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The Government is theoretically the controlling shareholder but doesn't control the company. And would you really want it to?Many if not most people would immediately say yes to that question. Yes, we'd like the Government to tell Telstra to 'hot-wire the bush'. To not close public phones, and so on.
But think about it for a moment. You start going down a dangerous path when you shift that sort of decision-making from professional management and a responsible board of directors to politicians acting on a whim, or in response to pressure groups.
It would make Telstra literally unmanageable. And no competent person would be prepared to act as a director in those circumstances.
Thus concluding that Telstra has been unmanagable and incompetently operated for its entire history. Interesting theory, a bit short on plausibility.
You start going down a dangerous path when you start jailing people without trial and start finding them guilty of thought-crimes based on flimsy circumstantial evidence, that's another story and another dangerous path for another day.
The much-announced "problem" that the government is both a regulator and a shareholder should in theory drive the share price up as the government gets tempted to make regulations in Telstra's favour in order to boost its income. However, government does not work the same way as a private investor. The government is answerable to the voters so any self-boosting regulation will be obvious and will cause negative repercussions. All of John Howard's election wins have been close, he can't afford to disenfranchise the business community by doing something blatently self-serving at the expense of competition in the market. Two conflicting forces are at work here and the outcome is a balance between those two -- just like any decision-making process.
This "problem" has been with us from the moment any competition existed in the telecommunications market. I can remember the early days of Internet in Australia with thousands of competing ISPs all running racks full of modems connecting to dialup lines. Telstra was in a position of providing the dialup lines, and the main Internet trunk for these ISPs and Telstra also provided its own retail Internet. Sure, lots of people complained about the situation and some dodgy pricing went on but the sky didn't fall and the ISP industry just kept growing. Many of those little ISPs are gone now, not because Telstra squashed them but because they got bought out by a whole new round of players that have become the mid-sized ISPs of today.
We managed to cope with this "problem" for a long while -- the industry is still growing today, new technology is still filtering into the market, people are getting the services that they need. Let's not forget that even the people in the bush are actually getting services and despite the media reporting, there are profits to be made in providing rural communications. The Internet is hugely popular in the bush despite being expensive relative to city ADSL.
The rest of Telstra should be sold and the sooner the better. Not only is it too dangerous for the Government to try to pick a better time; but the best chance of making Telstra work better is to take the handcuffs off board and management.
I hear this a lot, but the only concrete example anyone has come up with is the wholesale pricing of access to copper lines and phone exchanges which is going to be regulated by the ACCC long after the remainder of Telstra gets sold. In many ways it will take the handcuffs off the government regulators and allow them to be even more harsh.
It's important to understand that the Future Fund is just another arm of government. It's been set up by Treasurer Peter Costello to absorb budget surpluses and other sums generated by the Government; to build up a $100 billion asset base to fund public sector superannuation obligations.
So can the government own shares in any company? It would seem that the same argument makes it impossible for a government to undertake any form of investment or participation in the private market. In which case, how exactly can it fund public sector superannuation obligations or should we take one step further and make it illegal for the government to be involved in superannuation too? No doubt some market idealists would want to go the whole hog.
Let's just suppose that the entire public sector super fund is privatized and can buy shares in anything it likes. Let us further suppose that by some amazingly poor management this fund had invested heavily in Telstra shares. Would the original "problem" still exist in the form of a conflict of interest? My feeling is that the answer is yes. Of course the regulators in the civil service are going to be influenced by the knowledge that their super is affected by Telstra performance.
This sort of conflict of interest is all over any government. We all know that large companies also make large campaign contributions and that civil servants are influenced by a wide range of things including ideology, friends, relations and even investments. Lots of conflicts get declared, a great many do not. The only answer is to make as many government decisions as transparent as possible and to have a politically active population with the opportunity to put pressure on bad decisions. At the moment, we seem to be moving towards greater secrecy in government with "commercial in confidence" being a legitimate reason to withold contractual details from scrutiny. Selling off a few public utilities won't fix this very real problem.
Q Should Telstra be split into two parts?[...] The biggest appeal is that it would instantly eliminate almost all the regulatory issues. Telstra Network would deal with Telstra Business on exactly the same basis as it dealt with Optus. It would no longer be one bit of Telstra dealing with Optus against whom the guys across the hall are competing.
