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PM under pressure over Telstra claims -

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(generated from captions) infrastructure investment and

seeking artificialy to keep the

share price high. At the height

these were allegations coming

through the parliament. At the

of this conflict is the through the parliament. At the heart

burning desire to sell off the of this conflict is the government's

remaining 51% of Telstra and the

Telstra management's desire to remaining 51% of Telstra and the new

the government into softening a Telstra management's desire to force

tough regulatory framework into the

future. As the first of the Telstra

sale legislation was introduced

the parliament today, Telstra sale legislation was introduced into

released the controversial

released the controversial briefing

document it had presented to the government

government last month. But only

the corporate regulator ASIC began government last month. But only half

its investigation into whether

Telstra should have released its

document to the Stock Exchange as

the same time the government was

briefed. In a few moments we'll

to the Prime Minister. But, first, briefed. In a few moments we'll talk

this report from finance editor

Alberici. this report from finance editor Emma

The message from dealers here at

Morgan Stanley today was loud and

clear - sell Telstra shares. It's

been the stockbroker's dictum for

more than 12 months and it's this

man that first made the call at

investment bank hien hun hien has man that first made the call at the

been telling clients to offload

their Telstra shares since August

last year. He's also the analyst at

the centre of the government's

public stoush with Telstra's top

executives. The fundamental problem

the company has got is that it

has close to 40% of its earnings the company has got is that it still

coming from the fixed line

business, which is basically a coming from the fixed line telephony

decliningeek told journalists in

Canberra he wouldn't recommend

shares in the Telco to his mum, he

used a research report by Andrew

Hines to demonstrate his point.

Morgan Stanley claims he misquoted

their position, claiming Andrew

Hines had "projected" the company's

value would fall to as little as $2. value would fall to as little as

$2.87 a share. Just to make this value would fall to as little as

clear, the $2.87 number there's,

controversy about that.

controversy about that. That's a clear, the $2.87 number there's, no

statement of fact. If you priced

Telstra at the average multiple of

its peer group globally companies

like British telecom, France

in Europe, Bell South or S b.

in Europe, Bell South or SBC in the like British telecom, France Telecom

States, it's worth $2.87. That's

not our price target. Ours is $3.81.

We think there are reasons it

trade at premiums to international We think there are reasons it should

peers but we were making the point

of how expensive Telstra is

to its global counterparts. of how expensive Telstra is relative

claims Phil Burgess did not quote to its global counterparts. Telstra

out of context, but the episode

the question: why would a senior out of context, but the episode begs

executive seize on such a low value

for his company and wave it around?

One theory is that Telstra's for his company and wave it around?

American management team is holding

the Prime Minister to ransom.

debating the value of the shares in the Prime Minister to ransom. Openly

an attempt to persuade the

government to free Telstra from the

shackles of

shackles of regulation. In order to

protect share owner value and to be

the stewards of our investors'

investments inside this company,

that we're beginning to take the

actions that we're taking now.

Sol Trujillo doesn't

Sol Trujillo doesn't want his

competitors getting cheap

wholesale access to Telstra's

copper wire network. In Telco

speak it's called the unbundled

local loop and companies like

Optus can't wait to get their

hands on it. Unbundled local loop

a junior gone term, but what it hands on it. Unbundled local loop is

really means is using Telstra's

network to allow competitors to

develop our broad band networks and

deliver competitive broad band to

all Australians. That's really

important in driving broadband

take-up in Australia. Telstra has

been for some reason over the last

week or so mounting an argument

says the way unbundled local loop week or so mounting an argument that

priced is they say unfair to them. says the way unbundled local loop is

them. Look, it's very significant priced is they say unfair to

you think that in the fixed line them. Look, it's very significant if

phony Telstra has a monopoly

position in that last mile what

product allows competitors to do is position in that last mile what this product allows competitors to do

break down that last mill monopoly

and offer competing services at

different price points and that's

exactly what competitors like Optus

are planning to do. We will trade

to influence it on the best

of shareholders because that's our to influence it on the best interest

duty. On Monday, Telstra's CEO Sol

Trujillo told the market earnings

for this financial year would be

down between 7 and 10%. The

announcement came three weeks after

a key date in this saga August 11th.

