More on Telstra

The Australian stock exchange watchdog (ASIC) has launched an investigation as to why Telstra executives did not make a public statement in line with what the government were told and they may well have a case to answer. Surely though the government has a duty of care to Australians to fully disclose any and all information about a company they are looking to sell to its constituents. The Howard government are ducking that question entirely or lying saying it would be have illegal for them to do so, instead saying this highlights the conflict of interest in being the largest shareholder in a company it also has to regulate in the age of open competition. Yet the government does not have the same problem with Australia Post, they are the largest shareholder in that company and manage to regulate them in a highly competitive.

So what is the difference?

In my rarely humble opinion poor quality of management and governance led to Telstra stock being significantly over priced at initial sale due to both the ignorance of the neglect of the core infrastructure and the impact of growing competition. That led to a vicious circle of continued under investment in core infrastructure in favour of a period of risky overseas investments in hope of quick fixes to prop up the share price. The reasons to prop up the share price are juxtapose; many ‘Mum and Dad’ investors, retirement funds and institutional investors were seeing Telstra lose significant value and these are the same the people the government hopes will purchase its remaining 51%.

Among other things the document stated what any person with basic corporate awareness knew and what the Telco analyst had been saying for years. Delivering high dividends by dipping into cash reserves was unsustainable and a significant percentage of the core infrastructure was old and in disrepair due to lack of investment in the distant and recent past. Being exactly the opposite of wanted the government wanted to hear this has been the latest in an ongoing feud between the government and Telstra since Sol landed on our shores with a long overdue dose of bitter reality that could not have come at a worse time for the major shareholder looking to sell its interest to regular Australians. Another blow to the government worth mentioning is that of a new senior Telstra executive brought in by Sol was recently quoted in the press saying he would not recommend the stock to his mother. Prime Minister Howard reacted by stating is the duty of all company executives to talk up the prospects of the company they represent apparently ignoring the recent spate of jailed executives both here and in the U.S. that are looking at lengthy sentences for doing exactly what the Prime Minister suggest. In fact would it not be illegal for this executive to state that he had just recommended the stock to his mother when he had not. I would not deny that these are hardly appropriate comments from a senior executive of one of Australia’s largest companies, even more so as he could be perceived by the public as a hired gun from overseas with little understanding of the incredibly complex national quandary that is Telstra. We must consider these comments could have been born of frustration from the vast divide between the perceived (expected) condition of Telstra for public sale and the reality as seen by the new management team. Again the Australian government may pretend, or in fact be surprised by these comments but there are many that are not; I certainly would not recommend them to my mother.