Market Leaps On Telstra Talk

Sydney Morning Herald

Friday March 31, 2006

Colin Kruger

A WEEK'S tension over Telstra's regulatory concerns ignited a share price spike yesterday as speculation swept the market that the Government would bow to Telstra's demands on the price at which rivals can access its copper network, known as unconditioned local loop (ULL).

But the spike may be short-lived: government officials denied the speculation last night.

The rumours sent the stock jumping more than 3 per cent from a record low of $3.63 to a $3.74 close yesterday, with 86 million shares traded.

This was the highest volume of trading in the stock since November last year.

"[Today's] move is indicative of how markedly the share price can move on any piece of positive news," said Goldman Sachs JBWere in a note to clients yesterday.

But a spokeswoman for the Communications Minister, Helen Coonan, denied there would be any announcement today.

"The minister has not even received the final report from the ACCC," Jane McMillan said.

The Australian Competition and Consumer Commission is expected to hand a report to Senator Coonan today which could determine whether the Government will intervene in the ULL dispute, but it could be weeks before a decision is made.

Telstra has meanwhile stepped up its lobbying on the regulatory front: chief financial officer John Stanhope was door-knocking in Canberra yesterday.

Mr Stanhope triggered Telstra's latest share price weakness earlier this month when he warned it may not be able to continue its 28c per share dividend if it could not achieve a favourable regulatory outcome. This contributed to the market's skittishness over the regulatory brawl this week.

Mr Stanhope told Bloomberg yesterday that the regulatory uncertainty was making it harder for the Government to sell its remaining stake in Telstra, but added that it was up to the Government to set the regulatory framework.

Telstra has drawn a line in the sand at an averaged ULL price of $30. The telecom has said that anything less than this and it would not make financial sense for it to commence the fibre-optic upgrade of its copper network, known as fibre-to-the-node.

Brokers are expecting that Telstra will not get its way, which could lead to continued uncertainty as Telstra pursues its case through the courts.

"We would anticipate that any recommendation less than $30 will meet vociferous legal action by Telstra ... ," Citigroup analyst Tim Smeallie said.

Not all the news was bad. Telstra naysayer Morgan Stanley came out with an upgrade yesterday, albeit from an underweight recommendation to neutral, saying the stock may have found a bottom after its recent plunge to record lows.

The broker said many of the risks were "now priced in".

Citigroup still has a sell on the stock with a price target of $3.75, and Goldman Sachs JBWere recommended investors use occasions like yesterday's price spike as a selling opportunity.

Malcolm Maiden - Page 22