Why did the government EVER privatise telstra? (1 Viewer)

[Not-That-Bright]

I don't understand why someone would take moves to privatise a natural monopoly which makes substantial profit? Is it to lose accountability for communications services in Australia?


I have no problem with selling off things such as Telstra's internet service (the actual access etc, not the physical lines).

 

[braindrainedAsh]

I totally agree with you, it never made sense... it makes money for the government!

 

[withoutaface]

Conflict of interest in making the laws governing the industry while running the primary company of that industry, as well as the belief that if it is privatised it will encourage competition and bring about more innovation, which will be good for the economy and consumers.

 

[Iron]

Ya conflict. When a gov enterprise makes plenty profit, they have a responsibility to privatise it - rather than issuing tax cuts. Nationalizing is meant to protect services that are in the national interest and would otherwise fail/not be viable in private business - Hence the rural debate.

 

[UGFighter]

Guys,

Telstra is NOT generating profit!

The benefits of being a public company allow you to go to the market to raise equity, which, with a mixture of debt, help you get the company up and running until you're making a profit. After that, the retained profit from operations are enough to keep the company running and in some cases, the company will buy back shares from the market because they have more than enough money to run their operations. Companies such as BHP are buying back shares off the market, NOT issuing more shares to raise extra equity!

Look at Telstra, they are having their THIRD capital raising when it is a multi-billion dollar company. Why? Because they are financially screwed!

You need to look at more than just the profit, look at return on equity for shareholders... something like a miserable 5%, which you can get at the bank. In reality, Telstra isn't generating enough money to provide for their equity holders... Telstra is in serious financial trouble.

Companies like Telstra, Qantas, Virgin Blue all own assets essential to the running of their business and generating of their profits which are far too capital intensive to allow them to run a profitable business with anything other than a monopoly market where they determine the profit margins.

The Government has been wanting to sell Telstra for years because they know full well what sort of financial position Telstra are in.

 

[pete_mate]

i dont think telstra is issuing more shares is it? the government is merely selling its existing shares

i commend sol truhjillo on his recent comments, the government is trying to sell damaged goods to the public. this is because of the large amount of regulation, particularly with regards to the rural infastructure which is forced upon telstra's operations.

either embrace free markets and the efficiency and increased profits therein, or dont privatise, you cant do neither by regulating and privatising. The share price is reflective of that.

telstra does not operate in a national monoploy, it may have during its inception but not anymore, companies create their own infastructure. look at "unwired" for example, and emerging internet technologies, phone calls are being made over the internet

 

[Not-That-Bright]

So you're claiming the reason why they wanna see Telstra is because it's going to flop and they don't want it to be in their hands when it happens? that doesn't make sense... they should put money into it if that is the case.

Can you imagine the Australian economy with a mediocre communications service?

 

[UGFighter]

Yes, T3 is floating.... I think they are going to have a hard time selling T3 when many investors still have a bitter taste in their mouth from the losses they incurred from T2, buying T2 around the $7 mark.. plus, the recent plummet in share price certainly hasn't helped. Any financial advisor/broker worth their salt won't be recommending them to their clients. When I saw my mum's financial advisor continue telling her to hold Telstra with every quarterly report or whatever saying there would be little capital gains, hold for the dividend yield of 6% as a part of a 'well diversified portfolio', I called bullshit and started trying to learn about investing myself.

NTB, yeah the government knows Telstra is in financial trouble and their current stake of 50.1% is a huge burden to them financially I would imagine. It's why they have been wanting to sell for years, but they can't say this is the reason can they?

 

[Meldrum]

That's not the reason. The government has always brought up the issue of fully privatising Telstra whenever analysts have forecasted a downturn in the polls - before the GST, before Tampa came out, before immigration detention was brought in and now before the government's changed IR.

This way, people suffer from the misapprehension that the government is both managing the econony effectively and that John Howard has a large penis...or something similar.

 

[ogmzergrush]

There's a fair bit of debate as to whether telecommunications is a natural monopoly anyway, and nowdays it's often suggested that the only part of telecommunications provision where this may be true is the local loop.

I have mixed feelings about it personally. Given the examples set by various other countries in the privatisation of primary telecommunications providers, there are benefits which can *potentially* be attained (Note the emphasis). On the other hand, things like Telstra's ongoing questioning of the USO under such conditions makes me extremely hesitant to think that it's a good idea.

