Telstra: Government presses on

CANBERRA - The Australian Government will seek parliamentary approval next month for the unpopular A$30 billion ($33 billion) sale of its stake in Telstra, after earmarking A$3.1 billion to persuade rural politicians to back the plan.

The sale is expected to go ahead next year, although the Government has yet to decide on a price or whether to sell its 51.8 per cent stake in Australia's biggest telecommunications group in one or more tranches.

The Government also agreed yesterday to a raft of telecommunications competition regulation reforms, centred on an internal split of Telstra's networks and telephone services arms to ensure a level playing field for upstart telcos.

"The decision we have taken today will reflect a fundamental reality that it is quite counterproductive and not in the national interest for the Australian Government to own more than half of the largest company in Australia," Prime Minister John Howard said.

Howard unveiled plans to use part of the proceeds from the sale for a A$2 billion trust fund for rural phone services, and to spend A$1.1 billion on a nationwide broadband rollout.

Treasurer Peter Costello wants the remaining proceeds from the Telstra sale to be added to a so-called Future Fund, to be created this year with an initial A$16 billion to cover future public service pension liabilities.

Finance Minister Nick Minchin said the Government would advertise this month for key sale advisers, who would be appointed by the end of the year in preparation for a sale in late 2006. The Government in March appointed investment bank UBS and merger advisory firm Caliburn Partnership to evaluate the sale of its Telstra stake, while Telstra appointed Merrill Lynch and Carnegie Wylie & Co to advise it on the sale.

Scott Maddock, an analyst at fund manager BT Financial Group, said the plan to create a rural phone services fund removed uncertainty about costs Telstra could have faced to upgrade rural services.

"Any operational separation of the retail and wholesale business will of course not be a positive for Telstra," Maddock said, because wholesale customers would be guaranteed to pay the same prices as Telstra charged itself.

Telstra shares, which fell to nine-month lows after the company released a downbeat outlook with its annual results last week, slipped 0.6 per cent to A$4.82 in a slightly weaker overall market.

Minchin has said there is no target price for a sale, despite the Government pencilling in a share price above $A5 in the budget. One option would be to sell part of the Government's stake and put the rest in the Future Fund, he said.

The plan needs to win over new Nationals senator Barnaby Joyce, who gave the Government a one-seat majority in the upper house Senate last week. The Government also needs to convince voters after a poll in the Australian newspaper showed 70 per cent of Australians oppose the sale, while 16 per cent were in favour.

The Government's plan has sidestepped a proposal by Telstra chief executive Sol Trujillo, who last week proposed that Telstra and the Government jointly make a multi-billion-dollar investment in improving telecommunications services.

The sale, if done in a single offering in late 2006, will be the world's biggest since Nippon Telegraph & Telephone, Japan's largest telephone company, sold 4.9 trillion of stock in 1987, worth US$36 billion at the time.

The Australian Government sold 33 per cent of Telstra in a A$14.3 billion initial public offering in 1997. It sold a further 16.6 per cent for A$16 billion two years later.

- REUTERS, BLOOMBERG