Even T3 Can't Save Telstra

Sun Herald

Sunday June 25, 2006

DAVID POTTS

THERE is no hope for Telstra shares until T3, brokers are agreed. I suspect there is no hope after T3, either.

The great rallying point was that Telstra would finally get the Government off its back and be free to do what it wants. You know, the usual. Sack more people, borrow more and increase the pay of its executives.

A fully privatised Telstra would be twice as important in the S&P ASX200, so a lot of managed funds would have to double their holdings in order to track the index. Certainly enough to put a rocket under its price.

Maybe there would be a corporate play, considering the country mile between the Government as the controlling shareholder and the next biggest, a nominee company probably representing various fund managers, with about 8 per cent.

But at best there will only be a smallish T3 offer, and a swag of Telstra will end up in Peter Costello's rush of blood to the head, the Future Fund.

You would think a Government holding under 50 per cent would be enough to liberate Telstra. Not so, and let's leave the Australian Competition and Consumer Commission (ACCC) out of this.

The monkey-off-the-back threshold is really 15 per cent. Since under every realistic scenario for T3, the Future Fund will finish up with at least 25 per cent, Telstra will still be technically beholden to the communications minister.

Government bureaucrats are saying the Future Fund is still "theirs" and that all we are looking at is a bit of accounting hocus-pocus.

Besides, even in the Future Fund, the Government has the power to decide when, or if, it sells its Telstra shares. That or they will be held in escrow. Either way they shouldn't be counted in the index because they can't be traded.

Since they are only going there because nobody else wants to buy them, there will be an overhang of a huge swag of Telstra shares.

I've been a fan of Telstra because of its dividend, but the payout is now unsustainably bigger than its profit and it still has to fork out for the new $4 billion fibre network just to stay in the game, whether or not the ACCC plays regulatory ball.

I must confess, I picked Telstra for the share battle (page 11) before this epiphany. I try not to change my mind between pages.

Anyway, it appears the only realistic time before the next election for whatever little of T3 there will be to sell is in October, of all months.

October? In a jittery market?

Oh dear.