Telecom a disastrous ripoff

Honesty on the scale provided by Telecom Chief Executive Theresa Gattung last week is as rare in business as a fair deal on broadband.

Gattung told business analysts in Sydney two months ago that Telecom has “not been straight up” with customers. She said “Think about pricing. What has every telco in the world done in the past? It’s used confusion as its chief marketing tool. And that’s fine. You could argue that that’s how all of us keep calling prices up and get those revenues, high-margin businesses, keep them going a lot longer than would have been the case. But…customers know that’s what the game has been. They know we’re not being straight up”.

This kind of cynical manipulation of the public by a multi-million dollar “golden girl” is a tragedy for us all. For 16 years we have suffered as Telecom has abused its private monopoly over our phone networks. We have been fleeced.

If we pause for a nostalgic moment we will remember that Telecom was once part of the New Zealand Post Office. At the height of the Labour government’s Rogernomics betrayal our Post Office was readied for privatisation by Johnathan Hunt who as minister separated it into three state owned enterprises – Postbank, Telecom and New Zealand Post. The first two were then sold. Postbank was bought by the ANZ bank and is now Australian owned while Telecom was sold in 1990 to an American consortium.

Before it’s purchase business leaders (who dominated the public debate) railed against the Post Office. They claimed it was a state monopoly like those of “communist Russia” and had no place in a modern economy and was a threat to democracy itself. The private sector would run it much more efficiently and provide better services at lower cost. We would all be better off. Needless to say the precise opposite has been the case. The publicly owned monopoly became a privately owned monopoly and Telecom’s legalised theft began.

In round figures the purchase price for Telecom was $4 billion and when the original American buyers sold it, the selling price was $12 billion. This capital gain of $8 billion was on top of another $12 billion they made in profit over the 10 years they owned the company. Ameritech and Bell-Atlantic (the initial American owners) were staggered at their good fortune and at the blind stupidity of our government. They nearly drowned in the trough.

Last week these same business voices from 16 years ago wailed when, after the longest 16 years in telecommunications history, a New Zealand government has finally taken some action to control Telecom.

Probably the most obscene comments came from the Shareholders Association who described the government action as “outright theft of private resources”. They were complaining this time that more than $1.5 billion was wiped from the value of Telecom’s shares by the government announcement of the end of Telecom’s private monopoly over our phone lines.

A more self-serving comment would be hard to find. It was almost as though they thought they had somehow earned this money. However it’s a safe bet that none of them have ever driven a Telecom van to install telephones and repair connections. They have never sat in a call centre on a 12 hour shift being paid the minimum wage nor installed computers to run internet connections. These were all done by working New Zealanders whose labour enables Telecom shareholders to “live high off the hog”

Why has it taken so long for the Labour government to act? A ministerial inquiry as far back as six year first recommended “unbundling the loop” but it’s been 6 long years before any action was taken.

The main reason seems to be that Telecom is by far the largest company listed on our stock exchange and holds more than 20% of the market’s capital value. Labour was worried that action against Telecom would weaken the sharemarket, reduce the incomes of shareholders and scare off investors. In other words Labour preferred to let citizens suffer instead of confronting the company.

It isn’t the last round however. There is no reason to believe that the other telecommunications companies have any better ethical standards or occupy any higher moral ground that Telecom. At the end of the day private companies are responsible to their shareholders long before they are responsible to our citizenry.

Things will only improve significantly when essential infrastructure such as our telecommunications network comes back under public ownership and the democratic control of New Zealanders.

There would be benefits all round if Theresa Gattung and Johnathan Hunt each swapped jobs and incomes for a year with our undervalued cleaners who clean their offices.