 

[sunjet]

Our economics class did a 3minute speech on this for an assessment over the past two days.

Basically, Telstra was inefficienct and unproductive as compared to output per unit costs to Optus and other competition so they privatised it as a microeconomic reform to improve efficiency of our telecommunications industry. The $30billion that the Government will recieve from the sale will only amount to the income recieved in dividends while it was owned by the Government. However, in saying that it will improve the Budget surplus and there would of had to have been an incentive to the government to sell it apart from the microeconomic reform reason.

 

[Captain pi]

Conflict of interest in making the laws governing the industry while running the primary company of that industry, [iia] as well as the belief that if it is privatised it will encourage competition and bring about more innovation, which will be good for the economy and [iib] consumers.

(My indexation)

(i) If Telstra were the only company there would be no problem with this conflict of interest in terms of injustice against competitors. Furthermore, inasmuch as Telstra is owned by the governement, it is more likely to adhere to those laws.

(iia) I think the belief that a privatised Telstra would be more innovative and better for the economy needs to be substantiated. Also, what is a "better economy"? and why is this good?
(iib) Surely the consumers are the same as the electorate, who can vote against the government should their services not be up to scratch. Perhaps, a company providing a specific may be more likely to endeavour to provide better services than a government providing many services.

I am not sure about your stance, withoutaface; but, as always, you make some good points.

 

[UGFighter]

You guys need to look at the financial statements of Telstra over a few years...

Look at profit margins, asset turnover ratio, consider the effects of inflation on a company which is so asset and capital intensive. In essence, Telstra is a cash user, not a cash generator like many of you think from simply looking at the profits. Anyone who's done accounting can tell you there's a lot more to the financial statements of a company than just the net profit, it's only a small part of it.

Telstra has no economic goodwill, I believe that Telstra is fucked financially. It will come to a point where it's not able to continue raising money by floating, again and again... we have a multi-billion dollar company coming back to the market to get more money to finance its payments to equity holders and just maintain it's assets. The extra money the company will need in future is compounding by taking on more and more equity holders which it can't afford to pay... something has to give.

 

[Not-That-Bright]

But you can't have communications just go to the shit because it's costing heaps...

 

[UGFighter]

why do you think the govt. wants to sell its ownership of Telstra?

 

[Rafy]

Look at Telstra, they are having their THIRD capital raising when it is a multi-billion dollar company. Why? Because they are financially screwed!

Its not capital raising on telstra's part (Equity financing). Telstra will get no money, its just the goverment selling their shares.

 

[UGFighter]

I don't understand what you're saying?

At this point in time for Telstra, raising more equity is BAD news!!

Evidence that Telstra is financially screwed, part of the reason the government wants to sell Telstra.

It's hard to explain what I'm trying to say, maybe I don't fully understand it myself..

Let's assume that Telstra has an asset worth $10.. say for every $1 the asset's worth when it was originally bought, it'll generate $1 revenue.. it has it has a profit margin of 30%. Useful life of an asset is 3 years.

Year 1 = gross profit $3
Year 2 = gross profit $3
Year 3 = gross profit $3

After 3 years, we've generated a gross profit of $9. The asset's useful life is up and needs replacing... assume inflation of 4%, p.a. so we have $10 * 1.04^3 = $11.25 for replacing the asset.

Now, add on the costs of paying equity holders.... it doesn't matter that the net profit is billion of dollars... it's still gotta pay out more than what the net profit is to replacing assets and paying equity holders, which is why we're having the THIRD capital raising.

 

[Rafy]

huh?

Telstra recieves none of the proceeds from the sale. The government owns 50.1% of the shares in Telstra. They wish to sell them, and they will get the money from the sale. (Its just like any other investor selling their share, but on a much larger scale)

It does not represent a decision by telstra's management to raise money. It has nothing to do with them.

 

[Not-That-Bright]

wtf it doesn't matter if it's 'financially screwed'...

If you give telstra to a private company, services will get accelleratedly (is that a word?) worse. If we have a crappy communications service in Australia, that is bad for business... same with having a shit transport service.

 

[UGFighter]

huh?

Telstra recieves none of the proceeds from the sale. The government owns 50.1% of the shares in Telstra. They wish to sell them, and they will get the money from the sale. (Its just like any other investor selling their share, but on a much larger scale)

It does not represent a decision by telstra's management to raise money. It has nothing to do with them.

I know that, I'm talking about T3.. another capital raising.