EDITORIAL WEDNESDAY 16.09.09.
The dramatic announcement by Senator Stephen Conroy that Telstra will be required to separate its wholesale and retail activities has met with a mixed reaction. While competitors and consumer groups have welcomed the reform, claiming that it will promote better competition and better service for customers, shareholders might be entitled to feel somewhat upset. The immediate response in the share market was for a drop in the price of Telstra shares which wiped out almost $2 billion of value and left the shares trading at less than the price at which they were originally sold more than a decade ago.
The plan itself seems to be a circuit breaker intended to force Telstra to confront the 21st century reality of both new technology and new government policy. It is in the best interests of consumers, and the national interest, to construct a national broadband network which provides a platform for a range of service providers to compete on an equal footing, delivering the cost benefits of genuine competition. It may even be in the best interests of Telstra and its shareholders to work with the government to fold its network structure into the new National Broadband Network if it can negotiate a reasonable deal. But that is debatable, and the immediate reaction in the market would appear to indicate that investors are not looking at the plan as an opportunity, but as an obstacle.
The impact on shareholders is important for several reasons. Firstly, there are so many of them who are so called Mum and Dad investors who bought shares in good faith from a government who implied that they would be a great investment. Secondly, it’s not just direct shareholders. It’s also the millions of Australians who have some of their superannuation money invested in Telstra shares. Thirdly, this episode illustrates the inherent problem, the intrinsic conflict of interest, involved in a government selling what should be public infrastructure into private ownership. In doing so the government has an obligation to achieve the best price possible while at the same time it has an obligation not to defraud its own constituents by selling them a pup.
While Telstra hasn’t exactly been a pup for people who sold out at the right price, or even those who hung on and enjoyed very healthy dividends over the years, the point is that the process has delivered a result which has not been entirely in the public interest, nor entirely in the interest of individuals who bought the shares. But now that the government is no longer a shareholder, its only obligation is to the national interest. And since this is a new government without the political baggage of the previous government, it can rightly claim that it was not this government who caused the problem in the first place when Telstra was sold in one piece creating an inherent market imbalance which must be addressed one way or another.
Despite the concern that shareholders can justifiably feel shortchanged, the plan to force the structural separation of Telstra does provide both a remedy to the mistakes of the past, and a platform for the future. And even though Telstra may face some uncertainty, the fact is that the company was already moving away from its reliance on the old technology copper wire network, and expanding its mobile phone and internet business. Although Stephen Conroy has been accused of putting a gun to Telstra’s head, all he has really done is to accelerate the inevitable, and the sooner Telstra comes to terms with that, the better off their shareholders will be.