Time to hang up on Conroy & Co?
The Sunday Age
Sunday March 7, 2010
The government has been unrelenting in its attack on Telstra. Now shareholders are fighting back. Richard Webb reports. TELSTRA'S 1.4 million shareholders, disgruntled by the way their company is being attacked by the federal government, are banding together to influence the coming federal election, according to the Australian Shareholders Association.They are starting to lobby MPs in marginal seats because they are disgusted with the way the government continues to shift the goalposts in its favour in crucial negotiations over Telstra's forced involvement in the proposed $43 billion national broadband network (NBN)."Up until this week, I would not have said Telstra was an election issue," said ASA chief executive Stuart Wilson. "But the shareholders I've spoken to this week are up in arms with what the government has been proposing."More and more major investors who have lost a sizeable chunk of their money are taking it seriously because the Telstra share price is sliding into oblivion. There is now a groundswell of support for lobbying local members, particularly in marginal seats, by these disgruntled shareholders."Mr Wilson said the letter sent by Telstra chairman Catherine Livingstone and chief executive David Thodey to shareholders last Tuesday outlining their grievances with the government had been the catalyst for what was set to be unprecedented shareholder action.This letter said that while Telstra supported "the government's national broadband network vision and sensible reforms for our industry", the forced business separation of Telstra proposed by Communications Minister Stephen Conroy would cost Telstra $1 billion and take five years to implement with little benefit to customers.Senator Conroy is demanding Telstra split its wholesale business selling access to its copper wire infrastructure from its retail business, which is home phones, mobile phones and BigPond internet and the like, or be denied access to the coming 4G wireless network spectrum sales."This letter sparked quite a lot of discussion," Mr Wilson said. "We are pointing disgruntled shareholders towards their local members."Telstra shareholders have every right to be peeved. From their perspective, ever since the federal government finished privatising the phone giant in 2006 it has been attacking Telstra's business.The latest blow came last week with news that Senator Conroy was considering allowing the NBN to be a retailer (a new competitor to Telstra) as well as a wholesaler of broadband services. This prompted Telstra management's letter.Telstra shares hit a record low of $2.88 following the news.From a Telstra shareholder perspective, having paid the federal government up to $7.40 for these shares, these kinds of actions are hard to stomach.It's very odd for the government to be targeting what is now a publicly listed company in such a fashion.It also raises issues around the way Telstra shares were originally sold by the government to investors, industry observers say.In each of the three privatisation prospectuses there were statements saying there were no government guarantees about the future. But this issue featured little in the multimillion-dollar advertising campaigns mounted by the government to get the share sales away to mum and dad investors.Telecommunications research consultant Paul Budde says the way Telstra was privatised was nothing short of criminal. "The deception was criminal in that the government sold the business on the basis that the monopoly would last forever, when many people like myself and others knew it could not," he said. "If it had been truthful, it should have said upfront that it could last five to 10 years €” but no company can have monopolistic power forever."Austock senior client adviser Michael Heffernan agreed that Telstra shareholders had been badly done by. "It's been torture by a thousand cuts," he said. "It's been like going 20 rounds with Jack Dempsey or Mike Tyson - the way Telstra shareholders have been treated has been an absolute disgrace."But Mr Budde believed the actions of both Telstra and the government last week to be nothing but posturing."The government is trying to use a stick to get Telstra to co-operate, while Telstra is looking to maximise the income it can get from any deal," he said."Both are telling only half the truth and people are very confused and don't know what to do."But in the end, it's all about money because it's in the interest of both parties to find a solution."What the federal governmentwants– Telstra to sell or give the NBN access to its national network ofducts and pipes that currently hold copper wire used for phones.This is believed to be the only feasible way that the NBN canimplement a national fibre-tothe- home network within themaximum $43 billion budget– Telstra to be actively involved in the transfer of its 10 millionphone customers across to the NBN by progressively shuttingdown its national copper network. The NBN will be unprofitable in itsearly years without Telstra€™s cooperation and may be unfeasible altogether.What Telstra wants– Money for access to its underground network and compensation for the loss of business due to the transfer of these customers to fibre. The problem is thatestimates of the money involved range from $3 billion to $17 billion, with the NBN believed to be offering $8 billion and Telstra looking for much more than that.– Access to future wireless spectrum releases, which the government says it will prevent unless Telstra splits its business– To retain its 50 per cent stake in Foxtel and the fibre cable used to transmit it . . . the government is also demanding Telstra sell these assets.
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