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Lateline Business -

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(generated from captions) more people are making up their

minds vow to vote during the

election campaign and we find

one in 10 voters say they make

up their mind during election

day itself. The report also

shows that Australians are less

likely to follow an election

campaign on TV. I certainly

hope that's not true. Bring

your friends! Now the weather:

That's all from us. Blaze

Blaze coming up in a moment. I

will be back on Monday. If you

would like to look back at

tonight's interviews or review

of Lateline's stories or

transcripts, you can visit our

'Lateline Business' with Andrew website. But now here is

Robertson. Tonight pulp profit

- Tasmanian business welcomes

the jobs and investment the Gunns pulp mill will

generate. We want to be part of

the national economy and this

is our chance with the largest

private sector investment, not

just in Tasmania, but in

Australia as a nation. And an

each way bet - Aristocrat

shareholders mound a land mark

class action against the

company. We are arguing that

Aristocrat has behavioured in

misleading and deceptive

conduct in its disclosures to

the market and its profit

announcements. First to the

markets and following Wall

Street's overnight fall,

Australian shares suffered

their biggest one-day loss in

seven weeks. Dragged down by

weaker mining and energy stock,

the All Ords shed nearly 1.5%.

It was a similar story on the

ASX 200 amid concerns the

recent surge has overvalued

some stocks. In Japan, the

Nikkei ree treated from

yesterday. The hang essential

fell nearly 2% ending a run of

nine consecutive highs and 2

FTSE is up 37 pounts. While

gunce pulp mill decision spark

add political outcry today, investors Professored much more

enthusiastic. Shares in Gunns

jumped by 17% as the market

factored in a substantial boost

in profits. But critic s have

vowed to fight the decision on

economic as well as

environmental grounds. Analysts

warn that Gunns also faces a

hostile operate ing environment

which could see the cost of the

project blow out. It's been a

difficult few years for Gunns

Ltd. On top of political controversies and environmental protest, shares in the company

halved in a 20-month period.

But now the Tasmanian timber

company has had a win, with the

Federal Environment Minister

approving its Tamar Valley pulp

mill. One of the main reasons

why Gunns wantz to s to pursue

this vat ji is to improve their

profit margins. They have seen

their profit margins eroded

from around a 16% level just

four years ago to around 10.2%

in their last financial

year. The decision sparked an immediate share market rally,

with Gunns climbing by 17%. Tasmanian business leaders

have also welcomed the

decision. The mill is expected

to generate 3,a #400 new jobs

and add close to $7 billion to

the Tasmanian economy. We

don't want to continue to be

Access Economics low rater, the basket case economy. We want to

be part of the national economy

and this is our chance with the largest private sector

investment, not just in

Tasmania, but in Australia as a

nation. Despite the Minister's

approval, analysts warn that

Gunns will still need to re

assess the economics of the

proposal. It's likely that the

cost of this pulp mill will be

higher than what they've

estimated. The $1.7 billion

that Gunns has been talking is

likely to rise slightly, not

only because of the additional conditions that the Environment

Minister has put on the project

but also because of the nature

of the construction industry in

Australia. And Toby Grimm

estimates the recent credit

market squeeze could add a

quarter of a per cent to the

intraaet on fundsing the pro

project. But Gunns limit ed is

eager to go ahead. Of course

we've had a bit of a wind fall

in the market. The pulp price

has been rising rap oidly over

the last 18 months. Of course

we've been able to get the

privilege of that in our

valuation of the mill, so I

think at this stage we're

OK. Telstra director Geoffrey

Cousins re main s opposed to

the project and says he will

argue the business case against

it. The company has to raise very large sum of money in

order to build this mill and

most of the lenders, particular

ly lead ing lender, the ANZ

bank to Gunns, have in their

annual report very precise

environmental statements that

they will not fund those

projectses that might damage

the environment. ANZ has

commissioned an independent

technical review of the mill

before deciding whether to

finance it. I think as with any

banking organisation, it's

going to come back to the

commercial realities of the

loan in its specifics. Frankly,

if ANZ did choose to pull out

of that deal, then I am sure

there would be other sources of

finance available to the

company. And the industry operating environment continues

to be challenging. Gunns faces

higher labour and production

costs than its rivals from

oversea, in particular South

America. So they are competing

against prachs a better placed

opposition, although the

offside to that is Australian produced materials are regarded

as higher quality and as such

you know you can get a slightly

higher margin which will offset that competitive

disadvantage. With foreign

output expected to increase by

2009, that could push pulp

prices lower and make the

commoisks the Tamar Valley mill

less attractive. Despite a

housing shortage and

tiethdenning rental market,

building approvals have fallen

for 2 first time in three

months. Approvals for new homes

wor down a greater than

expected 1.7% in August, that's

the month the Reserve Bank

raised interest rates.

