Does the Privatisation of Telecommunication Industry in Australia Economically or Socially Beneficial?

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Does the privatisation of telecommunication industry in Australia economically or socially beneficial?

Introduction

Privatisation has been a central part of public sector reform efforts around the global. (Hodge 2002) Throughout the last two decades, countries all over the world have widely accepted the privatisation of state-owned firms when encountering the most urgent problems fazing the modernisation and development of telecommunication. Although in a number of countries the government has privatised a porion only of their telecommunications corporation, many of these are likely in the future to sell part or all of the remaining equity interests. However, it does not mean that privatisation of the telecommunication industry is necessarily beneficial, either economically or socially.

Telstra, as a state-owned telecommunication company in Australia, has been engaged in privatization ever since. So far it is still more than half-owned by Australia government. It is going to discuss whether the privatisation of telstra could benefit the Australian society.

background

Privatisation is the sale of government-owned equity in nationalised industries or other commercial enterprises to private investors. Reports from the World Bank, during the 1980s, almost 7,000 State-owned firms were privatised, and the number of privatisations accelerated by a massive amount during the 1990s. Privatisation is one of the most crucial worldwide economic, social and political phenomena and has become the new economic principle and will continue to exercise influence on the lives of human beings around the world well during the next century.

The process of telecommunications reform in Australia introduced in the Telecommunications Act 1991 was completed in June 1997. The basic idea of the reform was to replace the public telecommunications monopoly with a competitive market.

Telstra went through the privatisation first time in November 1997 under which the commonwealth sold 33.3% of issued shares to the public. A further global offering of up to 16.6% of issued shares was launched in September 1999. So far the Commonwealth still own 51.1% of issued shares of Telstra.

Since then, there has been a significant increase in the number of firm that had entered into the Australian telecommunication market. As at 30 June 2004, Telstra supplied service to more than 625 wholesale customers that compete in the retail telecommunications market. From a position of the sole provider in telecommunication industry, inevitably, competition had reduced the market share of Telstra. However, competition also contributed to growth in the overall telecommunication service market.

(competition hang ups)

Does it economically or socially beneficial?

The major benefits of privatization are the removal of the political constraint on Telstra’s decision making and its replacement with shareholder oversight. Privatization should make Telstra a more commercial and more efficiently run organization: (assess implica)

The standard economic argument for privatisation is that, when privatised, a corporation will improve its productive efficiency. It is commonly understand that the private owners have a stronger motivation to improve productive efficiency in order to maximise profit than government. And the private owners will more willing to use their profit to improve their service and invest in more advance technology in order to get more market share and generate much more profit. It is understand that public and private firms behave differently even when they face the same market environment, because the incentives that face the manger in the public and private firms would be different. Incentive is the basic element for an enterprise to success and it is directly related to economic well-being. So, it is necessary to emphasise the effect of privatisation in manager’s incentive. It is generally known that a well-managed...
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