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Telstra fallout « Previous | |Next »
September 7, 2005

Well, Telstra has become a hot political potato. Suprisingly so, as the Howard Government's T3 bill for privatisation is being introduced into Parliament today. Little time has been allowed to the opposition to look at the legislation in the House; or for the Senate to take evidence and review the legislation through its committee system. The Government's political timetable is very tight as it wants to get out of owning Telstra at all costs.

The political temperature over T3 has risen for two reasons. First, Telstra has leaked the extent of the poor quality of the telecommunication infrastructure, an aging workforce, and the need to keep dipping into reserves to pay big dividends to keep the share price up.

LeakC.jpg

These are well known problems and the previous spin (by Telstra and the Howard Government in unison) about things going very well in improving services has been blown open by Telstra.

That does create a problem for the 'great deal' spin by the Nationals, as the ALP points out. Their $3billion represents the additional investment in operating and capital expenditure that should have been spent over the past 3-5 years. Maybe the Nationals will now turn their attention away from the $3billion they scored, and shift to ensuring that the new regulatory regime is a good one. John Quiggin offers some advice:

The only sensible policy option still available to us ...[is]...selling off the peripheral bits of Telstra (Foxtel, Bigpond and perhaps the mobile network) and renationalising the rest.

The second reason for the fallout between Telstra and the Government is Telstra's strategy to influence the regulatory regime accompanying T3. The company has highlighted the impact of regulation on Telstra and its ability to compete and continue to cross-subsidise the bush.

Telstra wants a light regulatory regime not a competitive one and so it is spilling the beans. Telstra argued that the proposed regulatory regime is daming the flow of cash that have supported its ability to make sub-economic investments in the bush. It is facing steady market share losses in mobile phones and an accelerating leakage of revenue from its copper-based fixed line network. Consequently, its earnings will continue to fall--7 to 10% this year.

It is not a convincing argument. It is competition not regulation that is challenging Telstra's market dominance. It is Telstra nearly doubling its charges on its fixed line network that have caused people to leave the fixed line network, not competition. Telstra needs to be regulated because it is the dominant player in the industry with a track record of anti-competitive conduct and bad governance.

Yet Telstra, as John Durie pointed out in yesterday's AFR under the new regulatory regime the Howard Government retains the Ministerial power to have discretion over the terms, including pricing under operational separations plans. This sidelines the Australian Competition and Consumer Commission. The Howard Govermnment is also proposing to leave intact existing powers to appoint more directors to the board after the sale.

Instead of concentrating on this kind of bad public policy Telstra has been transparently using the Telstra share price as leverage against the Government, to undermine the T3 process if Telstra doesn't get its way on regulation. War has been declared with Canberra as Telstra sets about stripping value from the Government's shareholding. The share prices has dropped 14.2% since Trujillo came on board with almost $9 billion being wiped off the market value of Telstra.

Instead of this scorched earth strategy with Canberra to ease the regulatory regime, Telstra should really be concentrating on reducing costs and improving product and service delivery so that is better prepared for the new competitive regime, given the rapid switch by consumers from fixed-line to mobile phone calls. Telstra has a record of poor services, bad customer relations, and innovation to ADSL-2 broadband and wireless broadband.

The Australian Securities and Investments Commission has launched an investigation into Telstra on the grounds of a breach of disclosure laws. Material information---that Telstra would be unable to maintain its previous level of dividend---should have been disclosed to the ASX as well as the Government.

Telstra is not really playing it straight. They are using the regulatory regime as an excuse for the continued loss of market share due to bad business decisions in the past.


| Posted by Gary Sauer-Thompson at 7:52 AM | | Comments (6)
Comments

Comments

I've said my position on Telstra in the past I think, so I won't readvocate it again now.

JQs position is pretty much what I said though

"The political temperature over T3 has risen for two reasons. First, Telstra has leaked the extent of the poor quality of the telecommunication infrastructure, an aging workforce, and the need to keep dipping into reserves to pay big dividends to keep the share price up.


