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Inside Business -

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(generated from captions) wonderful line from Nick

Bryant, asked what advice he'd

give to his successor and he

said "don't judge Australia by

its politics". Chris, I was

interested in a letter in

Canberra following Wednesday's

carbon tax jubilation, because he admonished the members of

the press gallery, this letter

to Phil Hudson, the President,

saying that the behaviour of

the members of the gallery was

totally unacceptable and

potentially unsafe because they

effectively elbowed aside the

Prime Minister of PNG, Peter

O'Neill. Now, I'm waiting for

the members of the press

gallery to report the fact that

they have been hauled over the

coals by the sergeant at arms

over their totally unacceptable

behaviour to a foreign

dignitary. Everyone said we'd

get minority government and

there'd be no major reform.

This week we only got the most significant economic reform in

the carbon tax and carbon price

for many years because of

minority government. If we

hadn't had minority government, there would be no carbon

tax. We'll leave you with words

from Barnaby Joyce. Barry will

be back next week. Thanks for

watching. It's amazing how

much angst there is, how much

sadness there is, how much

anger there is about the carbon

tax. I just want to present to Senator Joyce 34,000

signatures. He can find people

walking past and say I've got 91,000 signatures.

34,000 Okay, 34,000

Closed Captions by CSI signatures.

G'day and welcome to Inside Business I'm delighted to

report we've resurrected the PMG for you this weekment remember the post master

general? Controller of posts

and telecommunications.

Nowadays of course that person

has become two people, David

Thodey of Telstra and Ahmed

Fahour of Australia Post. This

week they're sharing the stage

on our program. David Thodey

it talking about the $11

billion deal with the new

government Telecom monopoly the

NBN voted on by Telstra

shareholders on Tuesday. Ahmed

Fahour is talking about the remarkable transformation of

Australia Post. The internet

is destroying its letters

business but creating a parcels

business that's going faster

than mail is shrinking. This

Program is Captioned Live

On Tuesday Telstra's almost

1.5 million shareholders will make one of the most important

decisions in Australian

communications history.

Whether or not to support the

$11 billion deal to effectively

sell the company's copper wire

assets to the NBN company and kick-start the national high-speed broadband roll-out.

Telstra's management has argued

doing the deal is financially a

vastly better outcome than

ignoring it. However, it is

clouded by a poisonous

political climate and the ACCC

demanding chointions to

Telstra's own plans to flight

its wholesale and retail

divisions. In a moment I'll

he's talk to Telstra chief

about David Thodey what's at

stake but first Neal Woolrich

looks at the background to the

vote. after months of haggling

between politicians, regulators

and telcos, this week Telstra

shareholders will finally get

to vote on the deal that could

transform the company and

Australia's telecommunications

industry. The value of the deal

is really that Telstra

substituting a cash from a

business that's in decline into

a relatively known cash flow

stream. That's quite

important. But against that,

the future of the NBN is Elle

are relatively uncertain and

Telstra has a job to make sure

whatever happens to the NB. In

that Telstra didn't end up

picking up the tab for that. On

Tuesday, Telstra shareholders

will decide whether the company

signs up to the NBN. Under the

agreement Telstra will get $11

billion compensation in

exchange for shutting down its

fixed line net work and migrating customers to the NBN.

An independent's experts report

says that outcome is nearly $5

billion better than Telstra's

next best option, so Tuesday's

meeting is widely seen as a

done deal. I think so. It

resolves a lot of uncertainty

for shareholders having a deal

on the table and knowing what

cash they're going to get out

of it. That contrasts with the

last two years of great

uncertainty. I think

shareholders will take that

opportunity. Ian Martin doesn't think Telstra will go on a

buying spree, but will have to

think carefully about what it

does with the cash it gets from

NBN Co each year. The main run

is around the dividend

maintaining the 28 cent per

share dividend. They're well

able to do that once they know

that cash flow profile from the

NBN deal. They've got maybe up

to a billion a year in some

years that could be directed

back into a share buy-back

program. Before it can think

about spending the NBN bounty,

it will though Telstra needs

the ACCC to approve its

structural separation plan.