While this makes a nice theory too, in practice it is a pipe dream to design the sort of horizontal stratification that allows such a market to work smoothly. The guys from "Telstra Network" are going to be the buddies of the guys from "Telstra Business" who have known each other for years. All of their infrastructure is going to be neatly compatible (because it was designed as a single network from the start). The only thing that can be neatly separated at the horizontal level is retail sales and billing which is a virtual business anyhow (selling "plans", tracking debtors, printing bills, etc). The retail billing side of things does not actually contribute to national infrasrtucture in any way, it is not much more than a marketing operation.
Horizontal stratification tends to drift toward vertical segmentation as time goes on, we see that happening with the gas infrastructure (Alinta, AGL, Agility, takeovers, asset exchanges, etc) and it requires external force (e.g. the ACCC) to keep the horizontal divisions operational.
The USA tried to setup their electricity supply this way and the result was that with constant electricity trading, the traders put unexpected loads on the distribution network resulting in overloads and rolling blackouts across the country. Economics is built from linear equations and neat contractual divisions... the real world in nonlinear, messy and interrelated (often in unexpected ways). Engineers learn this early in their career because they have to if they want to make anything work. Economists never run out of excuses because they never actually get called to account for their analysis.
Q Should the network be taken back into full government ownership?O.M.G. never touch the sacred private asset. The whole thing was paid for once by the Australian people, then paid for again by the mugs who bought price-pumped T2 shares. Let's completely forget that the first and foremost idea of having a national communications infrastructure is to make the nation function and all kneel before the holy cow private asset. Sheesh, if private assets are so important, what about personal privacy and civil liberties for that matter? You would think that an individualist philosophy would at least be self-consistent with these guys but strangely it is only assets that matters.No. It would be outrageous for the Government to in effect re-nationalise the network. To thereby confiscate privately owned assets.
Do you really want bureaucrats and politicians deciding on future network investments?
Do you really want share market fluctuations and constant takeover bids to be making the decision instead?
...leave it to the private sector. The skills and decision-making. And taking the multi-billion dollar investment risks.
What skills? I seem to remember a Victorian financial institution that made a few mistakes and then all those investors were moaning how they had done their money and needed a government bail-out plan. All those poor investors, it's not their fault, they need their money back. For some reason the words "One Tel" and "Feng Shui" keep coming to mind. The free market depends on the brute force of enough businesses starting and crashing for some of them to do the right thing and survive. It isn't skill, it is the law of averages (you can't lose them all).
What investment? Australia has the worst track record of supporting innovative tecnologies as we watch invention after invention go overseas... not because we don't have good enough IP laws but because it is damn near impossible to get the ultra-conservative business community to back anything that hasn't been done for the last 10 years in America and Europe. Our super funds are busy investing in real estate and in overseas infrastructure.
What risks? How many CEOs have we seen walk away with a golden handshake after pathetic performance and virtually crashing the ships they are captain of? These guys are taking risks sure enough, but only with someone else's money, not their own.
Actually selling the lot now would be much cleaner; and allow Telstra -- force Telstra -- to get on with it as a fully privatised company.
It would be a fire-sale. The share price would go into freefall. I wish that John Howard would do this because it would at least be something honest... and we have seen little enough of that. It would show that the real price of a Telstra share is about $1.50 (maybe less). If they dumped the lot on the market at once it would drop probably below $0.50 but share markets are prone to overreaction so it would bounce around a bit before settling down. If they had a steady program of selling a packet of shares each month for a year, that would avoid the sudden shock and it wouldn't crash quite so bad.
Q So, the money question: is T3 a good investment?Yes. But.
Translation: I'm telling people to buy, but don't blame me when you lose your money just like you did last time.
It is is critically important to understand exactly what the Government is doing to entice you to invest. But also the opportunity it is giving you.
The government is offering you an interest-free 18 month loan to buy something that is certainly going to fall in value. If the dividends are pumped then it will hold its value for the short term and fall in value more sharply in the long term. The intrinsic worth of the company will not change just because the dividends are pumped. The only genuine injection of value is the interest on the 18 month loan which is approx 5% pa on maybe 40% of the share price. Not a huge injection. Probably not the smartest time to be setting yourself up for a substantial future bill to come in the door either as both interest rates and the cost of living are on the rise.
Now there is of course little joy in getting 56 in dividends if the share price were to slide another, say, 50. The best insurance against that is how far it has already fallen. The critical point is that you get a relatively cheap option to assess over 18 months -- and out to two years, if you are prepared to pay the extra $1.50 -- what's happening.
Complete bull! The moment you buy, you have taken up the loan and you are committed. Don't think you are just "assessing" the option, your money is spent. Sure you can sell the share, but that's what everyone else will be doing as the price slides.
