even intel joins the competition, page-4

no one would recommend buying tls ? Lack of communication hampers Telstra protagonists
September 3, 2005 (The Age)

The telco's board and the Government are at loggerheads over T3, writes Garry Barker.

THE blunt assertion by Phil Burgess, Telstra's second most powerful executive, that he would not recommend his own company's shares to his mother has infuriated the Government, but surprised few financial managers. Many would probably offer similar advice to their mothers.

The remark, and the angry response from Prime Minister John Howard that it was "careless and foolish" for a Telstra executive to denigrate his company, drew a line in the sand between the Government and Telstra.

Mr Howard's comment put him publicly in support of Communications Minister Helen Coonan, a position he has not previously taken, and means the biggest Government gun is now aimed at Telstra.

Telstra chief executive Sol Trujillo has so far remained silent, leaving Mr Burgess to play the part of attack dog.

As the debate plays out into October, and Telstra's annual meeting with its presumably bad news, it may be that Mr Trujillo will make more conciliatory noises. But for the moment, there are no apologies. Mr Burgess says he is telling it like it is, and will continue to do so.

Telstra would continue to abide by the regulations imposed on it, he said yesterday in a message to the telco's 40,000 employees, but management would also continue to press for the regulatory relief it believed was vital to the company's financial health.

If regulations not imposed on its competitors, such as SingTel-owned Optus, continued to constrain Telstra's operations and its ability to compete, it would not have the financial energy to build the high-speed networks the economy must have if it was to remain competitive.

The Prime Minister says that Government ownership, not regulation, is Telstra's biggest problem. Yet if financial and telecommunications analysts have it right, there is now little chance that the Government will be able to sell its shareholding.

The consensus is that most, if not all, of the Government's shares will be transferred to the Future Fund, at arms-length, but not separated from, Government ownership.

From there, says telecommunications analyst Paul Budde, they could be sold in tranches of 5 per cent or so, just as Japan and some other countries are slowly disposing of their legacy telecommunications companies.

"But only three or four such telcos in the world are fully privatised," he said. Most of the best, mainly in Europe and Asia, continue to have significant government ownership, usually about 30 per cent.

Mr Budde says Telstra's share price is going to take a beating. Its core revenue is falling, and it is being assailed by new technologies and myriad new competitors. He makes a point of the freedom from regulatory burdens of major competitor Optus.

Voice over internet (VoIP), broadband wireless, the move to mobile, fierce competition from international carriers such as Vodafone and Hutchison, and fast-changing technologies are slashing Telstra's revenue, margins and profit.

The previously rich revenue from the public switched telephone network (PSTN), the millions of kilometres of copper lines that form the core of Telstra's infrastructure, is falling rapidly; 1.6 per cent in the first quarter of the financial year, 5 per cent in the second. The graph will steepen downwards.

In his staff message, Mr Burgess said Telstra's leaders wanted Australians to "better (understand) how current and proposed regulations and administrative practices impede our ability to grow our business and offer our customers the products and services they want at competitive prices".

Mr Burgess said he "wanted consumers to know about the lower prices and service bundles they are being denied because of intrusive regulation" and wanted to ensure "the public knows the costs of regulation and how it limits consumer choice, reduces competition, increases costs, disadvantages rural and remote areas, slows the build-out of the nation's telecommunications infrastructure while favouring bigger profits for foreign-owned competitors".

These, he said, were "not simply the views of Telstra management, but (were) rooted in assessments of Telstra's situation by leading institutions in the domestic and international financial community".

Australia is now lagging well behind Asia, Europe and even the fragmented US, in developing the infrastructure it must have to compete in the global economy.

Mr Howard says competition, under good and firm regulation, will create growth.

Telstra says competition, promoted by hampering its operations and giving comfort to its most serious competitor, will not produce the result the Government and the country seek.

Somewhere in the middle of these clouds of dust and small stones there has to be an answer.