Paul McIntyre: Wild ride with Sol and amigos

If any humble Australian punter had missed the fact that their Government-controlled telco giant Telstra was now run by a brash new line-up of American executives, this week should have delivered a very loud wake-up call.

Telstra's new chief executive, Sol Trujillo, and his three imported sidekicks - nicknamed the "three amigos" - have got everyone from the Prime Minister down hopping like a mob of dingo-spooked wallabies.

Just as the Coalition Government was getting so close to clinching a deal to sell off its remaining 51.8 per cent stake in Telstra for around A$25 billion to A$30 billion, Trujillo & Co have sent Telstra's share price and full privatisation into a wind tunnel - it's down 20 per cent in the past two months - by disclosing just how bad things might be under the big telco canopy.

The punch-up between Telstra management and the Government has been going on for at least a month but it really kicked in after one of Trujillo's imported telco allies, Phil Burgess, now head of regulatory affairs and communications, responded to a question about whether he would buy Telstra shares. "I sure wouldn't recommend them to my mother," he replied last week. Not good news at all for a Government owner looking to flog Telstra in 2006.

The comments from Burgess, however, were only the start of a wild ride this week.

On Monday Trujillo blew A$1.4 billion off Telstra's market value by flagging earnings would fall by up to 10 per cent this year and that the Government's tougher new regulatory regime could cost the company A$850 million in lost revenues for the 12 months to June 2006.

Moreover, the Australian Securities and Investments Commission (ASIC) revealed on Tuesday that it had started an investigation into why Telstra had not released market sensitive information after a briefing to the Prime Minister and cabinet on August 11.

Howard, too, came under enormous pressure to justify why his Government had misled more than 1.6 million shareholders about the state of Telstra by not taking steps for the information revealed to it in August to be made public.

Telstra's briefing included the revelation that it had been funding dividend payments partly from debt and was unsustainable, that the telco had failed to invest up to A$3 billion in infrastructure to keep its network up to scratch and that 14 per cent of its fixed-line connections were faulty.

But before that news became public on Wednesday, Howard used Parliament on Tuesday to launch a scathing attack on Trujillo and his henchmen, labelling their behaviour "disgraceful".

"I do not believe for a moment that the remarks that were made by senior executives of Telstra were in anyway helpful," he said. "I think it is the obligation of senior executives of Telstra to talk up the company's interests, not talk them down."

On Wednesday, however, the rhetoric was in rapid rewind as Howard faced mounting pressure to explain why the Government had sat on negative information about Telstra's state of affairs.

Howard cited legal advice that he could not disclose such information.

"It would have been unlawful for us to make this information available," he told journalists, claiming it was the responsibility of Telstra management to do so. Technically that's correct but the Government was then forced to explain why it wanted Telstra executives to remain upbeat about the company's prospects while knowing the story might be quite different.

"I'm not saying they should run around telling lies about the share price," he told a press conference on Wednesday. "I'm not asking that at all."

Then on Wednesday night Howard somewhat unconvincingly faced aggressive questioning from the ABC TV's 7.30 Report anchor Kerry O'Brien. Part of the stoush went thus:

O'Brien: You sent a very clear message to Telstra's senior executives from Parliament yesterday that their obligation is 'to talk up the company's interests, not talk them down'. That sounds awfully like you're telling them, as you prepare to sell your remaining 51 per cent, we only want the public to hear good news.

Howard: Kerry, I don't think there's anything I said yesterday that was encouraging Telstra management to tell lies.

O'Brien: You are saying we only want to hear the good news.

Howard: I'm not saying that - Kerry, with great respect that is wrong.

O'Brien: To talk up the company's interests and not talk them down.

Howard: Of course. If you're employed by the company, the company hardly expects you to go around saying it's a bad show.

O'Brien: Aren't there obligations of corporate governance for any public company to be honest about the state of its affairs.

Howard: Yes, yes, exactly.

And round in circles the two went.

Where this dogfight ends up is anyone's guess right now but as of yesterday, the crucial support of National Party Senator Barnaby Joyce for the final sell-off of Telstra was faltering, with him saying on Thursday night he was "having second thoughts".

Phone revenues out of Canberra, at least, should be rather healthy at the moment.

* Paul McIntyre is a Sydney journalist.