Telstra investors long on patience, short on return
April 2nd 2010 07:46
"I have said it before and I will say it again, for the life of me I cannot understand why anyone would want to own (shares in) Telstra. It just does not make good investment sense.''
The words are those of Dale Gillham, chief analyst at boutique Australian investment company Wealth Within. Telstra is Australia's dominant telecommunications provider, and its shares are probably owned more than any other Australian company by non-institutional investors, mums and dads believing that size and government backing and technology and a lot of fancy talk add up to a sure long-term investment return.
They have been believing that since 1997 when, amidst huge fanfare, the Australian government took the national telecoms giant public. Never before had such a huge float been seen in Australia; never before had one received such massive media and public attention. About 1.8 million Australians finally bought shares in the float. They paid $3.30 a share, and and every one who managed to to buy some thought they had won the lottery.
They were, however, even then, on shaky ground.
Telstra was formed in 1992 when the old Telecom was taken private. The privatisation was the ultimate consequence, as one commentator said late last year, of a series of governments being unable to do what was really needed — to separate the monolith into a series of more efficient working parts.
So by 1997, when Telstra returned to public life, the homework had not really been done properly. As Graeme Samuel, chairman of the Australian Competition and Consumer Commission, pointed out also last year, "National competition policy demanded that before Telstra (Telecom) was privatised, there should be a thorough examination of a structural separation. That never took place."
In other words, investors who plunged into the Telstra float should, or could, have known that uncertainty was a major issue in the short, medium and long-term future of the company.
In 1997, the finance minister of the day, John Fahey, warned on the opening page of the Telstra prospectus: "Investors should be aware that an investment in Telstra is not guaranteed by the Australian Government and that the value of shares can go down as well as up."
True words. In 1999, those first float (there were three float tranches in all) shares had risen nearly 300 per cent in value. Today, 11 years later, your $3.30 lottery windfall is worth $2.99.
Image: Getty Images
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Comment by Janet Collins
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What I can never understand is how investors really don't make any money from investing in them. Other than all the profits perhaps going to the CEO and directors, they have so much of the market that many others struggle to compete. Not that I really think this is right but it must give them a pretty good head start on the others.
Comment by Chris Champion
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