Paul McIntyre: Telco 'a shocker' of an investment

He's sitting on more than A$23 billion ($27.4 billion) in Telstra shares and very unhappy about it.

Federal Treasurer Peter Costello lashed out at the giant telco on Wednesday, saying the Government was still keen to flog its majority stake in the company but that the investment had been a shocker since its last sell-down in 1999 and it would not be offloaded in a fire sale.

This week's punch was just one in a series of blows which have been traded between Telstra and the Government as the telco's top North American brass continue to blame the Government's regulatory regime as the major barrier to current and future growth.

Telstra's share price is seriously languishing, hovering under $3.70 this week, which is about half the value of the stock when the current Government offloaded its second parcel of shares, codenamed T2, in 1999 to mostly mums and dads.

On Wednesday Costello lamented that Australian taxpayers had lost out "billions and billions" that should have been spent on hospitals and schools because Labor and the minority parties in the Senate had blocked the full sale of Telstra seven years ago.

The Government essentially has control of the Senate - save for a couple of renegade National Party backbenchers who have threatened to vote against Telstra's full sale if adequate telecommunications protections are not legislated for the bush - but is unwilling to push through a full sale at present because of Telstra's dwindling value. Finance Minister Nick Minchin has attacked Labor and minority parties in the past for blocking the full sale of Telstra in 1999, which, had it gone through, would have seen Government coffers A$54 billion better off today based on a share price at the time of A$7.40.

"We do not believe there is any reason why the Government should hold on to [its Telstra stake] and as it turns out it has been a shocking investment," Costello told ABC Radio. "Now, we believe that we can offer that remaining 51 per cent but we will not do it in a fire sale, we will only do it at a time when we can get reasonable value for the taxpayer.

"So you test the market, and if there is a market for it, if you think there is a good return for the taxpayer, we will do it. If there is not a good return for the taxpayer we will not. We will hold."

And when the Treasurer was asked how long the Government could retain its Telstra stock, Costello said: "Until such time as there is a good return for the taxpayer."

Telstra's falling price renewed speculation that the Government will pull back its "T3" public offer to late this year or early 2007 and transfer as many shares as possible into the Future Fund, an entity which would allow more flexibility for offloading Telstra shares in the future.

In the face of Government criticism of Telstra's performance this week, the company's senior management was not prepared to serve as a whipping boy for a political agenda.

Chief financial officer John Stanhope claimed the Treasurer had not taken into account huge dividend payouts when assessing Telstra stock.

And Telstra's group managing director, regulatory, policy and communications, Phil Burgess, blamed the woeful trend in Telstra's share price on Government regulation. It had "destroyed" the company's value, he said.

"If politicians align themselves with a bad policy then they will get some of the shrapnel," he told an industry conference on Wednesday.

"We want [shareholders] to be concerned about regulation. Our share value is being destroyed by intrusive and onerous regulation and we want them to be focused on something different than they would normally be focused on."

But those comments and a few others from Telstra this week were enough for Paul O'Sullivan, the chief executive of Telstra's biggest rival, Optus, to come out fighting too, claiming Telstra's push against the competition regulator and the Government was "sinister", "damaging" and "misleading".
"It's very unfortunate that the present management team of Telstra seems to think that a key role and objective of their organisation is to try to turn the clock back to the days of Telstra having monopoly power over key elements of infrastructure," he said. Optus, according to O'Sullivan, had offered to co-invest in a A$3 billion high-speed broadband network proposed by Telstra but had been rebuffed.

* Paul McIntyre is a Sydney journalist