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Tuesday, 28 May 2002
Page: 2460

Mr TANNER (2:47 PM) —My question is to the Minister representing the Minister for Communications, Information Technology and the Arts. I refer to Telstra's claims in Senate estimates last night that splitting Telstra into an infrastructure company and a services company would cause the value of Telstra shares to fall by $1, leading to a $13 billion fall in Telstra's overall value. Can the minister confirm that these claims are in fact based on a 26 April report by CS First Boston and that the report actually refers to the government's plans to impose accounting separation on Telstra, announced two days earlier by Senator Alston? I quote:

Until we know exactly what the Government has in mind, it is difficult to quantify the potential impact of the required accounting separation. There could be little impact, but on more negative scenarios, there could be a value impact of as much as $1.

The SPEAKER —The member for Melbourne will come to his question.

Mr TANNER —Will you now admit that the CS First Boston estimate of a fall in the value of Telstra shares by as much as $1, as claimed by Telstra, actually referred to the strategy announced by Senator Alston on 24 April?

Mr McGAURAN (Minister for Science) —I thank the honourable member for his question. How could anyone lead with their chin to such an extent as that? That CS First Boston report correlates with the honourable member's proposal to structurally break up Telstra. There is no doubt at all. Last Friday's Australian got it right when it reported:

Investment bank CSFB said yesterday a structural separation of Telstra between its wholesale and retail divisions could hit Telstra shares hard, with a worst case scenario of Telstra shares sinking to as low as $4.

The government has dealt with an accounting separation with regard to Telstra. This report deals with significantly more devastating impacts on Telstra, such as corporate break up. I will quote from the report:

But more substantial separation scenarios—

remember `more substantial separation scenarios'—

The SPEAKER —I warn the member for Melbourne!

Mr McGAURAN —such as corporately breaking up Telstra—

... would have the potential to reduce these returns over time. This could have quite a significant impact on value: for example reducing the long run excess return by Telstra to 6% would reduce valuation to $4.50; reducing it to 4% would reduce valuation to $4.

The share price at the time of the report was $5.08. Under the worst-case scenario, CS First Boston estimated that it would reduce the share price by over $1 a share. This is related to more extreme structural separation, such as the ringbarking the member for Melbourne proposes in his discussion paper. That is the point. The devastating effect on Telstra's share price comes about after structural separation.

Mr Tanner —I seek leave to table the CS First Boston report so that people can see the truth.

Leave granted.