Approvals have stag naetd over

the past year, dropping a tenth

of a per cents, a fall partly

due to the continued

uncertainty in global credit

markets. Like the billing

industry, the share market also

had a day to forget today. For

a detailed look at what

happened, I spoke to Martin

Lakos at Macquarie Private

Wealth. Martin Lakos, the

market down about 1.5% today.

How did you see the action? It

looked pretty much broad based

profit taking through the day.

It's worth noting we've had a strong performance market since

August. It's worth mentioning

that the whole market is up 22%

since its intraday low on 16

August and as an example of

that performance, BHP is up 48%

from its intraday low on 16

August, over six weeks had a

very strong rally. It's

probably about time the market

took a breather. Is it

sustainable this rally? These

sorts of levels, valuations

start to come into equestion,

certainly back down to 5,500

index points there was good

value being presented to the

inve os. But at 6,000 index

points one has to be more

selective in choosing where to

go in the market and clearly

the resources sector is the

keyary yafrmt our broad based

theme Thor stronger for longer

is still in act and certainly

of the growth in China and the

sub continent is also well and

truly intact. The market has

run very hoard. There's a lot

of profits there in the market

and I think quite a few

investors are happy to take a

bait of cash off the table

ahead of the election. It's not

just resources stocks that have

done really well. The banks

very well supported in recent

weeks as well. What's been behind their

behind their strength? Yes, Commonwealth bank which

reported earlier on outside of

the other big three banks

reported pretty strong result.

That forced analysts to upgrade

their earnings growth number

force year and we've now seen

from high single digit numbers

towards low double digit nerms

in terms of earnings growth and

that's a big drive of momentum

for share prices. We're less

than a month away from the bank

es reporting. ANZ reports on 25

October and then Westpac and National Australia Bank and St

George. With that, the markets

are pregnant with dividends, so

there are dividend payments yet

to come out, so that will give

reasonable support to the

banks. Yoe you mentioned the

election earlier, what can we

expect from the stock market in

the run-up to the

election? Typically investors

tend to sit own their hands

once the announcement has been

made of a firm date for the

election and really wait for

the result. Either way, which

ever way the result is, we

don't see much of a reaction in

the market until six or nine

months down the track when the

newly installed Government of

which ever persuasion starts

acting on its promises.

Typically we have seen our

quantitiate AIF analysis

suggest that the market goes

through a rammy about three

months after the election. That

would coincide seeing the

March-April period oa

reasonable rally g going there

u the market. Thanks for your

time. Thanks, Andrew. To the

other major movers on our

market today - Timbercorp was

the worst perform ing stock.

Shares plunged 13%. ABB Grain

also found the going tough, a

profit warning saw the grain's

hand er drop 5.5 pact. I will

hir gold gave up 3%, after it

denied takeover rumours.

denied takeover rumours. On

currency markets, stronger than

expected economic data has

boosted the US dollar, a short

time ago the Australian dollar

had clawed back earlier losses

but was trading below 89 US

cents. On commodity market,

gold is little changed. Brent

crude oil has'sed for a fifth

day and price s are weaker on

the London metal exchange.

Profit take ing has seen copper

fall 1% from yesterday's

5-month high. Zinc is down over

2%. The battle for

is heating up with both suitors

today lifting their offers.

Online travel agency Webjet

started the day by increasing

its bid to $54 millioning, or

54.5 cents for each

share. But an hour later, raced its off to $55

billion. Wotif shares close add

third of the per cent weaker.

Webjet gainds over 2% while rose over 3% to

close at 64 cents. A land mark

legal hearing has begun against

global gaming giant Aristocrat

Leisure. An investor is the

first applicant in a class

action that claims the company

was involved in misconduct be by overstating its profit

results and forecasts which

artificially inflated the share

price. Aristocrat announced a

profit downgrade in early 2003

and then made further

disclosures about the company's

financial health which wiped $2

million off the value of

shares. The popularity of

gambling around the world makes

poker machines seem a good bet

for any company wants to make a

buck. But the failure of list

list - Aristocrat Leisure expansion into north and South

America led to the collapse of

the share price after the

company down braid graded its

profit forecast. Now a shareholder has taken the

company to the Federal Court,

using it of overstating its

profits by $18 million in 2001

and 2002. It's also accused of

misleading the market by not

disclosing until too late that

it wouldn't meet its profit

forecast of $109 million in

2002. We are arguing that

Aristocrat has behavioured in

misleading conduct in its

profit announcements and its

disclosures to if market. We are also arguing that

Aristocrat has failed to compie

plie with the continue use

disclosure regime of

information to the stock market. The shareholder

represents around 800 small and

large investor s who are

claiming up to $400 million in

damages. Aristocrat disputes

that figure and it's understood

the company believes the claim

is worth around $10 million. If

the shoilder wins, another

11,000 invest oser could be

eligible for investigation. The

court heard Aristocrat sold

substandard poker machines to

South America so the sales

figures could be includesed

nits profit results from 2001,

2000. Stephen Gageler told the

court that each action was an

unmitigated disaster.

