Following the Government's release of its planned legislation trumpeted as Historic Regulatory Reform there has been a degree of kerfuffle in public about the policy.
The twin elements of this have been an accusation that this is some kind of general attack on capitalism or on Telstra shareholders in particular. The latter has a substrand to it that the Government engage in a form of insider trading by getting the Future Fund to offload a third of its Telstra shareholding.
The crazieness started when Phil Burgess was interviewed in the OZ, which he followed up with an opinion piece in the AFR. In this part of his mission seemed to be to paint the new management as failures saying;
The board is getting what it asked for. If you announce in advance that you are not going to stand up for your rights and your shareholders rights, bad things are going to happen and they have. It's the law of the jungle and if you act like prey, you will be preyed upon.
That this incorrectly portrays both the position of the Board and what the range of options for Telstra are and have been, but more of that later.
This then got a crowd of Telstra's institutional shareholders incensed, as also reported in the Oz. One of their number, using words very familiar when coming from the mouths of Burgess and Trujillo said;
I think the minister has made his position very clear that the government wants to rape and pillage Telstra. That means we have to convince the board that it should not be co-operating fully with the government to allow that to happen.
He was backed up by Burgess saying;
Sol has been gone six months and the new make-nice board and speak-softly, softly management hasn't worked. As Donald McGauchie said, 10 years of appeasement of the government led to a very bad result for Telstra. That's why we had to change and turn it into a real company with world-leading results..
Some of the more radical commentary seemed to suggest that the Government's action here would make Australia a country investors would avoid for fear of arbitrary decisions that would destroy value.
All of this is complete rubbish. Firstly, the Government has been determined to bring about structural reform in the industry since they announced their broadband policy. Both Minister Conroy and Finance Minister (and former comms shadow) Tanner had formed the view that structural reform was as important as was broadband.
Their initial hope was the the offer of a $4.7B investment would have been enough to induce Telstra to come up with a strategy to achieve that outcome. For a number of reasons - most notably the Telstra management's insistence that separation not be a requirement - this didn't come about. So the Government with NBN 2.0 has come up with a different plan.
Nothing in the regulatory package introduced requires Telstra to do anything more than has already happened to two other fully privatised former Government owned Telcos - Telstra's equivalents in the UK and NZ; that is functional separation.
The legislation makes explicit a view that Telstra should not be able to further grow its mobiles business while enjoying the market power it does today. This is also a very standard piece of global telco regulatory practice, it is not an interference at all with the rights of the company or shareholders.
Finally the option for Telstra to structurally separate requires only an undertaking that can be completed by 2018. That means it can be achieved as outlined in the explanatory memorandum by cutting its copper customers over to the NBN infrastructure as it is built. Why would a company not welcome the opportunity to utlise someone else's investment to service customers when their own asset is nearing replacement?
There is a process whereby Telstra can meet the Government's requirements without ever transferring a single asset to NBNCo. That strategy means that funds Telstra planned to reinvest in access network can be returned to shareholders in increased dividends, or spect on an international growth strategy.
Finally Lindsay Tanner in The National Times has explained that there was no conspiracy between the Future Fund and Government. He rightly points out that the stock has recovered its losses since the announcement. The surprising thing really is that the stock took the dive because any telco watcher should have known the Government was intent on that route. More importantly is Tanner's view that "It is foolish to assume that the Government’s telecommunications reforms are bad for Telstra shareholders".
What has been the most extraordinary part of all thoughh hasbeen the sub-txt that Government should not make decisions that could erode shareholder value. That would mean that no Government should legislate to improve OH&S standards, no Government should legislate on competition law, no Government should legislate on environmental standards. While there are certainly some whho would hold those views, I don't think they are by any mean mainstream.
In a battle between good public policy for 2 million voters, nd the shareholer interest of 1.5 M Telstra shareholders, public interest should and will win.