As we used to say back on the farm....I think this augurs...

As we used to say back on the farm....I think this augurs well.....


http://www.theaustralian.news.com.au/story/0,25197,25627315-7583,00.html

Font Size: Decrease Increase Print Page: Print MARTIN COLLINS: John Durie | June 13, 2009
Article from: The Australian
TELSTRA and the Australian Competition & Consumer Commission actually agree about some key regulatory issues, but yesterday's government submissions show they are still a mile apart on the most fundamental matter: structural separation of the copper network.

That won't come as a surprise to anyone. Communications Minister Stephen Conroy has designed a policy to shock and please at first -- and then gradually reach its conclusion at a politically suitable time -- maybe even long enough that the combatants can get closer to an agreed position.

The shock-and-please start was the headline plan, based on the $43 billion construction of an independently run fibre-optic network. That was designed to show Telstra that Conroy was serious about his intention to force structural separation.

That the $43bn figure was a fantasy worthy of ridicule didn't seem to bother Conroy. Within a matter of weeks, Telstra changed its public face -- but not, as is now clear, its attitude to government policy.

The two sides agree the present regulatory model doesn't work and should be replaced by a system along the lines of gas and other utility regulation, whereby the network is valued and each year prices are set based on depreciation, capital expenditure and an allowed regulatory return.

Telstra has made another concession in the annual fight over compensation for its so-called universal services obligation. This is its duty as the incumbent to provide services to outlying areas. Telstra is now willing to collect $50 million a year, indexed until such time as the new fibre network is built.

That network will take some eight years to build once it is started, and this is where the politics comes in. Clearly, Conroy wants to drag this out so he can go to the next election spruiking the benefits of the new work again, just as Superannuation Minister Chris Bowen will be spreading rays of sunshine about Australia's imminent jump to the position of regional financial hub.

Telstra operates on what is called an operational separation model -- it has a separate wholesale network, which in theory means that everyone knows what prices it charges itself and competitors that use the copper network.

So-called functional separation would take this a step further to actual arm's-length prices, but Telstra argues that because the new fibre company will provide a structurally separated network, there is no need to go down this path.

Conroy had suggested it might be a useful first step until the fibre network was built, and the ACCC argues "structural separation is the only framework that will ensure equivalence" -- that is, open access.

Clearly the best way for Telstra to shake off the regulatory shackles is to immediately hive off its network as a separate arm, which would allow it to compete on the value-added services that are its future.

Its reluctance to do so merely confirms what everyone suspects: that it is making excessive returns at the expense of customers by having the most integrated telecommunications network in the Western world.

In other words, the battle lines are pretty much where they were when Donald McGauchie and Sol Trujillo were in charge -- it's just that David Thodey's Telstra is saying things differently.

The ACCC figures the Telstra network is worth $20bn. The company isn't saying what it thinks, but at the same time it wants an independent expert to decide which pricing model is better -- its model or the ACCC's.

The ACCC would argue that it is the independent expert.

Telstra wants a separate regulator, which suits an incumbent because it's better to have a captive regulator. It also wants Optus dragged into the regulatory net and forced to report its price rises on a timely basis, just as Telstra promises to do in the interests of an open market.

Conroy has opened the debate, which is brilliant politics.

He is constrained by the need to comply with open tender rules laid down by the US free trade agreement.

He needs to actually make some decisions. With Tasmanian negotiations dragging on beyond the advertised starting dates, after more than 18 months in power, those decisions are way overdue.

Commonwealth's calamity

COMMONWEALTH Bank obviously erred by passing on a 10 basis point cut in home lending rates last time the Reserve Bank cut its rates, because yesterday's increase just opened it to political and consumer abuse.

Sure, funding costs rise as long-term paper is rolled over, but that would have been known when Commonwealth cut rates last time -- while National Australia Bank sat on its hands. That's dumb management any way you look at it.

Bank funding costs are falling with the spread on overnight interest rate swaps at 29 basis points, compared with 80 basis points back in February and 15 in the pre-crisis days.

Each bank's funding requirements are different, but even though bond yields are rising, Commonwealth -- with the biggest deposit book in the market -- should rely less on external funding.

Bond yields have risen extraordinarily, with yields on the 10-year bond now at 5.5 per cent compared with 4.5 per cent at the end of April, which means prices have fallen.

It's all part of the financial market view that it's OK to takes risks again.

The accompanying graph puts the stockmarket rally in perspective.

Asciano hares running

IT is said the best horse to back is self-interest, because you know it will run hard.

So when there is an auction for a company, the people running the auction will try to create the impression there is a lot of interest and competition.

Lazard's John Wylie plays this game better than most, with names such as Graeme Hart carefully dropped late in the game (by others), just to create some bidding tension on the final weekend.

By Monday at the latest, Asciano should reveal just what it has done in light of the 102,000 offers reported in the media.

Private equity firms TPG and Carlyle are running a cornerstone investment and a sub-underwriting model to raise $2 billion.

They think that's how much money is needed, and their investment bank advisers would like a big capital raising to generate more fees.

Asciano's Mark Rowsthorn wants what's best for the company -- of which he owns 10 per cent. The bigger the equity raising, the more he will be diluted -- and maybe even shown the door.

TPG has enlisted Canterbury Partners to join Macquarie and Goldman on its ticket, in part because the firm's Simon Jones knows Rowsthorn.

Then again, so does Macquarie, because it sold him the dumb idea about a financially engineered bid for Brambles.

Conflicts and self-interest are running hard in this race. Thankfully by Monday shareholders should at least know there they stand -- if not whether the company can be saved, and under whose leadership.












http://blogs.wsj.com/privateequity/2009/06/12/the-week-in-private-equity-pe-has-cake-eats-it-too/

What’s Australian for private equity? Warburg Pincus LLC agreed to do its first Australian deal, helping recapitalize a waste management company, Transpacific Industries Group Ltd. Warburg is also involved in the bidding for rail and port operator Asciano Group, as is TPG Capital LP and Carlyle Group.




P.S. augur and auger are the correct spellings of two homophones. Masticating thespians are another matter altogether.

Cheers,


John S.