In Crikey today, Stephen Mayne comments:
The Telstra circus is getting more bizarre by the day. Even so, it’s hard to go past the sheer stupidity of the government launching a $20 million advertising campaign promoting T3 while simultaneously ripping into the company for taking out a few surplus pay phones.
If John Howard really believed T2 was “an extremely good deal for those involved” at $7.40 a share, on what basis does he and Peter Costello attack Telstra for attempting to reduce the $30 million lost on pay phones each year? By all means hop into Sol Trujillo’s pay packet and the government’s right to appoint Geoffrey Cousins to the board, but the pay phone rhetoric is just stupid.
What is going on here? Are Howard and crew trying to muddy the waters so people don’t focus on the politics of the Telstra selloff? Is there any truth to the suggestions by some commentators that Ministers were just banging on about Trujillo’s remuneration because they think they could all earn millions in the private sector (as if)? Is it a grudge match because Trujillo actually has Telstra acting like a private company rather than a government pawn like Zitkowski? Or because, being a yank and all, he doesn’t understand that his duty lies more in deference to his political masters rather than managing the company’s strategy and value?
Whatever the explanation, it’s a hell of a way to talk up a share price for the Futures Fund to benefit from… What does lie behind the bizarre politics of Telstra?
The public phone red herring is code for Telstra’s requirement to cross-subsidise “the bush”.
Howard knows that “the bush” represents the biggest impost on shareholder value. He knows he needs to continue to massage arguments supporting cross-subsidisation. And since when has Howard been above a bit of populist dog-whistling?
You’re correct that public phones make up only a small cost to Telstra. But that’s Howard’s point. Pointing to the mouse on the train station distracts from noticing the elephant in “the bush”.
Between them, Howard and Trujillo have cost Telstra shareholders big-time. And the Federal Govt is the biggest shareholder of all.
Trujillo is hoping to do the government interest in Telstra so much damage that they the Govt will be unwilling to float the rest of the shares for fear of being accused of squandering public resources. Trujillo is attempting to force the Feds to take the cross-subsidisation monkey off Telstra’s back.
Trujillo’s implied promise is that he will then work to increase shareholder value.
Interestingly, minority board members seem to be backing Trujillo, suggesting that they are willing to take a hit in the short term in return for a more commercially attractive arrangement in the long term. I wonder how strong is their commitment to this crash through or crash approach.
Howard knows he can’t dump “the bush”. He must attempt to innoculate the Coalition from electoral fallout over this issue.
Hence the public phone red herring.
Trujillo still walks with millions if Howard calls his bluff.
Interesting analysis, Katz. It’s a pity no one in the MSM can clearly explain why what is going on is going on.
I think part of the reason why what’s going on remains a mystery to many journos and pundits is the specialisation – political journos don’t understand business and vice versa.
I suspect that is the case. Trujillo has a history of covering his backside big time. But has it been made public what conditions etc apply with respect to his severance payment?
Personally, I think JWH just wants him to go, regardless of cost. And Sol is the most unpopular CEO in Australia. Then JWH can move to get rid of the Chair. He can then appoint Cousins, his trusted advisor for the last decade.
By the way, they will need much more than $20m in advertising to have a hope of selling T3 at a respectable (any) price. But then I suppose there is a new mug born every day.
Any time Howards involved you can lay odds its all about the politics. There is no other game with him. I think Katz is on the money – Howard has to do the old “bait and switch” trick before anyone realizes the cross subsidy is the real money drain. I think its probably sinking in to a few on the Government side that they have ballsed-up the Telstra sale from the very beginning and we are close to the worst outcome possible, and that pretty soon enough of the voters will figure this out to trigger a backlash.
Why is Sol worth so much money? I could have trashed Telstras share price just like Sol and I would have cost them a lot less than 8 million…
It’s not true that Sol has trashed the share price of Telstra. It’s rather the case that investor exuberance about the long-term prospects of Telstra’s earning capacity is slowly eroding over time as technological change allows multiple attacks on its projected earnings potential by an increasing number of communications companies.
There is no specific action that Sol has taken that has reduced the value of the company. Merely that the downward drift of price to realistic levels for a company without a much blue-sky has continued.
Obviously Howard cannot let Telstra remove payphones without conspicuously protesting. Can’t have payphone sentimentalists and bush socialists thinking the ALP might be the answer to anything.
Telstra and the government are merely fighting about how much of the USO will be kept. Howard needs the USO or at least a fair portion of it, to hold certain bush seats and Sol needs to ditch the USO to keep the share price over to $3.00.
