Paul McIntyre: Challenge to keep Telstra mouths shut

Maverick National Party senator Barnaby Joyce delivered a nice line this week after Prime Minister John Howard's announcement late last Friday that the Government had finally opted to flog more of its Telstra shares - or A$8 billion ($9.33 billion) of them anyway.

"If you've got a mob of very poor cattle and you don't have to sell them, you keep them until the market changes."

Debate has since been raging about the timing of the offload, locked in for November, and whether the Government can indeed keep Telstra's top brass sufficiently muzzled to ensure a successful campaign.

Telstra's chief executive Sol Trujillo - and his imported ally from North America, group managing director for regulatory, policy and communications Phil Burgess - have been relentlessly carping at the Government for the past year on its regulatory position for Telstra. They vehemently argue it is stifling shareholder value.

Burgess was the guy who famously told journalists 12 months ago that he wouldn't recommend Telstra shares to his mother and he hasn't stopped peddling variations of that view since.

To the Government's great chagrin, investors have eventually bought the line ... in the past month Telstra shares have hit record lows.

But Burgess finally put his foot too deep in the mud last Thursday just after Howard and Telstra chairman Donald McGauchie reached an agreement in which Telstra management would not launch damaging rhetoric in the lead-up to November's sale. Howard was to announce the hugely anticipated sale on Thursday until he got word that Burgess had again put the boot in after a lunchtime address that day.

Burgess told journalists: "So the idea that regulation and business are somehow two different things is a view that only a person from another planet could have."

The sale announcement was off and Howard was furious, demanding McGauchie distance himself from the latest barrage. McGauchie's response was: "It is well known that Telstra is critical of the current regulatory regime. Telstra will fulfil its disclosure obligations during the sell-down process. This may involve explaining the impact of the regulatory regime on the company. Any comments will be proportionate, measured and factual. Telstra will not use such explanations or the sale process as a vehicle to campaign for changes to the regulatory regime."

Then came the Burgess buster. McGauchie said the comments attributed to Burgess on Thursday "do not represent Telstra's position".

For the chairman to so overtly downplay the views of his own head of public policy immediately had observers arguing Trujillo's handpicked sidekick was on very wobbly stilts.

Burgess obviously got the message when McGauchie flagged in his statement that Phil Burgess is to be ignored, at least until November when the Government will no longer have majority control of Telstra. Only Trujillo, chief financial officer John Stanhope and general manager of investor relations David Anderson could comment for the rest of the year.

Later that day Howard hastily called a press conference officially pushing the green light for the T3 sale.

The marketing campaign for T3 begins next month and there's certainly much work to do convincing retail investors to buy - all who bought T2 shares have taken a bath.

But that's precisely the group the Government and its advisers are targeting for more than 60 per cent of the $8 billion in shares on offer, mainly because institutional investors remain wary of the telco's future.

The offer will be structured to discourage hedge funds and the proprietary trading desks of investment banks from selling and strangely, now that the sale is on, the bulls with a vested interest in a successful sale have come out primed.

Former chairman of UBS Chris Mackay was one of them this week. He remains an adviser to UBS, which is one of the global co-coordinators for the T3 sale. He boldly said Telstra was "probably the most attractive telco anywhere in the world" and had "probably the strongest balance sheet of any incumbent telco in the world".

The task now is to get people to believe it.