As the Government talks up its plans for the privatisation of Telstra on the eve of what will undoubtedly be fierce behind-the-scene negotiations with likely Senators, one independent telco analyst has never been more confident the sale will never happen.
Telecommunications analyst Paul Budde says not only is it highly unlikely the Government will win political support for the full sale; it is stuck in a bind of its own making after its “enormous overvaluation” of Telstra.
Budde fully agrees with the analysis of ANU and Queensland University of Technology Australian Research Council Senior Fellow Professor John Quiggin, first published in the Australian Financial Review last month, that many of the underlying assumptions about the benefits of the sale have collapsed. Quiggin tears apart three assumptions — first, that privatisation would generate cash for governments that could be spent on desirable public purposes; second, that privatised enterprises would be more efficient, in operational terms, than their publicly owned counterparts; and third, that private ownership would impose capital-market discipline on investment decisions.
And Budde says growing numbers of politicians have also become aware of the weakness of the arguments supporting the projected sale. He says that growing awareness, along with their public comments opposing the sale, will make it all but untenable for members of the National Party, ALP, Democrats or Greens to “backflip” in response to what he says amounts to Government bribery.
“So that’s one issue that gives me some confidence,” Budde says. “I have been saying for the last five or six years we will not see a fully privatised Telstra, and I am adamant it is not going to happen.”
And Budde says opponents of the sale have been given ammunition by the remarks of Communications Minister Richard Alston, who has recently been saying, in effect, that “we will see in 10 years time if we’ve made the right decision (on Telstra’s full sale).”
Budde says that that “stupid remark” is not only scaring potential supporters of the sale off, but also indicates just why Telstra should not be privatised.
And he says the enormous over-valuation of Telstra at $32 billion in the last budget shows the contradictions in the Government’s stance and is also certain to harm the case for the sale.
“The Government I think has a duty to actually explain why it is pricing Telstra so much higher than for example the value of British Telecom and AT&T which are both at around $23 or $24 billion, and are six times the size of Telstra. I think that in a due diligence process of privatisation, the government will have to come clean on why that is, and the key reason is that Telstra of course is one of the best monopolies left in the world, and therefore it is seen as a machine to print money, and that of course attracts investors.”
But the implications for the Government are ominous. Budde says Alston is constantly indicating he is frustrated by the conflict of interest he says comes from being both the “owner” and regulator of Telstra, and that once Telstra is sold, he will be free to concentrate on his role as regulator. But Budde says that means — unless the Government plans to defy the trend of every other government in the world — he will introduce more competition for Telstra.
Introducing more competition would inevitably lead to a dramatic drop in the Telstra share price, which would potentially cause the Government political harm.
“(Alston) has to come clean — why is the value so high? It if it was only a billion or two billion dollars difference with others fine, but here you have got AT&T and BT who are many, many times bigger than Telstra and with many more assets. How on earth can they be worth $22 billion and Telstra $32 billion? So he has to explain that, and then in that whole process of explaining, he will then have to say ‘No, we are not going to introduce any more regulations’. . . . It’s a can of worms that he’s going to end up with of course if he has to explain that.
“So those are the two key reasons that I see that it will be impossible for the government to full privatise. The only thing they can get out of it is that they can flog off another 10 per cent or whatever,” Budde says.
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