Telstra roadshow, a gravy train off the rails
Melbourne Age April 28 2005
The final Telstra sell-off is shaping as another over-hyped fiasco, writes Kenneth Davidson.
Last week, Minister for Finance Nick Minchin travelled to the United States for meetings with leading financial institutions to gauge international interest in the sale of the Government's remaining Telstra shares.
Why? I would guess the main question addressed to Minchin by his roadshow audience would be why the share price has fallen from a peak of $8.50 in January 2000 to $4.84 last week and how much further the price is likely to fall when the market is flooded with the remaining 6.4 million shares held by the Government.
Unless the Government is prepared to offer a massive discount on the $5.25 valuation it has placed on the remaining Government-owned Telstra shares, and ramp the market in favour of foreign institutional "stags" to provide them with a quick speculative profit - as happened in the sale of the first tranche in 1997 - Minchin could have saved the taxpayer his air fare and expenses.
The sale process of the first third of Telstra cost taxpayers about $275 million in commissions and fees and advisory costs, including $1.56 million for the "scoping study".
The kleptocracy is well on the way to generating another bonanza for those involved in the sale process. Minchin has already announced the scoping (or feasibility) study for the final sale will cost "around $2.5 million". This is about three months' work by seven advisers, according to the Minchin press statement.
Some idea of the opulence of the roadshow associated with Telstra 1 is that it cost the taxpayer $139,000 a day including $532,000 for scheduled flights, $466,000 for private aircraft charter, $254,000 for venues and $136,000 for private chauffeur and limousine services.
Subsequently, $151,000 was returned to the Commonwealth as a result of audit activity that found overpayments, which included $105,000 in scheduled air travel refunds received by the junketeers, but not passed back to the Commonwealth, $20,000 on private and excessive use of limousines and $12,600 on unsubstantiated claims, personal expenditure and sightseeing.
The conclusion of the Office of Asset Sales auditors was "there is no evidence to support any contention that there was dishonesty or intent to defraud the Commonwealth".
Centrelink clients who have breached regulations have never been treated with such gentility.
What did taxpayers get for the expenditure by these Farouks of finance?
There has never been a parliamentary inquiry into the two previous sales of Telstra.
Why not? There is plenty of evidence that the Telstra 1 float was botched. An artificial scarcity of Telstra scrip for domestic investors was created by underpricing the issue and allocating 18 per cent of it to foreign institutions that were able to sell out their allocations on the first day for a speculative capital gain of $420 million at the expense of Australian taxpayers. This was added to the foreign debt.
The only benefit of the foreign allocation was that it provided some sort of mouldy fig leaf to justify the small fortune spent on the participants in the roadshow.
Australia would have been better off if there had been no allocation of scrip to foreigners in the first place.
Similarly now. Given the outlook for Telstra, foreign institutions will buy into Telstra 3 only if the issue is underpriced, allowing them to "stag" their allocation as they did in 1997. So why waste millions to entertain them?
But all these costs are trivial by comparison with the fact that the process of privatisation set in train by the Government means the management of the privatised Telstra shifted its focus from interest in balanced, long-term, development of the network to keeping dividends and the share price up at all costs.
Only the ignorant see Telstra as a good long-term investment at its present price because of the conflicting forces that Telstra now faces: the Australian Competition and Consumer Commission's obsession with competition means that Telstra will continue to lose market share to competitors who are in the business of arbitrage, based on their ability to use Telstra's network at cost; the need to maintain the Telstra dividend and share price; and the cash flow to invest in the network in accordance with national needs.
Something has to give: the ACCC can back off, allowing Telstra to charge a reasonable fee for access to its network, which makes it profitable for Telstra to invest in the network but which will drive its competitors out of business; abandon efforts to maintain the share price and dividends; or allow the network to rot.
Take your pick.
The most likely solution under full privatisation is the present policy to run down the network. In a futile effort to hold up the share price, staff numbers have been cut back from 50,000 in 2001 to 40,000 now.
Only a dimwit can fail to see the national implications of this. Yet, based on present Government policy, this is the future unless there is at least one responsible coalition senator - such as senator-elect Barnaby Joyce - prepared to block the full sell-off.
Kenneth Davidson is an Age writer.