Archive for February, 2005

The Telstra challenge: Fixing the anomalies before T3

This article appeared as an opinion piece in the Australian Financial Review on 18 February 2005

The rise in the Telstra share price close to $5.25 should have the Federal Treasurer excited. The T3 sale should inject at least $30b into federal revenues, possibly $35b if Telstra sells Sensis first.

Yet once Telstra is fully sold, the government – losing annual dividends exceeding $2b – will have to find other funding sources to rectify the regional inequities in telecommunications services. Not just in the bush, but also at the fringes of Sydney and Melbourne. And no once-off investment will fix this.

Telstra is a moneymaking machine, returning 80% of its profits in dividends to its shareholders. It has achieved this by underspending on telecommunications infrastructure, especially on broadband access. A fully privatised Telstra will even more aggressively maximise its short-term profit at the expense of other goals. That expectation is already lifting the Telstra share price.

The full sale of Telstra is probably unstoppable, but it is in the national interest to improve the regulatory environment before the T3 sale. After T3, Telstra will be able to use its huge cash flow to acquire a TV network and – if cross-media ownership rules are relaxed – a newspaper chain as well. That will enable Telstra to integrate its advertising streams and content, and bundle its products. In the process, it will become Australia’s dominant cross-media player. Telstra will then have more political influence in Australia than Packer or Murdoch.

So what are the structural anomalies that need to be fixed prior to T3?
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