Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Hansard source

I hear shouts from the other side that it is a risky business. It is if you suck them in and mislead them. These people chose to believe the Prime Minister. They actually made the mistake of believing the Prime Minister when he told them it was a great buy. He did not tell them it was a risky buy; he told them it was a great buy.

However, the Prime Minister’s incompetent spruiking of T2 was only the start of the Howard government’s attack on Telstra shareholders. A more recent example of Telstra shareholders being hurt by this government’s bungling in telecommunications can be seen in the government’s gag on Telstra’s management. The government’s efforts to gag Telstra management show a government that are completely out of touch with Telstra’s shareholders. Telstra’s long-suffering shareholders rightfully want to hear from the company’s management team about the prospects for the company. However, the Howard government do not understand this. I think that they do, in truth. I actually think that John Howard’s government understand exactly what they are doing.

The Howard government feels threatened by a Telstra management that is bold enough to disagree with the government and wants to shut down the debate. The Howard government is too scared to have the policy debate about telecommunications regulation. It was only three months after the new CEO of Telstra was appointed, just over 12 months ago—I know it certainly seems longer to Senator Ronaldson—that Prime Minister Howard walked around this country and said, ‘Services are up to scratch.’ Do you remember that? We all remember that. Mr Trujillo, at a press conference just three months later, stood up and said: ‘I’ve got to tell the truth’—and these were his words—‘Telstra has underinvested in its own network. It hasn’t delivered the cutting-edge technologies that the company needs to guarantee its future profitability.’

Mr Trujillo blew the whistle on the government. That is why they hate him so much: because he has blown away the conspiracy of silence between the previous Telstra board and management, the government and the investment banking community about the true state of Telstra and where the company is at in the marketplace today. That is why, instead of having a debate about government policy, this government are trying to make Telstra executives the issue. They want to complain about Mr Trujillo, Dr Burgess and the chairman, Mr McGauchie. They want to make it look like it is all their fault. Instead of engaging in a policy debate, the Howard government are engaging in a personal vendetta against the Telstra management. The government are playing the man, not the ball, because they cannot afford to take the field of policy debate.

Once again, Telstra’s existing and prospective shareholders are set to pay the price for yet another incompetent intervention in telecommunications from the Howard government. Small shareholders go onto the scrap heap to protect the government with a glass jaw. It is completely unacceptable for the Howard government to gag the management of a public company. This is a company in which 1.6 million Australians own shares—encouraged by the Prime Minister. These Australians deserve to be kept fully aware of the company’s prospects. The market needs to be kept completely informed of Telstra’s situation. The editorial of the Australian Financial Review was 100 per cent right when it stated:

If a company of Telstra’s stature has ever made such an abject submission to the federal government in the modern era, The Australian Financial Review missed it.

The AFR hit the nail on the head when it said that the government’s gagging of Telstra management raises serious concerns about the extent of full and frank disclosure by Telstra of its true assessment of the impact of any new regulatory imposts. The AFR is right to say that regulation is important to the Telstra sale and that Telstra shareholders need to be properly informed of its impact. But don’t worry about that: this government is not going to let you hear that. It has put the fix in to make sure that Australians out there who want to understand the prospects of this company do not get told the truth.

Perpetual Investments—one of the biggest recommenders and brokers in the country—has told its clients: ‘A major factor impact in Telstra is the heavily regulated nature of the telecommunications industry in Australia. A highly regulated industry can create significant uncertainty for the companies within that industry and hence investors’. So the person whose name we are not allowed to speak, if you are a cabinet minister—Phil Burgess—has said that the idea that regulation and business are somehow two different things is a view that only a person from another planet could have.

It is critical that potential investors in T3 completely understand the impact that regulation has on Telstra’s prospects. For this to occur, Telstra management need to be free to speak their minds. Given the Howard government’s record of deception of Telstra, prospective investors in T3 need to hear both sides of the debate about the impact of regulation on Telstra’s prospects. Investors who were misled by Mr Howard’s irresponsible spruiking on T2 are right to take the government’s claims about the impact of regulation on T3 with a grain of salt. Telstra shareholders are right to want to hear the views of Telstra management on telecommunications over those of the Howard government. However, the Howard government is not interested in the interests of Telstra’s other shareholders; it is only interested in its own political interests.