The competition regulator has

to be satisfied that Telstra

will act in the national

interest as it might greats

customers to the NBN and more

importantly, when rivals access

its existing network in the

years before the NBN is

built. Quite a lot of

complications in that. It's

going to take the ACCC some

time I think to sort its way

through those issues. We're

not expecting a decision until

well until November on that

issue. This industry has been

highly ledge Gus and i a fairly

frustrating industry in terms

of what consumers want. That

has been largely because of the

integrated nature of Telstra.

A straktal separation is

essentially real transparency

and equivalence of services to

competitors like us but also

Telstra themselves. Optus' Maha Krishnapillai says it is

critical for the ACCC to have

real powers over the next few

years to keep Telstra in line.

The competition regulator

revealed in August that it has

serious concerns with Telstra's

structural separation plan

saying important changes would

need to be made. I think it was

a bit of a try on by Telstra to

try and put something in very

weak in place. We have had a number of discussions with the

ACCC. We're comfortable the

ACCC. Understands the

challenging and issues for

competition and therefore

consumers to benefit in this

industry. Casting a shadow over

the whole process is Australia's fractious political

environment. It is not clear

how the NBN might pro veered if

it proceeds at all one the next

Federal election is decided. By

rights, Tuesday's vote should

have been completed months ago

but the complex financial legal

and political issues affecting

the Telstra NBN deal has been a massive deadweight on

proceedings. Even the

explanatory notes that

shareholders should have

brushed up on before the vote

run to almost 200 pretty dense

pages. I spoke to Telstra's CEO David Thodey as he was wrapping

up the last of his lobbying

efforts with investors. David

Thodey, the shareholders

meeting on Tuesday just about

zero chance of it failing,

isn't there? It has been a

two-year journey, Alan

And we've obviously gone

through a lot of considerations

through that process. As we

came to put the memorandum out,

our shareholders, we're feeling

very confident about the

recommendation. Yes, the

response from both

institutional shareholders and

generally the retail base has

been very positive. I imagine

one of the thing they want to

know, the shareholders, what

happens if the coalition wins

the next election which on the

polls you'd have to say looks

likely? What do you tell them?

What's the answer. It is

actually a bigger question. In

any contract you enter into

over a ten to 20 year period,

there's lots of things that can

change, both governments,

network design, contracts or

terms and conditions. Having

flexibility in the future of

the contract has been a high

priority for us. Would you go

as far as to say it is a poison

pill for the Coalition. If

they win the election in 2013

they're not going to repeal it

but certainly change it. Does

it become difficult for them to

change it? Obviously

legislation has been passed and

they will have to work within

that legislation or change legislation and therefore to

change legislation would take

quite a long time to do it.

There's optionality for them in

terms of how they could

reconfigure. In for us in

terms of taking it to

shareholders the very important

thing for us is to say we've

done a negotiation, there's $11

billion of value here, do you

agree that that is acceptable

for this change? Then that

gives us the flexibility as we

go forward to negotiate. We've

got to have on nalt going

forward and that's been a important consideration, whether it is government

changes, policy changes network

changes whatever. The other

thing that beyond going is the

negotiation with the ACCC about the separation within Telstra.

They've expressed concerns

about what happens while you

run out the copper until the

copper is finished, how those

discussions are going now.

They're going well. They're

obviously complex and they take

time to work through. Any

chance of that falling over?

5% chance, 10%? I wouldn't

want to put a probability on

it. Everything we've seen so

far we think all the issues are

solvable. It takes time to

work through all these

issues. Taking a step back for

a moment, looking at the NBN

will telecommunications for

Australia for ordinary people

and businesses cost more under

the NBN or the same as they did

before? Think it is better to look at how much you are

getting for what you pay.

There's no question that as you

put fibre out to every home,

that the band width increases

so you can get more information

down that line, and that's

really where you're going to

see the significant changes.

