STEFANOVIC:
Mr Howard joins us now live from our studios in Parliament House, good morning to you Prime Minister.
PRIME MINISTER:
Good morning Karl.
STEFANOVIC:
Prime Minister since last night Telstra has released this report, this document to the Australian Stock Exchange, are you prepared to comment on it now?
PRIME MINISTER:
Well I have to get a more detailed briefing, I want to check the document that's been released is the same as the document that was given to me and I have not had an opportunity to do that. But look lets go to two of the issues that are really in the debate; one of them is that in some way it was a shock revelation for us to be told on the 11th August that the company was funding dividends out of retained earnings. There is nothing new about that information on the 11th August. That had been known in the marketplace at least since July of the previous year when Telstra released its capital plan and it was very plain from that plan and I think it was in fact made plain when the plan was released that that practice, which is not unusual, would go on for at least another two or three years. So this idea that there was something shock horror about that is completely false.
The second observation I'd make is that there's been reference to a 14% fault rate in Telstra's services. I'm told that the monthly report that Telstra must furnish under our Community Service Guarantee showed that for the month of July 2005 Telstra's services were 99% fault free. 99% fault free. So therefore on the face of it, the 14% figure doesn't square with that. And incidentally, that 99% figure is up from a figure of 70% in 1998 when the Government first legislated the Community Service Guarantee but all of this underlines the fact that we had this ridiculous conflict of interest. Here I am answering questions about fault levels in service delivery, which is obviously very important, but the detail of that is surely something that the company should deal with, not the Government and it just illustrates that the Government shouldn't own half of this company, particularly when it doesn't run the company. The company is run by an independent board, and the board appoints a Managing Director.
STEFANOVIC:
Prime Minister, just on your first point there, so you're saying that you believe the majority of share holders knew that Telstra had to dip in to reserves to pay share dividends and its financial situation is not as robust as the market perceived?
STEFANOVIC:
No. no, what I'm saying is very simply that it was well known in the market before the 11th of August, well known, that the company was using retained earnings to fund its dividends. You see a company has a choice. If it makes a profit, it can either give more of that profit back to the shareholders, or it can invest more of it in capital expansion. Now the company chose over a number of years, to provide generous dividends. And those generous dividends didn't only go to the Government, they also went to those hundreds of thousands of individual shareholders, about which the Labor Party is professing great concern. I mean if they think the dividends were too generous, what they're really saying to those hundreds of thousands of Australian shareholders, you shouldn't have got as big a dividend. They can't have it both ways. They can't criticise by implication the company and the Government for paying a dividend, a special dividend out of retained earnings, without acknowledging that the people who would end up losing from that as individuals are hundreds of thousands of mums and dads as they refer to them. So let's have a little consistency. There was nothing new on the 11th of August in the proposition that the company was using retained earnings to pay dividends - a practice incidentally so far from being illegal, is a practice that many companies use - not all companies but that is a matter of individual commercial decision by the company.
STEFANOVIC:
Did you direct the company to tell the rest of the shareholders all of what they told you on that particular day?
PRIME MINISTER:
Karl, the company has a clear obligation under the corporate law of this country to make full and continuous disclosure and it never occurred to me, or to any of my colleagues, that the executives of this company and the board of this company, who's responsibility is to run the company, wouldn't have complied with the law. I mean, it just never entered my head that they wouldn't have made all the disclosure that needed to be made. And the question of whether they have made full disclosure is not something that I am going to pass judgement on because that matter is subject to examination by ASIC which is an independent surveillance body of corporate behaviour.
Now I'm not saying the company's done anything wrong. I'm simply not offering a view on whether full disclosure has been made to the stock exchange - I'm not doing that. I'm simply making the observation that I was entitled to assume that the second largest company in Australia, with well qualified, well remunerated executives would know what its corporate law obligations were and quite frankly it's not the job of the Prime Minister of the day to keep reminding companies of what their individual obligations are, that's their responsibility. It's their responsibility to disclose the company's situation. It's my responsibility to look to the overall public interest, and incidentally to obey the law and the law said that that information I was given on the 11th of August could not be disclosed, the law expressly says that and that is why it was not disclosed by the Government. It should not have been disclosed by the Government and clearly I'm not going to break the law, no matter how much I am criticised by the Opposition or by some commentators.
STEFANOVIC:
Do you concede though that by Telstra not informing the public that it kept the share price artificially high, which in turn suited what you were trying to achieve with the Telstra sale?
