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building a world class telecommunications network « Previous | |Next »
August 24, 2006

Telstra can't win a trick these days. Its strategy of attacking the regulatory regime, a policy of non-cooperation with the government and poor investment decisions has driven Telstra's share price to record lows. The stock doen't even look cheap at rock bottom price of $3.50, given the falling earnings caused by increasing competition. Yet the current mess---it's looking increasingly like a disaster for everyone---is not solely Telstra's fault.

MoirAd4.jpg
Alan Moir

It is more than Telstra's case that regulations eroding profits. The Howard government continually put off confronting the need to address Telstra's dominant network structure, and even the fair terms and conditions for its rivals to gain access to the dominant network in an rapidly changing industry. It was obsessed by ownership---privatisation---and still is; even though the conditions for a sale are not good. It does not have any doubts that a privatised Telstra will provide Australia with a good and modern broadband service.

The T3 float beckons. Will there be a T3 sale or not? Telstra will be sold. It's just a matter of how and when. Sell it now is the call. Free Telstra says the market. The market analyists say that the longer the Government puts off making a decision, the more it weighs on the share price. The share market hates an overhang and there's around 6 billion shares to be sold. So what form will it take? A fire sale? The shares go into the Future Fund?The latter is not going to remove the overhang problem. So sell the whole lot and get it off the Government's hands.

You get the idea that the government just wants to toss all the problems to industry and let the market decide the best way for a modern telecommunications network to help secure Australia's future prosperity.

| Posted by Gary Sauer-Thompson at 6:01 PM | | Comments (4)
Comments

Comments

Yep, and secure a nice little kitty to take to the next election.

The real reason why the sale will go ahead - favourable or not.

BigBob,
what happens when the government discovers the market fails to deliver the services the government demands for the good of the country?

more subsidies to the big end of town?

Undoubtedly.

But that will come out of revenue some time in the future, in the meantime they have 30 billion? to chuck around in election pork barrelling.

Thing is, I don't think the pork barrelling will work to well this time - people are hurting in marginal land.

Old strategies - new times.

BigBob,
I doubt if it will be $30 billion in the slush fund as they will park some of the Telstra shares in the Future Fund, given Telstra's underperformance.

(The latest news is saying that an $8 billion sale in October would leave about a third of Telstra parked in the Future Fund for two years. The government is effectively selling $23 billion, only deferring the bulk for two years).

That parking creates overhang and, as the market hates (the $15 billion) overhang, it will drive the price of Telstra shares down. The open revolt between the Telstra management (voiced by Phil Burgess, and supported by Sol Trujillo, that regulation is undermining Telstra's profitability and value), and the government over regulation will also drive the share price down. Brokers are saying the sale will trigger a fresh round of selling in Telstra shares as investors bale out, knowing they can pick up the shares more cheaply in the T3 offer (eg., $3.15 give or take a bit).

(The latest news is saying that we can buy the shares on instalment, $2 now, the rest 2 years latter as the Future Fund dumps the parked Telstra shares on the market and the 2 year propped up dividend "guarantee" ends). Lovely.

Still, your point stands. The Howard government will have quite a slush fund to fight the next election with.