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Trujillo calls it like he sees it
By Malcolm Maiden
September 3, 2005

WE NOW have a totally surreal situation: the Government has won political approval for a $30 billion Telstra selldown, and the company's leadership is effectively campaigning against it.

Sol Trujillo is entitled to argue on behalf of Telstra's public shareholders that excessive regulation is bearing down on Telstra's ability to compete, and making it difficult to justify new investments. His implicit threat of a slowdown in investment spending can't just be dismissed by Canberra — because Telstra is still a dominant force in telecommunications here, with close to two-thirds of the market overall, and a much higher share outside the cities.

The paradox is that Telstra's campaign has become so public and so energetic that it threatens to derail the sale process that is giving Trujillo leverage.

Telstra's management and board have to be able to support the sale, and Trujillo has to actively market the company to potential investors if the selldown goes ahead. It is very difficult to see how that can occur while Telstra's management is arguing that excessive regulation is crippling the company, and while Telstra's share price is sliding.

Plan B, the transfer of the Government's stake across to its new Future Fund, is the most likely way Canberra will "offload" the stake if the stand-off continues, even though it would skew the fund's risk profile, and undermine its ability to do what it has been set up to do — grow its asset base to a point where, by 2020, it covers public service superannuation liabilities.

The campaign Telstra is running raises the prospect that Sol Trujillo will be shown the door, along with the executive team he has hired. His strategy is being backed by Telstra chairman Don McGauchie and the rest of Telstra's directors, so they are at risk too. Their calculated gamble is that the Government will not gut the company's leadership, because that would destabilise the group and also poison the prospects for a share sale.

But the situation is volatile. Before the new CEO arrived, there were two schools of thought inside the Coalition. Some backed Finance Minister Nick Minchin's view that regulation of Telstra was too heavy-handed, and a weight on the company's share price. Others backed Communications Minister Helen Coonan's view that Telstra is a perpetual whinger about regulation, and should just get on with the job.

Support for Coonan's view could grow in response to Telstra's assault, because the political reality is that Coonan has sealed agreement within the Coalition for the sale, with a promise of slightly tougher regulation, and the diversion of the some of the Government's Telstra stake to a new fund that will finance communications spending in the bush. That political accord could disintegrate if the Government suddenly proposed to lighten regulatory oversight of Telstra.

The Maiden family owns Telstra shares.