PHIL BURGESS, TELSTRA COMMUNICATIONS DIRECTOR: Well, do you know a regulatory agency any place in the world that doesn't hold inquiries? Do you know of an inquiry held any place in the world that doesn't find violations of laws and regulations? Let's look at the facts. The facts are on the public record. The facts are between 1996, when Sol took over as CEO of US West Communications, there were 19,000 held orders. In the last six months of his service there - from 1999, end of 2000 - they averaged 400 a month. From 19,000 a month to 400 a month. That is on the public record so check the record.

CHRIS HAMMER: Wasn't that simply in reaction to being caught out by the Public Utilities Commission?

PHIL BURGESS: No - it was a reaction to investments that had taken it from 19,000 to 4,000 to 400. Why is that hard to understand?

CHRIS HAMMER: Because the principal economist at the Public Utilities Commission gave evidence the investment in new plant and equipment had been cut from 1994 through to 1998. And not only had it been cut that this was a deliberate policy on behalf of US West.

PHIL BURGESS: No. I don't know the source of that, you say evidence, you can say evidence, the fact is that during that time there were major investments in infrastructure, there were major investments in reducing held orders and the record speaks for itself.

CHRIS HAMMER: Well, the result was that the Public Utilities Commission of Colorado ordered US West to refund $11 million. And that was only for service difficulties, it wasn't for held orders because US West successfully argued that they were not yet customers.

PHIL BURGESS: Yeah, well, the Public Utilities Commission is not the customer. And in the United States, let's not forget, regulators are people who start their political careers in regulatory agencies. And so, yes, they find ways to make headlines. That is just fine. The fact is the numbers speak for themselves.

CHRIS HAMMER: So what do you say to a gentleman like Dwight Haverkorn - buys a house, is told by US West that he can get his telephone on within three months, then has to wait 11 months.

PHIL BURGESS: Who is Dwight?

CHRIS HAMMER: Dwight Haverkorn is a gentleman who lives near Peyton, Colorado, outside Colorado Springs.

PHIL BURGESS: And how high is the mountain that he lives on?

CHRIS HAMMER: There is no mountain, it is dead flat.

PHIL BURGESS: It is dead flat?

CHRIS HAMMER: Absolutely.

PHIL BURGESS: Peyton, Colorado, is dead flat?

CHRIS HAMMER: Absolutely. It is east of Colorado Springs.

PHIL BURGESS: And how deep was the valley he lives in?

CHRIS HAMMER: There is no valley - it is dead flat.

PHIL BURGESS: And how many people live around him?

CHRIS HAMMER: He is in a large...small subdivision, not that many. But the point is…

PHIL BURGESS: Has anybody ever told you about the DDT factor - distance, density and terrain? And that Colorado Springs is nested up against one of the highest mountains in the United States and there you have desert terrain, less than 19 inches a year of rainfall.

CHRIS HAMMER: How does rainfall affect telecommunications?

PHIL BURGESS: Because it affects the repair and maintenance and the cost of laying new equipment, that is why.

CHRIS HAMMER: So rural and remote customers in Australia are in for a lot of problems because it's a really low rainfall country.

PHIL BURGESS: Sure - that is why the costs in remote Australia are so high, exactly right. You should go tell Graeme Samuel that. He would like to hear that. The trouble is that everybody wants to pretend that services to areas that have long distances, low densities and difficult terrain cost as much as downtown Sydney. Sorry, it doesn't work that way.

CHRIS HAMMER: So that is why a company like Telstra or US West needs to be subsidised or to be able to charge higher rates under a regulated regime, as in Colorado, to be able to meet its legal service obligations to remote service?

PHIL BURGESS: Well, there are all kinds of ways to do it. One way to do it is through - in this country, for example, the universal service is not funded by government, universal service is funded by the industry. The universal service fund is a tax on the industry, not a tax on the people, did you know that?

CHRIS HAMMER: So the same as Colorado?

PHIL BURGESS: Did you know that?

CHRIS HAMMER: So it is the same as Colorado?

PHIL BURGESS: Did you know that, though? And did you know that the universal service fund only covers about about 20% of the total cost of the universal service? Did you know that?

CHRIS HAMMER: OK.

PHIL BURGESS: Did you know it, though? Did you know that 80% of the costs aren't covered? And you know what the policy of this country is and the policy of Colorado was that the rest of it - and it was not US West policy, it is not Telstra's policy is the policy of the government - that the rest should be paid for by cross-subsidies, by charging more to people in the cities, so you can subsidise people in the countries. That is the Government's policy. That's not our policy. That is not US West policy.

