04/07/2006 - 22:00

Miffed on Telstra

04/07/2006 - 22:00


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There has been a lot of discussion recently about whether or not Telstra will be investing billions in rolling out a new network.

There has been a lot of discussion recently about whether or not Telstra will be investing billions in rolling out a new network.

The way its been played out in the national press, there’s a suggestion a bit of politics is being played regarding Telstra’s plans and its bid to reduce the regulatory regime governing it.

I’ve said it before, but I remain dumbfounded regarding the situation the federal government finds itself in with Telstra.

I, like so many others, am a shareholder due to the privatisations of the past. While that could perceivably cloud my logic I, like so many others, have seen the value of my shares eroded to such an extent that a direct interest in this company is irrelevant.

The fact is that Telstra affects us all, whether or not we own shares.

The company owns the nation’s key communications networks and, as we march further into this new century, holds an important position in our economy.

I have always believed that the infrastructure should have been separated into a separate entity, one that was interested in all users, not just its own customers.

Perhaps that would have been perceived just the same as Telstra is. Monopolies are rarely viewed favourably.

But the position today is more complicated as a result of that failure to separate the networks.

We now have a hybrid retail/networks owner which controls the network its rivals must use, as well as the ridiculous situation of having a semi-privatised company dominating much of what goes on in the economy.

Now it wants the government to throw in billions more to maintain this unsustainable situation for the next two decades or so.

It is time the federal government looked at its own ideological leanings and matched them against what it has ended up with in regard to Telstra.

Suitable investment?

While I will, no doubt, upset people by saying this – our feature this week on the success of managed investment schemes highlights another piece of questionable policy.

Using tax levers to achieve specific aims is a great distorter of the economy and the MIS may be an example of this. On rare occasions, tax should be used to achieve aims. Subsidising solar power development to harness alternative energy before traditional fuel costs threaten our economy might be an example.

In some regards, this was the case initially. The most successful promoters using this style of investment, predecessors to the MIS arrangement, focused on blue gums. This was a tantalising message that mixed the thought of saving your own hard-earned income with other emotional buttons such as fighting greenhouse gas and growing (literally) a new industry – complete with value-added components.

While the blue gum plantations have grown and harvesting has taken place, I am hard-pressed to find the results we expected.

Ports such as Albany are busier, but the much-hyped pulp mills have yet to eventuate and question marks remain as to the whether these projects have delivered the returns to investors that were forecast.

I’d be happy to be proved wrong, but I don’t reckon many people have made serious money from investing in any of these mass-marketed schemes.

In the meantime, there’s an argument that plantations have created significant competition for other sectors of the economy, diverting funds from other potential investments – about $750 million this year alone – with tax being a clear motivator.

More recently we’ve seen the promoters move into new fields. Vineyards were the first major branching out, but since then growth has been widespread: cherries, tomatoes, pearls, you name it.

That’s fine, if there’s a level playing field.

While question marks remain as to whether this drive has helped or hindered rural Australia, the issue is not really about that because many would argue farmers or other rural-based operators have access to the same, if not better, tax deductions as the city folk investing in MIS.

However, my view on distortion is that we are giving these industries a heads up when they are competing against so many others for capital.

In the past, both the timber and wine industries had grandiose stated aims about growing volumes exponentially – with direct or pseudo government support. This has been achieved, but at what cost?

The wine industry, arguably more public than the tree business, has suffered enormously across the board as thousands upon thousands of hectares of vineyards have been developed – not only by MIS projects, it is fair to say.

The resulting glut has affected everyone, because cheap grapes have flooded the market and made the buying public question the value proposition of brands they once had faith in.

Why are we continuing to plow tax-effective dollars into vineyards when, arguably, Australia would be better off with, for instance, improved technology development.

The question is: who benefits?

Growing at a pace that outstrips the market suits no-one but the financial engineers who get paid up-front.

I know many of these people and admire their business savvy. Some years ago, I believed MIS-style schemes might challenge the traditional capital raising route of a stock market float.

But, despite the inherent tax advantages, that has not occurred.

If this investment, even with such tax advantages, can’t stack up against more traditional capital raising methods, it does make me wonder whether this is an appropriate way to encourage investment in Australia.


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