Gagging the board alone was not enough for the Howard government. Gagging the management was not enough for the Howard government. In order to be able to get the T3 float away, the government needed to be able to offer investors a tricked-up dividend yield, and that meant locking Telstra into its forecast level of dividends. Never mind that Telstra will be forced to borrow to pay these artificially high dividends. Never mind that Moody’s, Standard and Poors and Citibank have all described Telstra’s forecast dividend levels as unsustainable. Can you imagine, if a Labor state government got a recommendation like that—that the government’s position was unsustainable—from Standard and Poors or Moody’s, what the public outcry would be? There would be a scandal. There would be front-page headlines and, even better, every one of those in the opposition would be screaming it from the rooftops. Never mind that the government is forcing Telstra to siphon money away from the types of capital investments which will improve the company’s prospects in the long term. Such a policy could hurt the company.

The government is not concerned with the long-term interests of Telstra’s shareholders; it is only interested in its own short-term political interests. So in the lead-up to the government’s announcement of its intentions to proceed with T3, news reports began appearing quoting government sources demanding that Telstra maintain dividend payments at its forecast levels. Newspaper articles started appearing suggesting that the government was contemplating sacking the board. The message to the Telstra board was loud and clear: fall into line on dividends or face the sack. Again, Telstra shareholder interests were not in the government’s mind at any stage during this monstering of the Telstra board. The government completely ignored the fact that in the secret briefing document provided to the government by Telstra management in August of last year, the government had been told—and these were Telstra’s words to the government in August last year:

The Telstra board has already recognised that this kind of borrowing to pay dividends is not a sustainable policy or practice ...

The government completely ignored the fact that just last month, during the announcement of Telstra’s annual results, Telstra had stated that the level of future dividends will be subject to regulatory outcomes—that was just four weeks ago. The government completely ignored the fact that since the announcement was made every regulatory decision, including the biggest one from Telstra’s point of view, the ULL pricing, went against Telstra. The government was not interested in the long-term impact that this enforced dividend policy would have on Telstra or its other shareholders. All it was interested in was its own short-term political interest. Again, Telstra shareholders will pay the price.

If gagging the Telstra management and leaning on the board over dividends were not enough, in the last two weeks the Howard government has launched a new front in its campaign against Telstra shareholders. The Howard government’s bungled announcement of the structure of the T3 sale, yet again, shows its willingness to sacrifice Telstra shareholders for its own political interests. When the government snuck out the announcement, at 5.30 on a Friday afternoon, that it would proceed with T3, it failed to provide any information about the details of any existing shareholder entitlements in T3. An observer might have thought that in the 12 months between the passage of the Telstra sale legislation and the government’s announcement of the sale structure a decision might have been able to be made on this issue. However, this important element of the T3 offer was either forgotten or purely incompetently left out of the government’s announcement of its intention to proceed with T3. I know Senator Minchin is chasing a new press secretary, but surely somebody could have managed to put the paperwork together.

That completely inept failure created the real possibility that Telstra’s share price would plummet when the markets reopened on the Monday morning. Come the Monday morning, investors would have been free to dump their existing Telstra holdings, safe in the knowledge that they would be able to buy it back more cheaply in T3. However, with those investors having read the commentary in the weekend papers warning of the risk, the government again acted incompetently to try to avert that result.

To prop up the share price when trading resumed, the government’s T3 sale team told journalists at the Australian Financial Review, the Australian, the Age and the Sydney Morning Herald that existing Telstra shareholders could expect a discount on T3 shares. In the words of the Financial Review, one individual working on the sale told the AFR on 27 August that a discount was ‘in the mix’ for the sale. This ambiguous intervention promoted speculation in the share market and was designed to prop up the Telstra share price when trading resumed. However, once the government was confident the share price of Telstra would not collapse, it began telling the very same journalists, whom it had already briefed, to play down the suggestion of a shareholder discount in T3. That is right: on Monday morning, faced with the collapse of the Telstra share price, the government put a story into the papers that said, ‘Do not sell, because there will be a discount if you hold.’ But, 24 hours or 36 hours later, the same people are on the phone to the same journalists telling them, ‘We did not really mean that, so talk it down.’ As a result, the share market has been in a state of utter confusion on the value of Telstra ever since. In relation to Telstra stock, Mr Ivor Ries, of EL and C Baillieu, notes:

The stock is suffering from chronic uncertainty because the Government has not announced any of the terms of the entitlement, so the stock is trading in an information vacuum ...

