August 11th 2001

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Articles from this issue:

Cover Story: The building industry's Royal Commission

Canberra Observed: Telstra creates headache for Beazley pledge

Straws in the Wind: Peter's Friends

Western Australia: WA Liberals' preference deal could be decisive

Red light districts don't work

The Media

Singapore funds (letter)

Tony Abbott criticised (letter)

Birth dearth (letter)

Parenting payments (letter)

Tree cover (letter)

Drug Deaths (letter)

Middle Ages climate (letter)

LAW: International Criminal Court: the dangers

The companies driving US-Australia free trade agreement

Books promotion page

Canberra Observed: Telstra creates headache for Beazley pledge

by News Weekly

News Weekly, August 11, 2001
The recent decision by Kerry Packer to sell his stake in Fairfax, and thereby walk away from his decades-long dream of owning that newspaper empire, has thrown up a fascinating political scenario. Could the newspaper group which publishes The Sydney Morning Herald, The Age, and The Financial Review, be snapped up by telecommunications giant Telstra?

In other words would the Federal Government, which is already 100 per cent owner of the ABC and SBS, also become half-owner of the country's second-largest media group after News Corporation?

At first glance the prospect would appear fanciful, but it has already been discussed by senior journalists in the financial press. Some analysts believe the Fairfax acquisition would be a "good fit" in the increasingly integrated world of telecommunications and "content" providers or, in other words, producers of news, information and entertainment.

Golden opportunity

The Australian's Robert Gottliebsen described the departure of Mr Packer from the Fairfax share registry as a golden opportunity for the cashed-up Telstra.

"Telstra could easily handle the cost of Fairfax and it would be a great growth strategy," he wrote on July 21. Gottliebsen described the politics as "messy", and, in the understatement of the year, declared that "it could not happen before an election".

Even if Telstra were to walk away from Fairfax after giving the tyres a kick, Mr Gottliebsen suggested there was always Channel Nine or Ten for Telstra to buy.

Before or after an election would make no difference because it would be untenable for the Government to be running such a large and influential part of the Australian media. And the ABC, SBS, and Nine?

In one fell swoop all the noble notions of media diversity, and Paul Keating's cross-media laws, would come crumbling down as Australia moved toward a situation the former Soviet Government, with its 100 per cent-owned but colourless and impenetrable Pravda, would have envied.

It needs to be recalled that Telstra is already a half-owner of Foxtel, which produces Sky News, and which is increasingly the news-of-choice of people who sign up to pay-TV deals. In other words, Telstra is already a media player to some extent.

And only two years ago, at the height of the dot-com mania, Telstra chief Ziggy Switkowski sent his Wunderkind Ted Pretty on a mission to buy either or all of the Seven Network, Fairfax, or Publishing and Broadcasting Limited.

In fact, in the midst of that greatest of market madnesses, of which history may eventually show that the infamous 17th Century infatuation for tulips was eclipsed by a greater mania for a "dot", Telstra was in deep discussions with Mr Packer over his PBL Group for which Telstra was considering paying the absurd price of $10 billion.

If that deal had come off, Telstra and the Federal Government and, ipso facto the Australian people, might have also been the proud owners of Melbourne's Crown Casino!

But instead of buying Channel Nine, The Bulletin, Women's Weekly and the rest of Mr Packer's empire, Telstra went off and bought something which is proving to be far more troublesome - Richard Li's mobile phone and internet empire, Pacific Century CyberWorks.

As soon as the deal was signed Telstra was writing down its assets in the company and is expected to have to pour billions into the Li joint venture over the coming few years.

Politically, however, even the hypothetical nature of the Telstra-Fairfax question raises some thorny questions, particularly for Kim Beazley who has vowed not to sell one extra share of Telstra if he became Prime Minister. Having (figuratively) written his name in blood on the promise in several key marginal seats over recent weeks, Mr Beazley will never be able to walk away from the Telstra promise.

Yet the Beazley policy of not selling any more of Telstra is not in fact a policy at all, but a temporary vote-grabber. A successful vote-grabber, admittedly, because it resonates so profoundly with the disenchanted voters in rural and regional Australia who have been stripped of so many other government-run services, from railway lines to banks and insurance offices.

For them, Telstra is the symbol of the last government-owned institution which they can prevent from being sold. And, luckily for Mr Beazley, it matters little to them about the logic or otherwise of having a half-owned telecommunications company fighting in an open market place.

But the ALP's Telstra policy does leave many questions unanswered. First of all there is the ongoing conflict with Telstra's 1.5 million "other" shareholders who have already seen the value of their shareholding plummet as Telstra's future in government hands becomes more uncertain.

These are ordinary Australians, big and small, who invested in Telstra in good faith believing it would deliver solid and predictable growth in an industry of the future.

The Telstra board is obligated to strive for maximum profits for all its shareholders, but it may also have to be the vehicle for Mr Beazley's and Barry Jones' ambitious Knowledge Nation plans, including local call cost voice and data calls across Australia.

It is simply not good enough for Mr Beazley to now say that he put the ALP's anti-privatisation policy in the fine print of the prospectus. Who will pay for such ambitious and enormously costly schemes as the elimination of STD rates?

Will Mr Beazley allow Telstra to sell any assets the company owns? For example, will it be able to divest itself of underperforming assets, or overseas assets? Will it have to keep the Women's Weekly once that became the Telstra-Women's Weekly upon acquisition?


Will Telstra be able to split itself into separate parts between the infrastructure (cables, lines and exchanges) and the service businesses? And most importantly, is the promise only for a Beazley Government? What happens after that? Will there be a rethink after Mr Beazley steps down and returns to academia, and if so, is there any point in holding on to Telstra for just three or four years?

Perhaps Mr Beazley is ultimately right to promise that he will keep such an important national asset, which has incalculable strategic and industry benefits, in government hands.

There is also the ongoing enormous revenues Telstra produces for all Australians every year to consider in the equation. But Mr Beazley will have to do better than go around the country and sign pledges on the back of trucks - he will have to explain exactly how the hybrid Telstra will work, for how long, and to what end.

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