Representing the shoerld, Mr

Gageler told the court that Ace

Aristocrat was: Aristocrat

does not sept liability in the

case but has admitted it should

not have issued the profit

forecast of $109 million. The

company downgraded its guidance

in early 2003. The share

surprise plummet from $4.14 to

89 cents in May. Amelie

Mauresmo says the case has a

something for disclosure: We

will get a ruling and we you

would think it would send an

important message about what

the costs are of corporate

misconduct if that is proven in

this case. The shareholders

lawyers are relying on evidence

from the breach contract case.

In that case, the judge found

that Mr Randall had told

another Aristocrat executive

that even if the company had

made the profit numbers, its

share price would have been

crucified because of it depends

onds South America. Aristocrat

is defending the claims. The

Federal Government and Telstra

are heading for yet another

fight after the Government's

surprising announcement that

it's considering forcing the

telco giant to break up.

Telstra's ownership of its

copper wire network and its

refusal to build a high-speed

broadband Internet network have

been a source of constant

friction with the Government

and other players in the

telecommunications industry.

Those battles have become more

intense since chairman Donald

McGauchie and Sol Trujillo came

together at the stop of the

company. But storsing a telco

to separate its network is not

knew. It happens happened in

the United States 20 years ago.

New Zealand has just forced

Telecom New Zealand to split

and in England BT was put

through the same situation. A

man who watched the situation

closely is Martin Mabbutt, and

he joins me now from London.

Thanks for your time this afternoon. Good morning. Nice

to see you. Like Telstra, BT

was an en-Frenched former

government owned monopoly that

threw it copper wire network

could make it hard for new

players to get start. How was

BT forced to separate its

network There was a long

history of antagonism between

here Ofcom and BT. BT was one

of the first companies to be

privatised and go through this

process. So there's a long

learning exercise really

between the industry and the

regulator. The regulator really

have attempted to bring in

competition to the UK market

for many years. And some more

successful methods than others.

But it finally reached breaking

point, I pose, in the early

part of 2000 when broadband

seems is a very important

service globally was being

rolled out quite slowly by BT.

I think that brought if you

like the issue to a head, the

regulator needed to find some

way of forcing a more liberal

environment so there could be

more competition in the broadband market in

particular. What form has BT's

separation taken? Well, back in

the sort of mid-90s, there was

an attempt at a counting

separation, which was designed

to give a greater visibility to

the different parts of BT's

business. In sort of 2006, it

got to the point where BT was

forced to effectively split out

the local loot, so this is the

copper lines from the local

exchange to customers premises.

And put that into a separate

vehicle which they called Open

Reach. That was an r xeshsise

which was completed at the

beginning of 2006. It involved

effectively creating a separate

company, separate vehicles,

separate board of management,

separate premises, but still

owned effectively by BT's

existing shareholders. For the

last 10 years, the Australian

Government has argued that

separating Telstra from its

dliks network would among many

other problems hurt revenue.

What's been the impact on

BT? Well, it's very hard to

tell. There's been definitely a lifting

lifting of the sort of

competitive environment in the

UK. We've got many more

intraans effectively taking

advantage of the ability to

access the copper network. And

BT's revenue s within its

network business, its Open

Reach business have been strong

because of these new entrance.

They also appear to have done

very well in the retail

business. They did start from a

weaker perspective than most of

the European competors or

indeed Telstra does in terms of

their market share. So they had

less to lose, if you like, in

terms of broadband, they were

running about 25% market share.

But the bottom line is that

it's been Indy certainible the

effect ob the bottom line and

during 2006, BT was the strongest performing telco

share in the European universe

- it was up about 50%. With its

rival s having access to its

network, has that forced BT to

re invent itself? I think. So

what you found in BT is there

were pockets of inefficiencies

which have become apparent as

the business was split up. So

the retail business in

particular has seen revenues

actually rising after many,

month, years when they were in

a free fall. Part of that has

been due to the sort of new

commercial presh turs business

has phased but they've also

found there are lots of area

that they can operate more

effectively on. It's not that

you can do it as an inti

integrated whole but the effect

on BF has been more than what

they expected. Has the

separation of BT led to more

competition and more investment

in the British


industry Yes. We've seen a

lot of, if you like, heavy

weight players coming into the

market who perhaps weren't in

the Telecoms market before. I

would name B Skye B as the most

notable which is in the media

business and has become to

offer a triple play offering by

the BT network. Car Phone

Warehouse which is a mobile

phone distributor has also been

a major player in this area.

