Telstra Share Price Concerns & Outlook

The Inside Business report with Alan Kohler on Sunday interviewed three senior Telstra executives and survivors - David Moffatt, who's in charge of marketing and the phone business, Bigpond boss Justin Milne and Bruce Akhurst, who runs Sensis and looks after Telstra's interest in Foxtel. As a short term trader - I'm not in the game for trading Telstra. However, for a long term investment it may be worth considering given its losing streak over the past few years as well as the recent share price concerns resulting in a further drop.

The interview was all about the acceptance of the new Telstra CEO Sol Trujillo into the company as well as the strategies that will hopefully bring Telstra out of the doldrums. Alan Kohler notes that the share price of Telstra has fallen 27 per cent since July 1st the date Sol Trujillo began as chief executive, and since November 15th when the management team came out with a strategic plan presentation, the stock has fallen 8.5 per cent. David Moffat basically rounded off the three major concerns that are hitting the Telstra share price.

1. Regulatory uncertainty
2. The meaning of T3 to investors
3. Can the leadership team transform Telstra?

David Moffat says that, "Now we have built a plan, we have built a strategy and we are fulfilling our part of what's required to set Telstra apart to be the best in its business anywhere. It can't change the trajectory on the share price unless there is regulatory certainty and that certainty gives investors a perspective - not just for this week or next year or the political cycle, but actually out three, five, seven years so we can get a return on the investments that we need to make because these are investments that benefit all Australians. And of course, the T3 is a matter for the Government, but naturally, investors are wondering, what does this mean for them?"

If you believe what the executives say, now would be a good time for a long term investment in Telstra. As a final question, Alan Kohler asks whether or not the executives would recommend their mother's buy Telstra shares. If you weren't around last September, regulatory and policy chief Phil Burgess was famously quoted as saying, "I sure wouldn't recommend it to my mother." This statement actually influenced the Telstra share price, back then the price was $4.32 and today (Monday) it closed at $3.66. Here are the executives responses:

BRUCE AKHURST: I have confidence in the executive team and the plan we have, and the strategy, and Sol's leadership, so I think we're gonna get there.

JUSTIN MILNE: If you look around at telecommunications companies in Australia, the reason that you would invest - and the reason I invest in Telstra - is that nobody has got a set of assets like us.

DAVID MOFFATT: The products speak for themselves, and what we are doing to transform the customers' experience speaks for itself and that's what's going to drive the share price in the long run.

Update 30/6/2006: An Interview With CEO Sol Trujillo

"I take responsibility for the part of the share price that's dropped because we are spending more," Mr Trujillo told his first National Press Club audience yesterday.

"I own that and I'm proud of that, because I know I'm going to drive returns. What I own is, [I'm] trying to change and improve so mums and dads don't continue to see their $7.40 [the T2 sale price, seven years ago] continue to sink."

So who was to blame? Previous managements and regulators, with government thrown in for good measure. Also, a regulatory climate intent on destroying value - by requiring Telstra to be too generous in exposing its infrastructure and innovation to rivals - contributed to a one-third fall in share price "before I got here", a defiant Mr Trujillo said.

Since his arrival, a year ago tomorrow, "we have done two things which would cause the share price to fall further - but for a purpose". First was the withdrawal of a special dividend financed by borrowings. "But the most important thing" was heavy investment in a new Telstra focused on longer-term strength.