which
inhibit commercial competitiveness and inefficiency and to
enhance accountability. The submission bases its argument for
removing the Auditor-General as auditor chiefly on the ability of
commercial auditors to provide Consultancy service. This is an
undesirable practice which is recognised in other countries as
leading to conflict of interest on the part of the auditor;
serious reservations are held about this mixture of functions and
prohibition is being considered.
Telecom's position in the public sector has very substantial
monopolistic elements and social responsibilities for which audit
and report to the Parliament by the Auditor-General provides
important protections. Arguments advanced in the submission in
respect of public disclosure, inflexibility, delays and fees are
not justified. The Auditor-General should remain the auditor of
Telecom.
pepartment of Administrative Services
"The Department of Administrative Services does not support the
removal of all Government controls and believes that a general
reserve power of direction by the responsible Minister would be
appropriate.
The Department has a number of specific concerns, including:
policies like the embargo on dealings with South Africa would
be difficult to apply and monitor under the proposed
arrangements;
the policy of preference to local goods would not apply
.Local _industry would be expected to object to this proposal;
the proposed arrangements threaten the continued existence of
the National Preference Agreement (NPA) with the States.
Moreover, the Government considered the question of exemption
from the NPA as recently as 1986;
the proposed exemption of GBEs from the Lands Acquisition Act
1955 does not accord with the recommendation of the Law
Reform Commission and would be best considered in the context
of a submission shortly to be brought forward by the Minister
for Administrative Services in relation to the Administration
of the Australian Property function;
the proposal to allow Telecom to bypass the DAS Construction
Group for building, construction and maintenance programs
could give rise to inefficient use of wages employees
currently engaged in this function. A phasing-in period
over, say three years should be implemented.
[88]
-60-
ATTACHMENT D
Department of Arts. Sport . Environment . Tourism and Territories

"DASETT, while generally supporting the thrust of the submission,
make the following points
any increased costs and charges resulting from the reforms
should be considered in the budget context;
current obligations under the Environment Protection (Impact
of Proposals) Act should apply to the new Corporation;
if Telecom is exempted from compliance with the Lands
Acquisition Act and DAS controls (except in cases of
compulsory purchase) then it would also have responsibility
under the Environment Protection (Impact of Proposals) Act
for its land acquisitions and disposal actions."
. .
..
.

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1988-89 Cabinet Paper 5705

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[1]

Canberra, 23 May 1988

Reform of Government Business

The Cabinet agreed upon the following reform

refined incorporation of Telecom under statute,

the Directors of the Telecom Board continue to

the Telecom Chief Executive Officer (CEO) be

No. 11187 (Cont'd)

an appropriate commercial financial structure

converting 25 per cent of Telecom's

the Board initially revaluing the

following initial revaluation, the

CABIN ET-1 N-CON Fl D-ENCE

CABIN ET-1 N-CON Fl DENCE

No. 11187 (Cont'd)

following establishment of the new corporation:(a)

Telecom's remaining Commonwealth loans

subsequent asset revaluations by the

Loan Council processes presently applying to

take into consideration the on-going

CABIN ET-1 N-CON Fl DENCE

CABIN ET-1 N-CON Fl DENCE

ensure sufficient flexibility to enable

allow Telecom to increase its market

remuneration of Board members remain subject to

remuneration of the Managing Director and other

subject to guidelines to be developed within the

CABIN ET-1 N-CON Fl DENCE

No. 11187 (Cont'd)

additional costs borne by Telecom due to

Telecom remain subject to the Auditor-General

Telecom no longer be required to obtain approval

Telecom no longer be required to seek approval

Ministerial control over establishment of

the Board be required to provide prior advice to

CABIN ET-1 N-CON Fl DE CE

CABIN ET-1 N-CON Fl DENCE

Telecom be obliged to report in a special

Ministerial control of specific charges be

(xviii) the requirement that Telecom obtain Ministerial

Telecom continue to be subject to the offsets

No. 11187 (Cont'd)

Telecom continue to comply with the National

Telecom adopt normal commercial purchasing

the Telecommunications Act 1975 be amended to

(xxiii) Telecom to be exempt from compliance with the

Telecom to be exempt from compliance with the

CABIN ET-1 N-CON Fl DENCE

Telecom to be exempt from general, personnel and

Telecom no longer be required to use the

the current Ministerial power of direction to

(xxviii)in accordance with the Policy Guidelines of

the Minister to be advised of any matter which

CABIN ET-1 N-CON FIDENCE

consistent with the Policy Guidelines, Telecom

Telecom Board to recommend, after consultation

Consistent with the

objectives of the GBE reforms, Telecom should

CABIN ET-1 N-CON Fl DENCE

given the extensive devolution to GBEs of

(xxxvi) given that a major purpose of the guidelines is

CABIN ET-1 N-CON Fl DENCE