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Business excited over possible sale of Telstr -

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Business excited over possible sale of Telstra

Reporter: Tim Lester

KERRY O'BRIEN: After five years and two failed attempts, the tantalising prospect of a more fertile
landscape in the Senate has allowed the Government to consider fulfilling its long-held desire to
sell off the rest of Telstra.

And while the dust hasn't fully settled on the Senate numbers, market analysts are already doing
the sums - pretty tidy sums too they are because a float of the remaining 50.1 per cent of the
telco would raise about $30 billion.

And while the brokers are rubbing their hands, one group of businesses is more nervous than
excited.

Other telcos are worried about a giant like Telstra let off the government leash.

Business and economics editor Tim Lester reports.

TIM LESTER: As the strength of its win emerged on Saturday night, so too did a sense that this
might be more than a nod to the Coalition to press on in Government.

This was a result to recharge some of its most contentious plans.

SENATOR NICK MINCHIN, LIBERAL PARTY: We've now had four elections where we've received a mandate
from the Australian people for industrial relations reform, sale of Telstra, issues of that kind,
that the Senate has denied that the Government mandate.

JOHN HOWARD, PRIME MINISTER: The Australian people are saying something to all sides of politics
and that is that if they vote for a Government, with a set of policies, they believe that that
Government should have the opportunity of implementing those policies.

TIM LESTER: No policy better embodies the Government's struggle with an independent-minded Senate
than its plan to fully privatise Australia's dominant telco.

Today the PM wasn't embellishing the plan, but he certainly was not backing off it either.

JOHN HOWARD: We certainly will press ahead very strongly with things that we believed in for a long
time.

TIM LESTER: On Friday, the privatisation question had been an if.

This morning, the market woke asking only how and when.

MARCUS PADLEY, 'TOLHURST NOALL' STOCKBROKER: The market talk at the moment is that the T3 float is
likely to happen probably in the second half of next year.

TIM LESTER: Telstra loomed large today for Melbourne stockbroker Marcus Padley as he gathered
material for his daily newsletter.

MARCUS PADLEY: Of course $30 billion worth of stock being sold into the market will attract some
fees, the talk in the market is around $100 million.

TIM LESTER: For those who make money on floats the sheer scale of the Government's selling more
than 6 billion shares in Telstra is enough to make the knees tremble.

MARCUS PADLEY: There is now of course, a scramble to get a role in the T3 float.

Some of them will be caught on the hop because the Senate vote was not expected.

They now have to start endearing themselves to the people choosing people who will have a role.

That will probably involve a lot of research, a lot of very positive research about Telstra, and
the job of course to have at the moment is being a telecoms analyst.

They will be in hot demand over the next 12 months and you could write your own salary.

TIM LESTER: And there are knees trembling elsewhere at the thought.

Not from excitement but from worry.

Telstra's competitors have always known entering telecommunications in Australia meant playing with
an 800-pound gorilla but it has always been a short leash to the government.

Today, it's closer than ever to unchained freedom where shareholders and market forces guide the
beast.

Yes, there's a regulatory framework but right now other telcos insist that's not enough to stop
them getting hurt.

DAVID FORMAN, COMPETITION CARRIERS COALITION: There seems to be a simple proposition that most
people would agree with, that is, that you don't privatise monopolies.

TIM LESTER: David Foreman leads a newly formed industry group for five of Australia's
telecommunication companies.

His group and Telstra's major competitor, Optus, both insist they're not opposed to privatisation,
but both say it could harm our telecommunications.

PAUL FLETCHER, OPTUS: If the privatisation is handled badly, you could end up damaging competition.

TIM LESTER: For as long as Government has canvassed the idea, regional Australia has feared a fully
private Telstra would stop investing in uneconomic areas.

Paul Fletcher from Optus argues it could be a danger for all Australians.

PAUL FLETCHER: In some countries, where the competitive sector hasn't been sufficiently strong, the
incumbent telco has tended to under-invest, to the detriment of consumers.

You might for example look at New Zealand where some commentators have said that's exactly what
happened.

DAVID FORMAN: Telstra is too big to regulate.

It's across too many markets, too many wholesale markets and retail markets.

TIM LESTER: So the telecos in his group favour some form of so-called structural separation.

DAVID FORMAN: May not be that you can so break up the company into separate companies but you might
have to change the internal structure of Telstra so that it can't use its market power in one area
to advantage itself over competitors in other areas.

TIM LESTER: But here the Government is torn between its role as the ultimate regulator where the
pressure is to rein in Telstra and as the major shareholder wanting to sell its stake, where the
pressure is to let Telstra run, remains strong and drive up its value for the sale.

PAUL FLETCHER: The regulatory muzzle needs to be tightened.

That is, the industry regulator, the ACCC and the Government need to have the powers to take
Telstra on when it's a fully privately owned company to make sure that it doesn't squash
competition.

TIM SMART: There are regulatory impositions in place that restrain Telstra's pricing power, make
sure its levels of services to regional and rural areas are adequate.

And I don't see those regulations that Telstra is subject to today changing at all as a result of a
Government sale.

TIM LESTER: Analysts like Macquarie Securities' Tim Smart are pondering how quickly this sale might
happen.

Maybe even in the wake of Telstra's August results a year from now.

TIM SMART: We'd expect October, November, does seem logical for a number of reasons including the
Telstra full year results, the best period under which to undertake the sale.

So that sort of October, November, time frame, whether it's in '05 or '06 seems reasonable, yeah.

TIM LESTER: Today, the ACCC was not commenting, nor Telstra.

For some, with a Senate yet to be settled, it's too soon to talk but the shift towards a fully
privatised Telstra is unmistakable and the issues it raises are right back on the agenda.

KERRY O'BRIEN: Tim Lester with that report.

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