Sartorial signs of the time

By GILES PARKINSON Sydney View

Ted Pretty wore a tie on Friday, and 2.1 million Telstra investors are hoping it was a really good idea.

Telstra chief Ziggy Switkowski is certainly hoping so, because his job is on the line if it was not.

The colourful addition to Mr Pretty's eclectic wardrobe (along with a dark suit and a striped business shirt) coincided with his promotion to the head of Telstra's consumer business and the effective No 2 position in the group behind Dr Switkowski.

The appointment to a position responsible for $A14 billion of revenue seemed as unlikely six months ago as a 40 per cent slump in Telstra's share price. But these are unusual and confusing times for Telstra and its shareholders.

Its shares have spiralled down to $6.95, and its instalment receipts, eagerly snapped up by more than 1.6 million shareholders in October last year, are under water at $3.96, well below their issue price of $4.50.

At these levels, it is not worth the money to cough up for the second instalment when they fall due later this year once Australians cash their tax rebates.

Even credit ratings agencies Moody's and S&P are worried, and both downgraded their ratings of Australia's largest company last week.

Until now, Mr Pretty has distinguished himself by his casual attire and the deal-making activities he engaged in as head of Telstra's convergent business.

That, however, seems to be a thing of the past. The bursting of the bubble in tech stocks has caused the collapse of the centrepiece of Telstra's internet strategy, and could yet do the same to its principal push into Asia.

As noted in previous columns, Telstra has been hampered by having been about the only major net player doing deals with real money. That was because it was unable to issue shares that would dilute the federal Government's 50.1 per cent shareholding.

After successfully making cash investments in business software groups Solution 6 Holdings and Sausage Software, Telstra eagerly supported a merger of the two groups that would have delivered it 40 per cent of the biggest ecommerce business in the country. The hitherto openshirted and turtle-necked Mr Pretty was to have been chairman of the merged group.

That idea fell apart on Friday after the collapse of the price in both Solution 6 and Sausage forced the latter's board to scupper the deal. Telstra had already indicated that it wanted to renegotiate the terms of its involvement because the transfer of some of its net assets into the group valued Solution 6 shares at $9.75. Solution 6 closed at $3.88 on Friday.

Telstra is also getting anxious about its proposed $5 billion investment in Richard Li's extraordinarily successful Pacific Century CyberWorks. Li's company, barely a year old in its current form and with little business of its own to speak of, is trying to complete the $US38 billion takeover of Hong Kong Telecom and struck an alliance with Telstra to help develop its pan-Asian mobile and cable businesses.

Last week, Dr Switkowski conceded that the terms of the deal may have to be renegotiated. Telstra had offered to buy CyberWorks shares at a pretty premium to the market, and that was even before the recent tech slump.

Certainly, Dr Switkowski is in no mood to contemplate any further deals. "The volume of deals has now peaked for Telstra," he said on Friday.

Now he wants Mr Pretty to run the group's retail services division, which makes him responsible for day-to-day activities such as sales, marketing, brand management and corporate relationships.

Dr Switkowski marvels at Mr Pretty's intellect and creativity. If Dr Switkowski is right and Mr Pretty can be transformed from goldenhaired dealmaker into inspiring executive, there is hope for his future and the outlook for Telstra shareholders.

The suit and tie was the first step in the new direction. Maybe next time Mr Pretty will remember to wear the jacket.

* Giles Parkinson is deputy editor of the Australian Financial Review.