Privatise Telstra Before It's Too Late

eBay has (sorry, the link's subscriber only) bought Skype. For anyone who doesn't know what Skype is, it's a VoIP - Voice over Internet Protocol - client. Or it's just like a telephone service, except it uses the internet as a telephone line. As The Economist states in the above article, VoIP will eventually eclipse fixed line services, and it will probably be free. It will certainly be considerably cheaper than current phone charges. You can already use Skype to chat to people on the other side of the world. All you both need is an internet connection of reasonable speed.

This new technology is enormously dangerous to telcos like Telstra. Telstra's great advantage - its copper wire network - will be its undoing in a few years. Consider once mighty AT&T. Its most valuable asset, its long distance phone network, became steadily less valuable as other technology eroded its relevance. AT&T was the largest and most valuable company in the world for most of the last century. Up until a few years ago, no one would have predicted A&T's ignominious demise. Last year, it was swallowed up by a "Baby Bell", one of the many companies created when the original gargantuan AT&T was split up by antitrust authorities in 1984.

Ah, say the optimists, AT&T's failure was in its inability to embrace new technology and diversify successfully. Of course, but Telstra has a history of being particularly crap at diversifying, too. During the Switkowski years, I lost count of the number of half baked and failed joint ventures Telstra embarked upon. Most tellingly, its ill-fated bedding of once sexy Pacific Century Cyberworks proved that the Aussie phone company is a staid old utility stock, reliant on the copper wire network cash cow that it owns. In theory, Telstra should stop trying to recast itself as a growth company, and let the holders of its equity enjoy the high dividends its existing networks bring. Trouble is, the asset that allows Telstra to control the telecommunications game in this country will probably be obsolete within a decade.

So, the morality of selling future lame-duck Telstra. Okay, some people are going to buy Telstra stocks when T3 rolls around. Yes, if they hold onto their shares, they'll probably find these shares steadily dropping in value over time. The government will have sold them a dud asset. Why not, however? The government shouldn't be owning these shares, anyway. Telstra was built from the taxes of the Australian people; we all own Telstra and we should be insisting that the return on our investment is maximised. In this case, it means cutting our losses and doing away with Telstra before it really dies in the arse and we lose a packet. A good rule of business - your first loss is your best loss. As for the unfortunate shareholders? Tough. People should realise that they're taking a risk when investing in stocks. It'll be a good lesson for them. Anyway, a diminished Telstra offering (high margin) mobile phone coverage and internet services should be a goer. The investors won't lose the lot if Telstra's managers aren't complete dunderheads. Although going on past performance, we should probably expect the worst!