From today's " The Austrakian "

Ziggy sees tough time for Telstra
Michael Sainsbury and Steve Lewis
July 01, 2005
DEPARTING Telstra chief executive Ziggy Switkowski has said the telecommunications giant is facing "tough times", in a warning that could hinder the Government's efforts to get a full price for its remaining $30billion Telstra stake.

On the eve of his departure today, Dr Switkowski predicted a slowdown in revenue growth for the industry from the present rates of 3 to 4 per cent.

The comments are likely to send a shiver through financial markets eagerly awaiting T3, one of the world's biggest share offerings.

The Government will receive advice today that it should consider lifting the limit on foreign ownership in Telstra from 35 per cent, to help its chances of getting a better price for its 51.8 per cent stake.

However, investment bank UBS, which has prepared a 1200-page report for the Government on the best options for the Telstra sale, believes the rest of the company can still be sold in a single, $30billion tranche late next year.

This is despite the first half of Telstra being sold to the public in two tranches over three years in the late 1990s. The Government will also be asking investors, who paid $7.40 a share in 1999, to invest again at a significantly lower price.

Recent budget papers have put Telstra's sale price at $5.25 a share -- well above last night's close of $5.06. But Finance Minister Nick Minchin backed away from the price, saying the Government wanted a "fair return" on the asset for taxpayers.

The study, prepared by UBS and boutique investment bank Caliburn, was being delivered overnight to Senator Minchin and will contain options on how the Government can proceed with the planned sale. Senior figures are optimistic that legislation can receive Senate blessing by Christmas.

Dr Switkowski, who leaves Telstra today after almost 6 1/2 years as chief executive, is less optimistic about the industry's future growth prospects.

He told media representatives on Wednesday night that industry growth was softening as price competition and the effects of new technologies continued to hit the market.

In the frank assessment, Dr Switkowski predicted "tough times" ahead for the telecoms sector and his successor -- American Sol Trujillo -- as more efficient technologies such as mobile phones, broadband and internet voice calls replaced Telstra's traditional high-margin businesses.

"We have the measure of our competitors at the moment, but I expect them to come back hard and Telstra will respond," he said.

Mr Trujillo has already promised a cost-reduction program and will undertake a three-month strategic review of the company.

The push to lift foreign investment -- to 49 per cent -- is being supported by some senior government figures who privately want the issue examined as the Coalition moves to prepare Telstra for the massive share offer.

But it will provoke a strong backlash from Nationals MPs, who campaigned during the earlier tranches on the basis Telstra would still be two-thirds owned by Australians.

The foreign ownership issue is just one of a raft of complex political and regulatory issues with which the Government is grappling, ahead of introducing legislation for the sale process.

Already, the Nationals are demanding up to $5billion from the sale proceeds be used for a regional trust fund to help "future proof" the bush from inferior phone services.

Senior government sources last night stressed that Telstra would always remain majority Australian-owned.

Senator Minchin has previously said that he expected the Government's advisers to recommend a higher level of foreign investment in Telstra.

Ian Smith, chief executive of consultancy group Gavin Anderson, would not comment on specific recommendations in the UBS report. He said the study team had asked to "look at all options. It has done so".

Dr Switkowski did not rule out a return to a major corporate executive posit