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September 2, 2005 12:47 pm

Telstra executive slams government share sale

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Controversy over the Australian government’s planned A$30bn-plus sale of its remaining 51.8 per cent stake in Telstra, the country’s main telecommunications company, escalated into a public brawl on Friday after a senior Telstra executive said the outlook was so grim he would not recommend its shares to his 86-year-old mother.

John Howard, prime minister, hit back at the remarks when they were published, calling them “careless and foolish”. Peter Costello, the treasurer, warned Telstra’s management to stick to running a telecommunications company and leave policy to government.

It also emerged that Sol Trujillo, Telstra’s combative new American chief executive, had gained board support to write to the company’s 1.6m shareholders and warn them that new regulations proposed by the government would hurt their investment.

The dispute comes days before the government’s planned introduction to parliament of legislation to enable the sale of its Telstra stake. It is expected to be one of the world’s largest public offerings next year.

The row partly overshadowed Friday’s news that Telstra had abandoned a $5bn share buyback planned ahead of the share sale.

Telstra’s management said the government’s intention to impose new regulations would jeopardise the buyback, which was intended to boost the company’s share price partly by reducing the number of shares on offer to investors.

At issue is the question of how much the government should regulate a fully privatised Telstra. Mindful of a small but powerful rural lobby, the government has promised to impose strict service obligations and tighten rules requiring the company to provide competitors access to telephone and data networks. It also wants to split the company’s operations between network and retail divisions to promote competition.

Mr Trujillo and his newly appointed top management team have become increasingly vocal in recent weeks about the damage such regulation could inflict on Telstra’s ability to generate profits for shareholders.

And, in the latest sign of internal dissent amid the concerted management shake-up, Telstra staff were informed on Friday that another senior executive had resigned. The departure of Michael Herskope, who led Telstra’s corporate relations division, follows last month’s resignation of Ted Pretty, head of technology.

Shortly after arriving at Telstra last month, Phil Burgess, the company’s managing director for public policy and communications, was quoted saying that if Australia's approach to telecommunications had applied elsewhere around the world, technology would not have progressed beyond smoke signals and the telegraph.

He qualified the comment about not recommending Telstra shares to his mother, made at an informal gathering with journalists, by warning: "You don't have a 20-year growth cycle for an 86-year-old person.“

In an internal staff memo, Mr Burgess said: "In the time ahead, there will be many interpretations placed on what we are trying to achieve as we drive a continuing flow of information out to Telstra stakeholders... information that shows how our operations and perfomance are affected by intrusive and unbalanced regulations." 

Telstra shareholders and analysts appeared stunned by the ferocity of the row, as the company's share price slid 2 per cent in Sydney to A$4.58 - well below the debut price of A$5.25 that the government hopes to achieve in its sale.

But many agreed with Mr Costello who, after warning Telstra’s management to stay out of government policy, admitted that Mr Trujillo and his team were in a “very difficult conflict situation on occasions” running a part private and part government-owned telecommunications company.

“That is really the reason the shareholding has to be worked out… because you are going to have competing demands placed on this company and its directors which will make life very difficult,” said Mr Costello.




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