Rumours Put Telstra Through The Mill

The Age

Friday March 31, 2006

COLIN KRUGER, SYDNEY

TENSIONS over Telstra's regulatory concerns ignited a share price spike as speculation swept the market the Government would bow to Telstra's demands on the price at which rivals can access its copper network.

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. But the spike may be short lived after Government officials denied the speculation. This was the highest volume of trading in the stock since November last year.

A spokeswoman for 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 that could determine whether the Government will intervene in the dispute over the copper network, the unconditioned local loop (ULL), but it could be weeks before a decision is made.

Telstra chief financial officer John Stanhope stepped up lobbying efforts in Canberra yesterday. Mr Stanhope triggered the recent share price weakness earlier this month when he warned Telstra might not be able to continue its 28?-per-share dividend if it could not achieve a favourable regulatory outcome.

Mr Stanhope said regulatory uncertainty was making it harder for the Government to sell its remaining stake in Telstra, but said 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 - anything less would not make financial sense for it to commence the fibre-optic upgrade of its network, known as fibre-to-the-node (FTTN).

Brokers expect 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 below $30 will meet vociferous legal action by Telstra," said Citigroup analyst Tim Smeallie.

Not all of the news was bad, though. Broker Morgan Stanley released an upgrade yesterday, albeit from an "underweight" to "neutral" recommendation, saying the stock may have found a bottom after its recent plunge to record lows. The broker risks were "now priced in".

Citigroup has a "sell" on the stock, with a price target of $3.75, and Goldman Sachs JBWere recommended that investors use price spikes such as yesterday's as a selling opportunity.