There will be better value. I

don't think the entry price is

going to significantly change

at all. The people who just

want to have a phone call,

right, is that going to cost

them more? The Government's

still working through the voice

only option which is when you

don't want broadband. For

anyone who has an entry level

broadband plan, they will pay

around about the same

amount. I've seen estimates to

make the NBN pay they need $33

per month wholesale. Right. Which is

three times the average

broadband wholesale price now.

Is that kind of right? It is

maybe a little bit high, but

the NBN financials are a

separate issue from what

retailers actually pay. We buy

from NBN and hopefully add a

lot of value to that and offer

a retail price. It is around

about... Today the average

household pays around about

$50, average household, but

that's combined voice and

broadband. If you just want a

voice only service, you're down

around $20, $21 and if if you

get a broadband service you can

start an entry level price

around $30 and get up to $100 a

month. You've got to look at

both the entry level, the

average and the high-end. In

general, people will get more

for what they're paying. Do you

expect under the NBN your

margins will expand or

shrink. No. We've been very

clear, as we saw in the

explanatory memorandum, our

margins shrink in the retail of

NBN and we're getting the

compensation, there are it's a

good financial deal for usment

our margins on fixed infrastructure shrink. The

average is $50, you mentioned.

Roughly $50, yes. How is that

trending at the moment? Is it

coming down? Is your revenue

per user per month coming down

or going up or what? No. It

is pretty constant. What we're

doing is giving more for that

$50. Someone may have started

on an entry level speed and

then over the years we've

increased the amount of data

allowance and the speed. They

still pay on average around

$50 The deal with the NBN, 1

(100) 000-0000 value as you

say, unique any opportunity for

any company to have cash flows

for 20 years wrund written by

got. What are you going to do

with the money. You obviously

keep getting asked that. You

have I've asked you that. Yes

you have. The fundamental

question is the strategic split

between investing in the

business and giving it back to

shareholders. That's exactly

right. That's the question and

we haven't decided yet and

that's one of the things the

board has been very clear

about, this is call capital management. Firstly, your

point is right, our cash flows

do increase over the three to

five-year period and the

question is what do we do with

that excess cash? We've always

said that if we haven't got a

use for it we'll give it back

for shareholders, but we've not

declared that. We've said to

shareholders early next year

we'll come out with our capital management

management strategy and that will give clarity to what we

plan to do. You're right, there are two different options

you could give it all back to

shareholders or if we think it

is right, reinvest in new

businesses that we're going to

give us longer term

returns. When you come out with

the capital management strategy

will you be specific about how

much of the cash that's coming

to you will be given back to

shareholders? Yes, we will be.

On the basis we make that

decision, we do want to give

some clarity, because for the

company I think we feel a great

responsibility to our

shareholders, both retail and

institutional in terms of

giving the picture of what we

think the future looks like.

Yes, we will be. There's a long history of Telstra throwing

money away on various

investments overseas and owe

son. That was the industry not

just Telstra. Not just Telstra.

One of the things you have to

do if you're going to reinvest

the capital, you would need to

rebuild credibility to persuade

investors it would be a good

idea. Would need to be

convinced firstly it is the

right thing to do. Over the

10-year period we've got to

start to build new sources of

revenue and value for

shareholders because we're

losing or moving a lot of value

from our fixed network into

other areas. We need to

consider that, but that will

take time and we'll need to be

very considered about where we

do go. You're right. This

industry has had a very bad track-record in terms of

medgeers and acquisitions. If

we were to move into either

geographical expansion or to

look at other adjacency

expansion, other industries, we

would have to be very convinced

we could add value to that and

give a good return to

shareholders. One thing that

stands out although you're

losing control of the fixed

line telecommunications as it

were because the NBN is being

built whether you like it or

not, what you do have is

mobile, wireless. Yes. You own

the networks. You always will.

The question is what plans do

you have for 4G wireless and

how much can you invest in that

to create and build that

business? We think wireless is

a critically important part of

our future. You would have

seen we've announced the first

4G network in Australia and it

is going very well, very strong

take up even in the first few

weeks. We see wireless as a

very strong business going

forward and we'll continue to

invest strongly in that. Even

this year we'll be invests

$600, $700 million in building our infrastructure, upgrading

that service. 94 G very fast.