These are well known problems and the previous spin (by Telstra and the Howard Government in unison) about things going very well in improving services has been blown open by Telstra. "

You're exactly right. People have been saying these problems for years and one pov is 'its only now coming to the govts attention - where have they been'.

My old man thinks it is enough to bring the government down, do you?

Vee
my reading of Sol Trujillo's strategy is that it is an well thought out attempt to out manoeuvre the Howard government so as to preserve Telstra's market power. Telstra is fighting tooth and nail to remain the 600 pound gorilla in the telco market place.

The strategy is this: the more hard pressed Telstra looks, the lower the share price. This places more pressure on the Howard government to go easy on the Telstra's postT3 regulatory engime.

Will the Howard govt stand firm as well as talking tough? Howard has control of the Senate now, and he could restructure Telstra to make the telecommunications market more competitive without selling the existing shareholders short yet again.

He won't do it. He has gone for operational not structural separation. Telstra fought that one and lost.

So Howard and Senator Coonan will probably fudge the rigor,transparency and accountability of the operational separation. Telstra will fight to control the access to the under-invested and dilapidated copperwire network and so remain a monopoly.

Telstra does have a friend and ally in Senator Nick Minchin, the Finance Minister. Though the Minister talks in terms of innovation, competition and international markets, he is a very much a light regulation man. And his short-term interests (getting as much as he can for the sale of Telstra) coincide with those of Telstra: ie. the less regulation the more Telstra is worth on the stock exchange.

The future? I reckon that we can expect lots of tactical battles by Telstra over both the pricing structure underpinning operational separation, and the pricing for other telcos' access to Telstra's copper-wire network. These tactical stoushes are normally fought behind closed doors, but Trujillo has decided to wage them publicly.

Lets be clear about it, it has got nothing to do with conflict of interest, as John Howard seeks to make out, as it took a referendum in all colonies (now States) to transfer the post and telecommunications to the Federal government. Not to sell it off but to manage it appropriately!

John Howard started to seel it off, unconstitutionally, without a referendum to allow this, and now seeks to blame part ownership as an issue.

The Delegated had this too say:

Hansard 17-4-1897 Constitution Convention Debates

Mr. DEAKIN:
Looking at the postal and telegraphic business of the
continent of Australia from a purely business aspect, from
the practical side of affairs, it appears to me that we are
more likely to have satisfactory and complete communication
if it be regarded as one whole and worked from the most
convenient centres, without regard to State limitations. I
say in answer to Mr. Holder that his illustration in regard
to Western Australia proves nothing if we may rely upon
American experience. If there has been one great federal
success it has been the American post office, and if there is
one regret in their politics it is that the American
telegraphic service is not also in the hands of the
Government. The telegraphic service is in private hands, and
the regret is widespread.

And

We shall not place too great a burden on the federal
authority, and the whole population will be better served
than they now are or than remote districts can be by State
authority. Placing the means of communication in the hands of
the Federal Government will probably permit of that universal
reduction of postage and cable rates which is one of the
first demands of the commercial interest throughout
Australia.
And

Mr. REID: This attempt to separate the post and telegraph
services will, I think, be disastrous. It is impossible to
work these two services by, two different departments. How is
it possible to put on the Commonwealth the necessity of
having a department to deal with one part only of the
business.
And
From my point of view there should be only one Post and
Telegraph Department for Australia, only one executive head
for Australia, and I believe that under that system the
interests of the people of Australia will be better and more
economically served.


Well, since John Howard start to sell Telstra it got worse and worse.

Meaning, return Telstra to what constitutionally is required, full public ownership to all Australians!

Maybe politicians don't have a duty of full, fair and timely disclosure, but the execs at Telstra do. See
here

Stew,
yes, you are right.

Yours is a great post.

What then is the responsibility of the Government re disclosure of important information about paying dividends from reserves and declining earnings?

Why Sol Trujillo (and the three amigos")might have adopted a strategy of disclosing everything possible that is negative about the prospects of Telstra?


How might goverment of Australia have privite information about the prospects about Telstra?