The Financial Review quoted another stockbroker as saying that if Telstra were ‘a small mining company the stock would be suspended by now’. There are some people in this chamber that know about these rules. They are going to be speaking in this debate, and I look forward to their contribution. People with financial services licences know the obligations about the marketplace, so I want to know what has been going on. We on this side would like some answers.

So, as a result of this government’s incompetence, shareholders are left in the dark because their Telstra shares are trading in a market that lacks the basic information relevant to the value of the shares. It is in this environment of uncertainty that the government is planning its final deception of prospective Telstra investors. Small investors considering participating in the upcoming T3 float should ask themselves one simple question: would I buy a used car from Mr John Howard? After hundreds of thousands of Australians were burnt in T2, small investors should take the government’s salesmanship on Telstra with more than a grain of salt.

Unfortunately, the way that the government has structured T3 creates the real possibility that small investors could be duped once again. The government’s sales pitch on Telstra relies on a tricked-up short-term dividend yield for investors in T3. By leaning on the Telstra board to guarantee a large dividend this year, while also spreading the cost of T3 shares across two payments, the government has created an artificially high short-term return for investors in T3.

There is a reason Mr John Howard is adopting this complex structure for the sale: it is designed to lure investors in with a strong up-front return. But they will get burnt a few years down the track. It is important to remember that this return is artificial and that many have questioned its sustainability. This is just like T2: retail investors buy now and pay later, but they will buy now and pay hard later for trusting John Howard. John Howard is laying a trap for small investors: buy Telstra now for the juicy yield and get burnt in two years when institutions drop the stock.

As Terry McCrann, financial adviser and financial expert has noted in the Herald Sun:

Understand that the Government is quite deliberately setting out to artificially entice you to invest. It is doing so by giving you an unsustainable supercharged dividend income.

Telstra has given T3 investors only one year’s security on its dividend payments, and then it is anyone’s guess. Both Moody’s and Standard and Poor’s agree that it will be unsustainable for Telstra to pay its current level of dividends next year. As Charlie Lanchester of Perpetual Investments has noted:

It’s certainly a concern if you are buying for the yield. There is a bit of confusion.

The simple equation for potential T3 investors is that, once the dividend drops, so does the Telstra share price. As Marcus Padley, author of the Marcus Today newsletter, has said of T3:

If yield is the only thing people are buying it for, then you would have to be extremely fearful of what price Telstra is the day after it went ex-dividend, because if people are only holding it for the yield, it’s going to get carted out ex-dividend ...

As Terry McCrann has noted, small investors who buy Telstra now for the tricked-up yield risk getting burnt in two years when the dividend gets cut and the institutions cut and run. The institutions have made their view of the T3 offer clear. These are the institutions. These are the big boys. Geoff Wilson of Wilson Asset Management noted soon after the announcement of the structure:

The way it will be structured will be very attractive from a short-term perspective.

However, Mr Wilson went on to say that he doubted that he would be in the stock in two years time. That is right: he said that he doubted that he would be in the stock in two years time. Get in, rip out the yield, rip out the dividend and then dump it. And guess who is going to be left holding the baby.

Even worse, at the same time as Telstra’s unsustainably high dividend starts to fall, the overhang of Telstra shares in the Future Fund, if the government has its way, will be dumped on the market, further depressing the share price. Just as the institutions are getting out because the supercharged dividend price is starting to go ex dividend, the Future Fund will start selling 30 per cent of the stock on the market. By dumping more than four billion Telstra shares in the Future Fund, the government has created an overhang that will depress the Telstra share price for years into the future. The Howard government’s economic incompetence has crippled this nation, and Telstra shareholders in particular, at every turn.

This is a financial scandal. This is another trap designed to mug Telstra shareholders—just as Paul Neville indicated when he said that incentives are okay and entitlements are okay, as long as they don’t ‘suck people in’. That is exactly what is going on. The chairman of your own regional telecommunications committee knows exactly what you are up to. He has blown the whistle. He says you are trying to suck in small investors, and he is dead right. (Time expired)