Is it potentially in the future

some time a viable alternative

for the NBN for some people?

It is an alternative,

unquestionably. It is not a

substitute, though. We would

like everyone to have a fixed

line connection and a wireless

connection as well. Fibre has

some characteristics, if you're

at home and want a lot of

information, be it video

connection, YouTube or IPTV,

but wireless can be a very,

very important option as well. How is the current economic environment affecting

your revenues at the moment?

Look, we're all wear of the

retail is pretty slow at the

moment, so foot traf fk in our

stores is down. However,

actual sales volumes are

holding up very well. As we're

going into the Christmas

period, things are travelling

with good momentum, but retail

is definitely low. We'll see

how the IPhone 4S impacts that

retail foot traffic in the next

couple of weeks. We think

there's a lot of people waiting

to see what's going to happen

in the economy and globally soy

there's no question people have

cash in their bank accounts, it

is just we need them to start

spending. For us it is okay. Thanks for joining us

David Thodey. Thank you

Alan. For the latest news on

the markets it is over to Steve

Letts. Steve. Wall Street

recent blue sentiment continue

throod you to the end the week

with all the key indices up

around 1.5% on Friday. The S&P

500 pushed through 1200 points

for the first time since early

August.

Capping the strongest two-week

run in more than two years.

Across the road, the Occupy

Wall Street protesters also had

a pretty feisty rally

themselves fighting off

attempts to raise their monthly

siege of the financial district

park. The sound and fury

didn't obscure the fact that

the current profit reporting

season is going quite smoothly.

Forecasts of a 12% rise in overall earnings look like

being revised up with so far

70% of company results beating

expectations. Waiting in the wings, though, several big

banks are due to report next

week. So far results from the

likes of JPMorgan have been

disappointing. However, the

fate of the rally still largely

depends on the dubious

proposition of Europe getting

its financial house in order.

But for the time being, the

appetite for risk has returned.

Over the week, the US up 6%

while Europe and the UK enjoyed

healthy gains. The ASX was the

laggard which to some extent

was weighed down by a stronger

Australian dollar. With more

on the local market, here's

Marcus Padley. The Greece not

going to default this month

rally has seen the market up

10.8% in less than two weeks

although it did peak a little

bit on Thursday with some

rather weaker than expected

Chinese trade numbers. One of

the sectors doing quite well

this week was the banks.

They're running into results and dividends. The National

Bank has resulted on 27th ANZ

Westpac early in November and

CBA has trading updates as

well. The resources did quite

well. Any company are third

quarter production numbers

seems to have gone up including

Rio, Illawarra, Pan Aust and

Kagara. Not so lucky in

resources was Alumina which saw

their share price down after

Alcoa kicked off the US results

seen with I poor Etiwanda set

of resultsment bank of

Queensland result this is week,

profit down 14%, bad debts up

92%, but the market didn't seem

to mind. JB Hi Fi up on AGM.

Trading conditions are

challenges but reasonably

optimistic running into

Christmas. There are hopes

this week we're going to see an

interest rate cut on cup day

which would help the whole

retail sector. The Reject Shop

was up on the back of their AGM

as well. Tabcorp had an

trading update and they were

up. ERA went into a trading

halt on Tuesday pending a $500

million capital raising at a

huge 53% discount of the

current share price. Rio is

going to support it but it will

be interesting to see what

their share price comes back

on. Qantas was up despite

strikes this week. Extract

Resources was up after they

tell us they are question in

takeover talks. Hastie was up

on the management appointment

of the ex deputy CEO of

Leightons. There are hopes

he's going to turn the company

around. Lastly, Woolworths was

one of the few stocks down this

week. They announced their C

CEO's salary package. He's

going to get paid $1.9 million

with the option to double it depending on performance.

