Telco’s break-up good for consumers, bad for shareholders


THE Government’s decision to split Telstra may prove a boon to consumers but has incensed shareholders of the telecommunications company who had no inkling their investment would be cut in two when they acquired shares at privatisation.

The sharemarket pronounced its early verdict on the plan for ”structural separation” of the telco yesterday, driving down its share price by 14¢, or 4.3 per cent, to $3.11 a share. Until now, Telstra has been able to use its market muscle to charge competitors for access to its cable networks.

This arrangement has angered rival Optus and other competitors, which have long complained of high access prices, and led to about 150 access disputes that have poisoned relations between government regulators and Telstra management for the past decade.

Telstra’s gain, by charging for access to its networks, has meant higher prices for competitors, and the structural separation should finally provide a level playing field.

But there is little consolation for shareholders. About $1.5 billion was wiped from the value of the company’s shares yesterday as investors sold in anticipation of a hit to Telstra’s profit.

Given the poor performance of T2 and T3 – the last two tranches of Telstra to be privatised – structural separation added insult to injury.

The original float of Telstra in 1997 was priced at $3.60 a share. The euphoria of the dotcom boom sent the stock spiralling and underpinned the float of T2 at $7.80 a share. The stock price soon subsided and, at least in investor terms, missed the entire bull market before the government offloaded its remaining 50 per cent of the company at $3.30 a share.

There were myriad complaints from shareholders yesterday that the Future Fund, which picked up a large chunk of Telstra shares via the T3 sale, had sold 34 per cent of its holding less than a month ago to institutional investors at $3.47 a share. It raised $2.37 billion and reduced its shareholding from 16.4 per cent to 10.9 per cent.

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