It means crucially though, you absolutely can't put your T3 shares in the bottom draw and forget about them. As you might have done with T2.
Translation: people who are first to sell when the refuse hits the rotor might have a chance at salvaging the situation -- and you will need to sell; there is no long-term future in owning Telstra shares.
These shares are not going to fall as far as the T2 ones did. Apart from anything, they mathematically can't drop another $4.
Translation: I'm laughing at how stupid you readers really are. Of course it is the percentage that matters... the T2 offering fell by 50% so the investors blew away half their investment. This one could easily drop by another 50% or maybe more so investors could still lose half their savings just like they did before.
Why everyone thinks that we need bigger, badder broadband. Everyone except the telco customers who just want reliability, simplicity and good value. Yet another news hack thinks of themselves as tech-clueful. I wish they would learn to stare at their shiny brown shoes in embarrassment.
Despite my broadband connection, there are often times when I wait for a large file to download. One explanation for this is that we have some of the slowest broadband speeds in the world.In nerd language, the average Aussie on broadband hooks along at a rate of 1.5 megabits per second (mbps) -- below the international standard of 2 mbps.
How big are your files? I use iBurst at the 1024k/256k rate (i.e. 1 megabit per second peak download speed) and I find it quite fast enough. I would consider a 10 megabyte file to be the biggest thing I typically download and that comes down in about a minute and a half which is fine by me. Your average web page comes up in a few seconds.
This doesn't seem too bad until you realise that Europe reaches speeds of 50 mbps, and in Singapore they're quickly closing in on 100 mbps.
So what? Very few servers out there can deliver data anywhere near 50 megabits per second. Most typical LAN setups will not deliver data as fast as that. For typical home or small office use you would have a massively over-provisioned link that spends 99.5% of its time idle. This is the mentality of the person who buys a huge SUV so they can drive down flat city streets to the corner shop and back, then parks it for the neighbours to see on a huge circular driveway -- impressive but completely useless.
The real issue, however, is that without faster broadband innovative Australian businesses can't compete, and educators and health professionals cannot access cutting edge technology that's built for bigger bandwidth.
Give me a break! Educators and health professionals still depend primarily on books (made out of dead trees). They are still coming to grips with CDROM technology. The students are discovering Wikipedia and Google faster than the teachers are (and if you want proof, check out how many kids are cutting and pasting from web pages into their assignments and getting good marks for it because the teachers don't know enough tricks to check).
Telstra had planned to fix this problem by investing $4 billion in a high-speed internet network that was to deliver speeds of 25 mbps, but abandoned these plans because it couldn't get assurances from the Government and regulators.But the political punch-up between the politicians and Telstra's management may be coming to an end with the Federal Government announcing plans to sell off their remaining stake in Telstra.
Oh dear, if only the government would give Telstra a chance to innovate...
Bah! I still remember how Telstra tried to throw a spanner into the first round of ADSL because they still wanted to sell the antiquated and overpriced ISDN technology. Then their competitors managed to get onto ADSL2 before Telstra had even figured out what it was. They could have invested anytime and no one was stopping them. They chose not to do so.
So, to the $8 billion question -- would you buy a used telecommunications company (again) from John Howard? The PM is obviously a better politician than stock picker, because last time he flogged off a piece of Telstra he thought it represented excellent value -- at $7.40.
Incorrect. John Howard said that the T2 share price represented excellent value. What he thinks and what he says are completely different.
The best solution for all would have been to follow the footsteps of other privatised industries where the core infrastructure is retained in government hands, with service providers competing on an even keel.
Interesting, the implication here is that while private enterprise is good at supplying retail level hand-holding. Real infrastructure investments are best left in government hands. Better not let the free market idealists hear such talk -- could be a trip to reeducation camp on the cards. The observable reality in the telco industry is that companies such as Optus are steadily building their own infrastructure (using their own investment) and managing this infrastructure fully privately. There are private data centres popping up all around the place and Internet hosting is getting cheaper and cheaper (especially as the USA offers hosting at a fraction of Australian prices and drives our market down).
From what I can see, although the Internet foundations were laid be government, private industry has risen to the challenge very smoothly and is now happily buying and selling infrastructure. It is one of the cases where a competitive market has benefited the country (even despite the gradually increasing number of regulations). The industry has been able to make progress even with the dreaded "conflict of interest" problem that has hung around for decades -- the problem that is a molehill dressed as a mountain.
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