Paul McIntyre: Switkowski carries too much baggage for the markets

SYDNEY - Even a nuclear physicist can't get Telstra to hum. Exit Ziggy Switkowski.

The prospect of a A$30 billion ($32.39) share issue will tend to do that to a board, which dined on Tuesday night at a swish Sydney restaurant without their virus-infused chief executive - he was officially stuck at home with a crook stomach.

Unlike a few of Switkowski's strategic moves since 1999, when he took the top job, the viral attack was good timing.

Yesterday Switkowski faced the media for the first time since Telstra directors announced on Wednesday that they had cut their man's phone connection.

Well, the board didn't say that but Switkowski did.

On Wednesday, Telstra chairman Donald McGauchie explained the parting this way: "This was a decision made between Ziggy and myself, with all of the decisions around that being supported by the board."

Yesterday, it was a different story.

"The initiative was absolutely with the board on this move," Switkowski told journalists.

"There's simply too much accumulated history between me and some of the directors for the gaps to be closed. I know there must be complete alignment between the board and the CEO regarding strategy, execution priorities, and key measures for success. I feel that this alignment has been difficult to achieve in recent times."

That's primarily because of the bungled attempt by Switkowski and former Telstra chairman Bob Mansfield to take over newspaper publisher John Fairfax. Mansfield got the bullet a few months back. This week it was Ziggy's turn.

When Switkowski got the Telstra gig five years ago, it was hoped that the nuclear-trained, German-born management mind would revitalise the carrier and set it on an ambitious new course amid a new era of convergence between the telecommunications and media industries.

It didn't quite happen. The second tranche of shares the Federal Government flogged to thousands of mums and dads were trading at $4.91 yesterday, way off the $7.40 issue price. That's not a good sign for the Howard Government, which is licking its lips over the prospect of selling off the rest of Telstra either by the end of next year or early 2006.

Switkowski had too much baggage for the markets and questions over his leadership were effectively built into the share price.

Telstra has launched an international search for his replacement before he finishes up in July, although Switkowski did flag some "strong internal candidates".

One of them, David Moffatt, a hire from General Electric a few years ago, certainly has staying power if his performance last week at a Telstra strategy conference is anything to go by.

A fitness fanatic, Moffatt's team was rather impressed with his ability to enjoy the festive season until about 3am and be up a few hours later for his daily run. Just the sort of stamina required for Telstra's top job in the lead-up to full privatisation.

Switkowski had the near-impossible task of pleasing both investors and the broader community but he did make mistakes and they were expensive.

In particular, his merger and acquisitions track record was patchy. He blew A$3 billion on the carrier's disastrous investment foray into Asia, and he overpaid for other assets, including the recent A$636 million acquisition of the Trading Post classified business.

His attempts to re-engineer the company to deal with more competition created confusion in a company still hamstrung by its bureaucracy and sheer size.

In a two-year period from 2001, he implemented five managerial restructurings and rotated his senior team around in a bid to broaden their experience.

His biggest gamble was to split the mobile division into separate consumer and business units, and to create divisions based around customers, not product lines.

These so-called "customer-focused realignments" actually allowed his competitors to gain market share in the fast-growing mobile sector while Telstra staff coped with the restructurings.

The company wasted more than A$100 million on fixing up its Telstra.com website, which has never delivered on the company's plans to make it a high-traffic online portal. And the list goes on.

But Switkowski painted an upbeat picture yesterday of Telstra's financial position.

"I expect to be handing over a company where our revenues will be at record levels, our profits will be at record levels and our dividends will be at record levels. In other words, the company will be in good health."

Sure - except Telstra is not matching rivals' growth and is losing share in key areas such as mobiles.

And as of yesterday, the telco mothership faces an Australian Competition and Consumer Commission investigation into abuse of market power.

The regulator released a report on the corporate communications market, part of which said it had had allegations from big business accusing Telstra of threatening changes to "unrelated business relationships" if they changed their telecommunications supplier.

Plenty of work ahead for the new ringleader.