Telstra warns PM of shares plungeBy Jason KoutsoukisPolitical...

Telstra warns PM of shares plunge
By Jason Koutsoukis
Political Correspondent
Canberra
September 2, 2005

TELSTRA has declared war on the Howard Government over its refusal to ease regulation and competition laws, claiming the company's value is being "destroyed".

Senior Telstra executive Phil Burgess has declared that the company's outlook is so bad he would not recommend its shares to his mother.

Mr Burgess, one of the key American-born executives hired by new Telstra chief Sol Trujillo, has also warned that the share price could plunge below $3 — slashing the value of the Government's $30 billion stake and leaving long-suffering small investors even further out of pocket.

"Current regulations and administrative practices are destroying shareholder value in Telstra," Mr Burgess told The Age. "Our view that shareholder value is being destroyed is echoed by an increasing number of analysts around the world. In fact one has laid out a scenario where the share price could go as low as $2.87," he said.

The attack has added to an already fractious relationship between Telstra and the Government, and prompted a sharp response from Prime Minister John Howard.Declaring that Mr Burgess was wrong, Mr Howard said: "I don't think pressure on Telstra is unfair at all. Telstra's in a very strong position.

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Advertisement"We're not running communications policy to suit Telstra, we're running communications policy to suit the people of Australia, and the best way you help the people of Australia is to have competition."

A recent report by leading US investment bank Morgan Stanley said Telstra's current level of dividend payments to shareholders was unsustainable and that "if Telstra traded in line with the average of its global peers, we estimate the share price would drop by 41 per cent to $2.87."

Telstra shares closed yesterday at $4.67, well below the Government's target price of $5.25 for the sale of its remaining 51.8 per cent stake, from which it hopes to reap about $32 billion.

Asked if he would be keen to invest his own money in Telstra, Mr Burgess said: "I'll keep that to myself, but I sure wouldn't recommend it to my mother."

Mr Burgess, Telstra's group managing director for public policy and communications, also launched an extraordinary attack on the Australian Competition and Consumer Commission, saying the commission was itself engaged in anti-competitive behaviour "by not allowing Telstra to compete on an equal footing with other telephone companies and by preventing competition by forcing Telstra out of the market when we have services with better prices".

"Anyone with operational experience knows that it's an illusion to think you can separate the regulatory environment from operations because they are joined at the hip," he said.

Mr Burgess said a communication from Mr Trujillo to all Telstra shareholders later this month would "outline issues facing the company that have an impact on the share price".

Mr Burgess said Telstra was deeply frustrated that several senior Government ministers had been indifferent to Telstra's warnings.

The ministers are believed to include Treasurer Peter Costello, Communications Minister Helen Coonan and Finance Minister Nick Minchin.

Mr Burgess said Senator Coonan's requirement that Telstra formally separate its wholesale and retail divisions would be extremely destructive, and that a combination of other onerous regulations were strangling the company.

"These people have never been in to look at how the company operates," Mr Burgess said.

"Our inability to compete hurts our revenue stream, denies consumers choice in the market place. Where I come from, when you deny consumers choice, that's anti-competitive."

Senator Coonan urged Telstra management to "get on with the job" and rejected the claim that regulations were destroying shareholder value.

"There is no point in continuing just to criticise the regulations and not attend to what are no doubt other significant problems with Telstra," Senator Coonan said.