CHRIS HAMMER: But that was the policy that the government in Colorado insisted on and you were getting the subsidies from the urban areas to provide telephone services to Dwight Haverkorn.

PHIL BURGESS: No, we weren't. At that time, the regulator was embarked on the same kind of policies that the regulator here is embarking on and that was to give cheaper prices to people in the cities, thereby robbing people from the country of the subsidies that would be available to have a build-out of telephone services. So exactly the pathology that hurt the telephone business in the United States is exactly and was later reversed by the Supreme Court of the United States, let me say - is the same policy that is now being followed by the regulator here, against the policy of the Government, against the policy of the Labor Party, against the policy of Liberal Party. But still we have a rogue regulator here that is going down a path that is different from the Government, which says there should be a national uniform price.

CHRIS HAMMER: And what you say to someone who can't get a dial tone, who can't ring 911 in Colorado or 000 here?

PHIL BURGESS: Hey, when those things happen they have to be fixed and we...and our ability to respond to that is improving with each passing day.

CHRIS HAMMER: Will there be a policy here, as there was in Colorado, CNE - customer not educated - that if they ring up and want telephone service, you don't actually tell them whether they can expect to get it or not.

PHIL BURGESS: What we tell customers here is the same we told customers in Colorado and Utah and in Arizona and all the other states we serve - we told them the truth to the best of our knowledge when a service would be attached.

CHRIS HAMMER: But that is not true.

PHIL BURGESS: Well, somebody made a mistake. Are you saying we have a mistake-proof world? Have you never made a mistake as a television reporter?

CHRIS HAMMER: I don't have a written policy that says I don't tell customers the truth when they ring up and ask for a telephone.

PHIL BURGESS: We don't have a written policy either. Our written policy is, tell customers the truth.

CHRIS HAMMER: Let me take you to another example in the story, and I think it is fair that we address this. I went to Oregon to a town called Roseberg. The underinvestment in the telecommunications system, the switching system was such that the system there almost collapsed. Doctors in the emergency room in the hospital were not able to get phone calls through to the major teaching hospital in Portland. The Public Utilities Commissioner in Oregon described it as "a life-threatening situation." 911 calls couldn't get through to the nearby police department. How could US West allow a situation like that to occur?

PHIL BURGESS: Well, it takes two to tango, doesn't it? If there are problems in a place like Oregon that had a very aggressive and anti-US West regulatory environment, that was asking us to make investments where we couldn't recover our costs for our shareholders, we ended up in an imbroglio with that regulator. And so until the regulator came to its senses, we simply didn't make the investments that would require us to make those investments out of the back pocket of our shareholders. We just didn't do it.

CHRIS HAMMER: So you said, "This telephone exchange can collapse. "These these phones can..."

PHIL BURGESS: No, we didn't say that. No, no, we didn't say that. The regulator said that. The regulator said that. Let's not mix up who makes the decisions. Our job is to provide telephone service. That is what we're in business to do, and when a regulator says you can only provide telephone service if your shareholder pays for it, then we say we won't do it.

CHRIS HAMMER: OK, well, I'll tell you what the regulator did say. They say that US West identified this problem three years in advance, sought funding for it by means of accelerated depreciation of the old analogue switch, that was granted. US West put it in its work schedule for the following year, 1997, received the money for the accelerated depreciation, and then didn't replace the switch. Two years later..

PHIL BURGESS: That is 10 years ago. Can you get a more recent example?

CHRIS HAMMER: And so the same thing would happen in Australia if the regulator took that same approach?

PHIL BURGESS: Sure, we have already done that on FTTN. The regulator said they wanted us to provide FTTN, they were willing to have us provide FTTN, but they wanted us to sell it at a discount and we said no.

CHRIS HAMMER: How long do you think Sol Trujillo will stick around at Telstra?

PHIL BURGESS: I think he will stick around till the job is done.

CHRIS HAMMER: Which is?

PHIL BURGESS: When the job is done.

CHRIS HAMMER: OK, we will leave it there. Thank you very much for appearing.

PHIL BURGESS: Thank you.

Reporter
CHRIS HAMMER

Camera
DAVID BRILL
JORGE ZARATI

Sound
WARWICK FORD

Editor
PETER TODD