That's when Telstra released That's when Telstra released its

annual results and also when

management briefed its biggest annual results and also when Telstra

shareholder on certain aspects of

its performance. The big question

did everyone get the same story its performance. The big question is

day? In Federal Parliament Labor did everyone get the same story that

one doesn't think so. Prime day? In Federal Parliament Labor for

Minister, wasn't the right thing to

do to ensure that Telstra released

to all Australians the information

the Prime Minister received about

Telstra's state on 11th August?

Well Mr Speaker, I thank the

Leader of the Opposition for the

question. One of the many right

thins to do when you're in my

position of senior ministers is

obey the law, Mr Speaker. It's to position of senior ministers is to

obey the law. If it was just about

major shareholder being informed obey the law. If it was just about a

privately in advance of the market,

that does or potentially cause a

distortion and all shareholders

should be treated equally. That's

the driving force between

Australian Security and Investments disclosure regime. Last night, the the driving force between continuous

Commission announced it was

investigating claims that Telstra

had failed to properly inform the market about its financial position.

The implications are profound, both

for the Telstra team and for the

Federal Government. Its T 3

legislation is looming large and

legislation is looming large and the proceeds of the final sale are

evaporating. This is about market

reputation. This is about Telstra,

whether it has released the

information appropriately at the

right time to keep the market

informed or whether it's been

informed or whether it's been driven by some other agenda and whether

they have distorted the market at

all. What's going on at the moment

is I think Sol Trujillo is

is I think Sol Trujillo is basically calling it as he sees it. The

earnings environment for the

earnings environment for the company is extremely bleak. That's

is extremely bleak. That's something we've been forecasting for a while.

I think he's telling the market

what's really going on. I guess the

only issue we'd have with the

statements that Telstra is making

statements that Telstra is making is they seem to be blaming the

they seem to be blaming the downturn on the regulatory environment

whereas we think it's other reasons.

Telstra's problems haven't

happened overnight. Dwindling

returns from its most profitable

business fixed lines, the super

business fixed lines, the super competitive mobile market cost

cutting, the company's failure the

plough money into upgrading its

enormous infrastructure and the

enormous infrastructure and the fact it's dragged the chain on new

technologies. What is new is the

technologies. What is new is the way management is talking about this.

Under former CEO zig zig zig bad

news was buried. Under Sol Trujillo,

it's worn on the slef. Still,

Telstra through all of this he has

paid out for shareholders, but how?

Today that was a pointed question

Today that was a pointed question in parliament. Isn't it the case,

parliament. Isn't it the case, Prime Minister, that in the 12 months

leading up to the T 2 sale, Telstra

announced dividends of 33 cents per

share? Isn't it also the case that

in the year after the sale

in the year after the sale dividends slumped to 18 cents per share?

slumped to 18 cents per share? Prime Minister, hasn't the government got

form in inflating the dividend

before a sale and hoodwinking mum

and dad investors into buying

Telstra shares? The answer to the

question, Mr Speaker, is no. But

question, Mr Speaker, is no. But let me point out to the honourable

gentlemen that I'm advised that

gentlemen that I'm advised that will are many examples where companies

pay dividends that are higher than

their reported profit in a

particular year. Investors need to

be very careful they don't

capitalise into the share price an

unsustainable level of dividend

payments. The company is borrowing

money at the moment to fund its dividend

dividend payments. It will borrow

probably close to $2.5 billion this

financial year to fund dividends

payments and clearly that's

unsustainable on a long-term basis.

The next Telstra pay day looms as

another troubling trigger point

for all concerned. September 26 is

the date where Telstra shares go

ex-dividend so you'd expect the

company share price to fall

company share price to fall probably 25 cents on the day. If you look at

what happened after the interim

result dividend was paid, the share

price actually kept falling after

that because the retail investors

pocket that dividend and decide

pocket that dividend and decide they don't need to own the shares anymore. Finance editor Emma Alberici with that report. And I'm joined now by the Prime Minister from our Parliament House studio.

Known has been more passionately

committed on the sale of Telstra

than you have. Is it possible your

desire to sell has affected your

judgment? No, it isn't, Kerry. If

anything, what you've just seen

anything, what you've just seen and what we've seen over the last 48

hours reinforces the impossible

situation that we now have where

situation that we now have where the government is simultaneously the

majority shareholder and also the

regulator and we really do have a