even intel joins the competition, page-8

re: tls vs australian government Telstra takes a dive
Mathew Charles
03sep05

A DEEPENING crisis enveloped Telstra yesterday, with the share price plunging to 16-month lows in a body blow to the Federal Government's privatisation plans.

In an extraordinary day, investors dumped Telstra's shares on fears a $5 billion share buyback would be abandoned and senior executive Phil Burgess made further inflammatory comments.

Amid the brouhaha a senior executive - Michael Herskope, Telstra's chief spokesman before Mr Burgess' appointment - quit the company.

New tensions were triggered when Mr Burgess, right-hand man to Telstra chief Sol Trujillo, said he would advise his mother to avoid Telstra shares at the moment.

This sparked an angry response from Prime Minister John Howard who said Telstra was wrong to believe a war of words would make the Government ease regulations.

One Government insider said: "There are other things killing Telstra and it's stuff-all to do with us."

Mr Burgess said he enjoyed Telstra chairman Don McGauchie's full support.

Asked if Mr McGauchie was concerned by the media's coverage of his comments Mr Burgess said: "He doesn't have concerns about the coverage, he has concerns about the company.

"That's the same concern we have always had and that's what we've expressed and that's what's out there."

Australian Shareholders' Association deputy chairman John Curry said the Burgess comment about his mother was "stupid".

"You can't afford to be like that and he should know that. He's been around a long while," Mr Curry said.

"You can't have comments like that floating around the market place.

"It's a sensitive stock, particularly at the moment."

Based on yesterday's performance Mr Curry estimated Telstra's shares would further weaken to about $4.30 once its final dividend was paid.

But in further defiance to Canberra, Mr Burgess told Telstra staff in an internal email that he would not be silenced.

He promised further communication with "our shareholders, customers, employees and others" in coming months.

Telstra insiders yesterday said there was growing concern within company ranks that government proposals to split its retail and wholesale arms were "perhaps more draconian than they (the government) foreshadowed".

Speaking from north Queensland, Opposition spokesman Stephen Conroy said the bush was worried about Telstra's "hard-line rhetoric" and whether it would maintain full services once privatised.

In his email Mr Burgess said the public needed to "know the costs of regulation" and how "intrusive regulation" was denying the public access to lower prices.

"Australians know that these are not simply the views of the Telstra management, but are views also rooted in assessments of Telstra's situation by leading institutions in the domestic and international financial community," he said.

Telstra's share price yesterday collapsed to its lowest point since May 2004.

It slid almost 2 per cent to $4.58 - down from $5.06 when Mr Trujillo took the helm on July 1.

This puts it far south of the $5.25 the Federal Government has nominated as the price at which it will sell its 51.8 per cent stake.

Mr McGauchie has so far refused to make any public comment but has spoken with his executives by phone.