Aug

25

Worst of all possible worlds: Telstuffed

August 25, 2006 | 2 Comments | Joshua Gans

Let’s see: the Government has an on-going conflict in regulating Telstra because doing so properly harms Telstra’s profits which harms its short-term share value; something the Government doesn’t want to do because it wants to sell it off. But the Government does have a controlling interest in the company and so can, if it wants, control it. So to resolve the conflict, what does it do? Lose the controlling interest but keep enough of a financial one so that the on-going conflict remains. In the process, it loses its long-term ability to manage the structure of Telstra in a way that could compensate existing shareholders.

What goes out the door? We get none of the benefits of privatisation — ability to regulate without a conflict and the ability to change management without political interference — and all of the costs — assets sold at a low share value, a gaping hole for regional Australia and no opportunity for structural change to resolve the whole mess. Heavy sigh.


Comments

2 Responses to “Worst of all possible worlds: Telstuffed”

  1. vee on August 26th, 2006 11:21 am

    Stuff shareholders, what about stakeholders!

  2. CoreEcon » Blog Archive » Telstuffed in the AFR on August 28th, 2006 8:21 am

    [...] Today’s Australian Financial Review carries an opinion piece by myself that outlines more completely my argument that the government’s current privatisation plans represent a half-way house under the cloud of the Future Fund. Actually, that Fund should be renamed the Fog Fund as it seems designed to hide away failed government policy. (Click here for the article). [...]