Before you get up set about

that if he get the share price

up 30.4 of a percent he'll

cover his cost. Iron Ore

Holdings up 29% after selling

asset in the Pilbara. And

loser of the week was Range

Resources down 18% on the back

of an operational update. Of

course there's no doubt that

the internet is killing snail

mail as a form of communication

and a business model with the

once all powerful postal

monopolies around the world all

in serious trouble. Everywhere

it seems but here. In the face

of the online challenge

Australia Post this week

announced its profit has jumped

by a striking 170% to more than

$2 40 million. Its first

increase in four years. Done

it by embracing the internet as

as a business opportunity while

up holding its commoun service

obligation to deliver letters

to 98% of Australian addresses

five days a week. I spoke to

Ahmed Fahour about how the

business is being reinvented. Ahmed Fahour anyone

reading your results this week

I don't think they would be

surprised at all seeing parcels

growing, mail declining. It's

obvious for quite a while that's what's going to happen.

Other postal services around

the world seem to have been

caught out I'm interested to

know who you've done

differently here. After you actually turned it

around. Alan, I think there's

no question that Australia

Post, like the Australian

economy, definitely has a

two-speed business. We have

our traditional mail business

which has been in steady

decline now for a number of

years, but we've been very

fortunate here at Australia

Post we've been beneficiaries

of the online boom and that's really helped the business

quite substantially. Are you

changing the culture of Australia Post to take

advantage of that in a way that

perhaps other mail services

around the world are not doing?

I would say we at Australia

Post are recognised this

opportunity for a number of

years and what we've been

really doing is accelerating

the resources and allocation of

people and talent to take

advantage of the online boom

that exists. I think around

the world some postal operators

have done that but quite

frankly, there are some global

multi-nationals that have

really been successful being

DHL, Fed-Ex, UPS and this is

their bread and butter. What

we're really doing is saying we

need to compete with these

people because they're in a

business category that makes

sense for us. That's right.

The mail business lost $90

million or so in the past 12 months. The parcel business

more than obviously made up for

that and you ended up

increasing profit. How do you

handle the cost transfer.

Obviously the posties are

delivering the parcels as well.

I'm interested to know how are

you everything organising the

cost allocation between mail

and parcels? Some of the

posties do some of the parcels

but the great majority are done

in a separate delivery unit and

so, therefore, the cost

allocation is really not that

big a issue. The real issue

for us is how do we on the one

hand manage a declining volume

of our traditional mail

business and how do we continue to deliver the excellent

service that we do. At the

same time, while we lost $90

million, it is still a very

important part of what we do

because we have a community

service obligation that

requires us to meet service

standards of 96 service

standards of delivery of letters

letters which we do very

successfully and also to go to

2.8 million homes across the

nation. I think the real

challenge for us is to continue

to meet the very high service

standards that we have in a

mail business that's in decline

while at the same time

deploying, grow and take

advantage of the online

shopping boom. What's the

future hold? Are you doomed to

continue to lose that sort of

money from the mail service

while making up for it

subsidising, in a sense, that

with the postal delivery? I

think there's no question

whatsoever society has voted

with its feet about how it

would increasingly prefer to

communicate with each other all

over the world. The internet

is here to stay. I like to use

the statistic that says it took

us 200 years to get to 5 billion postal items in

Australia per annum which is

roughly what we have right now.

The telephone with texting is

maybe 15 years old and there

are 3 (000) 000-0000 texts per

annum in Australia. The

internet with email is only 10,

15 years old as well and there

are 400 billion emails and then

we have the social network

sites with Twitter and FaceBook

and it is into the trillions

the number of postings.

There's no question around the

world and here in Australia we

love communication, but the old

fashioned form of communication

is mail, letters that we are

involved with, move definitely

declining and for us that's

real and it is staying and

continue on for a while. What

we're trying to do is to say

well, that's the way Australians are. How do we

then turn the thing that's

causing us our problem, the

internet, to turning it into a source of advantage? That's

where online shopping comes in

and I think our brand, this

wonderful brand we have at

Australia Post and our

distribution network lends its well. The US Postal Service has

got rid of 110,000 workers over

four years. They've said

recently they need to cut costs

by another $20 billion per

annum and they're desperately

trying to change their

legislation to try to turn it

around. They've got the

legislation just like yours in

the community service

obligation is quite onerous on

them in terms of what they have

to do. Are you going to have

to try to change the

legislation? Is that part of

the future of Australia Post,

to get your obligations

removed? I really feel for my

counterparts. They lost over

$8 billion this year and

roughly the same number last

year as well and the UK is

seeing the same problems. It

is a very, very difficult

business to be in when you're

in a traditional mail business.

