The fiasco over Treasurer Peter Costello’s comments on Telstra highlight again the unsatisfactory nature of current telecommunications set-up in Australia. Mr Costello said on Budget night that he had asked the boards of Telstra and the Reserve Bank what the dividends to the Government would likely be. “”When the message came back from Telstra and the Reserve Bank it was bad news, very bad news,” he said. It is one thing to deal with the Reserve bank this way. It is fully owned and controlled by the Government. But it was a very imprudent thing to say about Telstra. The Government only owns 51 per cent of Telstra. The statement indicated that Telstra was doing badly. It resulted in Telstra making a statement to the market that its was on track for a double-digit profit result for the full year as predicted earlier and that the company was doing well. Nonetheless the share price fell on Wednesday.
Mr Costello denied he had any knowledge that was not known to the market. That is scarcely credible. He used the words “”when the message came back from Telstra”. That indicates a reply to a query. What other Telstra shareholder get the chance to ask the board for knowledge about dividends? None. The Government was writing down dividends on the basis of exclusive, early knowledge. It is unsatisfactory for the Government to at once be a 51 per cent shareholder in Telstra, to be able to get messages back from its board, and to have to reveal via the public Budget papers an estimate of what it thinks its dividends will be. It is not fair to other shareholders.
Mr Costello’s motives were probably that he wanted to justify why the surplus was not as big as he would like. Surely, Mr Costello was not deliberately engaging in some bizarre charade to prove to Telstra-share-owning voters how unsatisfactory it is to have the Government as a fellow shareholder because government conduct can cause dividends and share prices to fall? That was merely the inadvertent fall-out. Nevertheless, that outcome does reveal the conflict the Government finds its in as a majority shareholder of a company with hundreds of thousands of small investors as its fellow shareholders. The Government might be talking up or talking down Telstra for political purposes. The trouble with that, is that the market listens to what governments, particularly Treasurers, say.
Another unsatisfactory element of the telecommunications set-up came a fortnight ago when the Australian Competition and Consumer Commission ordered that Telstra must not make a profit when it charged access to other carriers for access to the telecommunications infrastructure owned by Telstra. This was because Telstra was a competing carrier itself and to charge profit would be giving itself an unfair advantage. In effect, this means that no profit can go to shareholders, including the government, for the use of this infrastructure. The Government should therefore divide Telstra into one part monopoly infrastructure owner and one part competing carrier. Or it should sell the whole thing and use the money for debt reduction or infrastructure development that sits better as government-owned monopoly.
Some market analysts have suggested that the low estimate of dividend income by Mr Costello might have been part of a strategy to counter the argument put by Labor and the Democrats that the Government should continue to hold half of Telstra because it is a profitable company. If dividends and share prices are down, it indicates that it is not so wise to hang on to it. Maybe so. By the dynamic of part-Government-ownership is of more importance. While Telstra is constrained by majority government ownership its share price will be lower than it could be. Better for the Government to sell and pick up the revenue when it taxes profits, dividends and capital gains.