- RIP Nation-building 1901-2006
- Cross-subsidy to bush services “inefficient” (well, for city dwellers, that is)
- No one to impotently whinge at post-T3.
- government bailout on offering civilisation outside capital cities
- Place wedge precisely on Nats / Libs faultline and hammer.
What? Oh, dont mind me, just doing up some cheat notes for the ALP; in case they ever DO notice the elephant mother of all electoral wedges staring them in face.
Ive often felt the urban/ rural cross-subsidy was the key element of the Australian or ‘Deakinite’ settlement that the commentators underplayed/ neglected.
I’m inclined to agree with wbb. There isn’t anything in particular that Sol has done, or not done, that has caused Telstra’s price to fall. Over a long time, as we all know the market does have a fair bit of wisdom and research. That knowledge tells us Telstra was over valued and is now finding it’s price.
It didn’t take too much nouse to work out a few years back that a fat ex-monopoly, with remaining elements of monopoly, with a gouging price policy, indifference to consumers in most markets, and still a lot of fat left, plus the USO, wasn’t going anywhere fast in this post 2000 VOIP, Broadband, Wireless, Non Fixed line age.
It was probably worth taking a punt a few years back that the gov. would prop up some of the gouging with tax breaks, subsidies and restrictions on other players, but that really was a shortish stag option.
Now – Howard as usual is just playing the politics for himself.
Depends whether Kim wants to focus on the ethics or the politics?
Either way, Trujillo and Howard are focusing on the shareholders rather than the stakeholders.
I’m not sure what the government’s long term goal with Telstra has ever been, apart from reaching the Nirvanah state of full privatisation. Is it supposed to act in the national interest? ot Telstra’s? It’s ssupposed to be competing with other Telcos, but how can it do that while maintaining monopoly ownership of the infrastructure?
The trouble is, I not sure that the government has known either, and its actions have always sacrificed any long term goals for short term expediency. And the govt is still playing that game, trying to offload Telstra while telling the part of the electorate that absolutely depends on Telstra (ie the bush) that the shit sandwich they’ve been given is really rather scrummy.
Short mal: what fxh said.
Howard is leaving politics soon. He can afford not to give a toss about the Bush!
Sol was supposed to deliver services to people in the American desert while the boss of a telco there. He didn’t! He will do the same here
The bloody thing should be re nationalised!
Nationalised telecommunications anyone? No? Just wondering, that’s all.
Surely the politics of Telstra boil down to the following question: Can JH sell Telstra for enough dosh in time to ‘finance’ enough election handouts to get him over the line in marginal seats?
Trujillo has a very long history of shoring up corporate profitability with a stategy that consists of attacking the regulatory framework the enterprise exists within. Profit gained by lower compliance costs and the ability to overcharge the client base & wholesale division for services.
Hiring Trujillo wasn’t done without Howard seeing this as an option with two out clauses – either Trujillo succeeds at reducing the control that the ACCC has over communications & the role that competitors can play in the market (which increases dividend return to the govt & Future Fund) or Trujillo crashes & burns having firmly established the short term limits of open market upon communications control.
The stupidiest thing in all of this is that this government has mainfestly failed to articulate the strategic importance that communications have in any country’s economy but especialy one as geographically vast as Australia. In economic rationalist terms, public phones & bush telephony are sentimental fops of no importance to anyone other than the individual consumer & the National Party. What does matter in the big economic picture is the provision of reliable high speed boardband, 3G plus & a research environment that is constantly developing the new frontier of the next big techo expansion.
Which doesn’t seem to be within the realm of possibility at a Telstra led by Stormin’ Trujillo & a board with as much technical nonse as a cage of mice. Not to mention a Minister who has difficulty finding the office urn.
The big mistake was not splitting Telstra into an infrastructure business and a carrier business. The infrastructure could have remained in public hands and the carriers pay for using it, this money dedicated to upgrading rural communications infrastructure. The carrier business could have been sold off to compete fairly with the other carriers.
Too late for that now though.
tigtog – there’s ppl who say it’s still not too late for the ALP to put this up as their election policy – I don’t see how it could be swung but apparently it is still possible. Poor old Alan Budde has been crying in the wilderness about this for an aeon now.
Lindsay Tanner’s been pushing it too.
It’s a good idea.
Tigtog:
Yes. That’s what should have happened with airports and a lot of other things too. But what else can you expect from a bunch of fake economists, policy stuffer-uppers and other assorted cult-driven ratbags and shonkies?
No. It’s not too late …. but untangling the mess the dills have made will cost us a lot of time, effort, money and grief.