I think we're different here in

Australia. I doesn't think

they've taken advantage that we

have here that we have bean

building on for years and

years, way before my time,

which was to build an adjacent

business that made sense and

the parcel business made sense

and in some ways if you look at what's happening around the

world, that parcel growth

opportunity that existed, some

post offices have seen that as

an opportunity to take

advantage of

, the ones you mention have had

not, and that's why you've seen

the growth of DHL anti NT, get

ex and UPS. We've got them all here in Australia competing

with us. We've seized the

opportunity. At some point the

mail business where all the

post men are employed cycling

around the streets in their

motor bikes delivering letters

becomes unviable. At the

moment you have an obligation

to employ all those posties and

have all those post-boxes on street corners, but at some

point you've got to presumably

say we don't want to subsidise

Wembley them with parcel

business any more. We

shouldn't did do it. There's no

question there will be a role,

but the size is getting

smaller. What my job is to say

how do I take the resources,

the people, the talent, the

capital, and the know how that

is brilliant inside my mail business because we at Australia Post have built that

up over 200 years, not me, the

whole team has built it up over

200 years, and they've built a wonderful service machine. How

do I take that talent, know how

and capability and deploy it

into the growth area. The

problem is that the

infrastructure required to be

able to send mail all over the

place to every house is a

certain level, right? You have

to... You're going to offer

that service to some people

delivering a letter anywhere in

Australia you have to have a

certain level of infrastructure

and the question that

infrastructure at a certain

point becomes unviable. That's

the same infrastructure that's

giving me my competitive

advantage to do parcels. You

see, if you want to be able to

do online shopping, you can be

in Broome, you can be in

Bathurst, you can be in Wagga Wagga, Shepparton and your

small online retailer, say I'm

a business and want to sell

something online, don't have

the distribution or the retail

shop fronts. I'll going on the

internet and I want to sell.

Your customer can be anywhere.

Who can deliver to 10.8 million

households every working day of

the year? Australia Post.

That's that infrastructure that

I'm excited about. Thanks for

joining us Ahmed Fahour. It's

absolutely a pleasure to be here. This week's passage of

the 18 carbon tax bills through

the House of Representatives is

rich in irony. Not to mention

farce and tragedy. The irony

in 2007 both major parties went

to the election with carbon

pricing as part of their

policies. It never got up

during the subsequent

parliamentary term because the

Greens opposed the Labor

Government's plan. The

coalition was going to approve

it, but they changed leaders by

one vote and decided to oppose

it too. Business despaired at

the uncertainty of it all.

Fast forward to 2010 and both

parties went to the election

promising not to do it. A year

later, it is done. Supported

by the Greens even though it is

not much different to what they

possessed two years ago. 2007

business fully supported

emissions trading and despaired

went it didn't get up in 2009.

In 2011 groggy after being pump

beldly global credit crisis and rescission business hates and

wants it deferred athlete of

the. There's no certainty

because an Opposition leader

who is much more popular than the Prime Minister has pledged

in blood to repeal. Now what? It depends whether you think

this whole climate change was a

passing fad and that it will

fade, as Al Gore did. Remember

Al Gore? If so, don't do anything and Tony Abbott will

bail you out. If it is real,

and the world actually does

agree on a successor to the

Kyoto Protocols, then someone

will have to bail out Tony

Abbott because he'll be in big

big trouble. And that's it for

the program. If you'd like to

check out any of our stories or

interviews again or that

talking point we'll have

transcripts video and a involve cast posted This Program is Captioned Live. Hello. Welcome to

'Offsiders'. The day of

reckoning is at hand for the

Wallabies, suiting up for a

World Cup semifinal against the

All Blacks in Auckland. It's

the match most desired a week