Some of the players have had to

change their business mod es

who were in the market before.

We've seen some consolidation

against those players. Yes, more money has come into the industry. There's been rapid

growth in broadband and prices

have fallen dramatically for

customers. You mentioned

broadband, a big issue here in

Australia is that Australia

rank s 26th world in the world

in broadband speeds. Are

broadband speeds increasing in

the UK? Broadband speeds are

falling. - fees are falling.

There's many examples of free

broadband if you take one of

the packaged offerings from

some of the competors. So the headline price force broadband

in the UK can start start with

zero. I think you may have

misheard me, I was talking

speed of delivery, megabits per

second. Are they increasing in

the UK vultd of BT's sfraition? It's difficult to

say if they're increasing

because of separation because

there's technology and the advances in tech knowledge

which operates over the copper

network. There is a big debate

as I think there is in

Australia about the need for

fibre. There is - there has

been a slower rate of progress

in rolling out fibre to

customers in the UK than there

have in many other European

markets - France, Germany,

Holland, most of the marks are

moving ahead of the UK itself.

Headline speeds in the UK,

people talk about 24 megabits

per crekd, the average speed is

probably 4 megabits per second

that the customer gets in the

UK. Some customers in

continental Europe are looking

at around 100 megabits. So we

appear to be lagging and

there's ban lot of talk in recent weeks particularly about

this issue. Another big issue

in Australia is service

delivery to people in sparsely

populated rural areas who are

expect to have the same service

that people in the dense ly

populated city areas have. I

notice that your regulator,

Ofcom, is suting a two-tiered

system for Britain, which is a

company the fraction of the size of Australia. Unfortunately if you're going to open up a

market to competition, you sort

of have to play by economic

rules. The fact is it does cost

more money to supply rural area

with Telecom services using

current technology than in

urban areas. The fact is

economics would demand that

those people are charged more

in some way. Now, clear ly

there's issues as ho how you

fund that. You can ask people

to pay more, that is

politically difficult. Or you

can have a fund which

compensate s whoever it is that

provides rural service. Or

indeed move to new technology

and allow people to use perhaps

radio-based tech knowledges for

broadband. So WiMAX is a

technology which can offer far

more cost effective access for

broadband than traditional

copper or certainly fibre which

would be very expensive to

deploy. Finally and very

briefly, one sentence, has

separation of BT been a success

in your view? I think it has

been a success certainly to

date. It's questionable as to

whether there the the long-term

it will enable the fibre

network to be funded. Ofcom

will no doubt look at that in

the next few years and tell us

what the answer is. Martin

Mabbutt, thank you for your time this afternoon. Thank you.

Victoria will be home to two

big new solar energy projek s,

a Melbourne company is setting

up a $22 million factory to

build high-tech sun light

receiver panels. They will be

used to fight out a new power

station in the State's

north-west. The mirors will

reflect the heat and they're

1,500 times more efficient than

current solar panels. This

module here is about the

equivalent of about 10 normal

solar pan Els on the roof of

the house. It is leading

technology in the world

today. The company's also

setting up a $10 million

research centreat Bendigo. The

two projects involve around 150

new jobs. Now a look at

tomorrow's business diary where

the release of key US economic

data could test the strength of

the stock market's recent

revival. The latest

unemployment figures are

published as well a further

insight into the health of the

job market with the release of

non-farm pay roll numbers.

Before we go, a look at what's

making news in the business

sections of tomorrow's

newspapers. The taij examines

senior executive change at the

NAB and find that Ahmed Fahour

is now likely to succeed John

Stewart as CEO. The

'Australian' says Commander

Communications could be forced

to hold a $150,000 fire sale of

its assets. The 'Financial

Review' talks about the market

rally and the 'Sydney Morning

Herald' leads on Aristocrat's

day in court. And that's all

for tonight. As I leave you,

Wall Street just about the

open. The futures are

predicting a fifth of a per

cent rise. Today the FTSE is up

well over half a per cent as we

go off air. We will be back on

Monday. In if meentd, if you

want to review the program, you

can visit our website. And

you can watch the entire

program online or download it

as a vod cast. To write us to,

the email address is I am

Andrew Robertson. Goodnight.

Andrew Robertson. Goodnight. , Closed Captions by CSI