PRIME MINISTER:
Look I'm not going to offer a view on that because it assumes that the Telstra management has in some way failed to meet its obligations of disclosure. I can't answer that question, even hypothetically without making an assumption about that, and I don't want to make an assumption because it's not right for me to do so, that is a matter for ASIC. All I can repeat is that the obligation is on the company to make full disclosure to the stock exchange directly, it does not disclose that information to the public via a special disclosure to the Government and we are expressly enjoined from passing on information we are given. Now it may sound strange but that is the situation and that is what the law is.
And can I just say again that all of this highlights how absurd it is for the Government to simultaneously be the regulator, the majority shareholder and also the Government which incidentally on the 11th of August when we saw Telstra, we were really seeing Telstra about a plan Telstra had for the future of the company that involved the expenditure of a large amount of public money. That was the major reason why they came to see us on the 11th August. They came to see us to give us a plan which involved amongst other things the expenditure of a large amount of money. Now we were quite happy to listen to that, but in the end we thought there was better value for the Australian taxpayer to adopt our plan which was subsequently announced.
STEFANOVIC:
In the weeks following that meeting when it became obvious Telstra wasn't going to be informing the public. Did you think that was a little bit odd?
PRIME MINISTER:
Well Karl when you have a company as big as this, and when you have a board which includes a lot of highly qualified people, very competent people, and you have a management which is very experienced and very well paid, you assume that they're doing their job. Quite frankly the idea that the Government should spend its time double guessing what the company is doing, I mean we have plenty of other things to do, it's the company's responsibility. You see this is not a Government department and once again we're getting back to this situation, I mean that question is sort of based on the proposition that we are in effect responsible for the running of the company, we're not, and the sooner the dominant shareholding position of the Government is ended the better, so that there can be a clear delineation of responsibility.
STEFANOVIC:
Prime Minister it just looks really bad the fact that you knew about it and that Telstra didn't pass on the information to the public. It just looks really bad.
PRIME MINISTER:
Well we can't... I'm sorry Karl, we can't be certain until ASIC has made a judgement as to whether there was a failure by the company. And you should be fair to Telstra. I'm not alleging that they failed to make full disclosure; obviously they disclosed a lot of things. They produced a report to the stock exchange that very morning. Now it is for ASIC to make a judgement and to make a decision as to whether there has been full disclosure. I'm not alleging that the company's done anything wrong, I'm simply pointing out that the obligation of disclosure rests on the company, it doesn't rest on the Government and we are prevented by law from disclosing what the company has told us. And the other point I'd simply make is that the thing about which there's been so much debate and discussion, this shock horror new revelation that the company was paying dividends out of retained earnings, that had been known in the market for at least a year.
STEFANOVIC:
Just finally on Telstra, it's highly unlikely Telstra will now sell for $5.25, in fact there are some financial experts saying that when it goes ex-dividend it may well indeed fall below $4.00 a share. Have you got a price in mind that you need to achieve in terms of a sell off and what sort of time frame are we now looking at here?
PRIME MINISTER:
Well Karl I'm not going to speculate about the future price of Telstra. We are not going to sell it at any price. What we want to do is to get the sale legislation through the parliament and then we will obviously make decisions about the sale of our remaining shares in an orderly way, we will pay regard to the price obviously, but I'm not going to throw figures around. And people should understand that the share price of an individual stock will go up and down, that Telstra is a very big company, it's a very strong company, it has some very good assets, it is living in a more competitive environment and really a lot of the changed circumstances for Telstra flows from the increased competition and isn't that a good thing? And it's increased competition for example that has given this country one of the best and cheapest mobile phone services in the world. We have an 80% mobile phone penetration in this country. The cost of mobiles has fallen significantly over the years. We have a very good service, a very competitive one and a very cheap one by world standards and that is a result of competition. Now that can't be a bad thing for anybody, and that is in essence what the regulation about which Telstra complains so vigorously is designed to promote - competition - and we'll go on promoting competition because as we've demonstrated in relation to mobile phones, it is very good for the Australian public.
STEFANOVIC:
Alright Prime Minister on Sunday you're off to New York to the UN Summit. Will you be meeting with the President at all during that trip?
PRIME MINISTER:
I'm certain that I will see him, yes. But just exactly in what circumstances... I mean bear in mind he's got a lot on his plate and there'll be a lot of other leaders there but we will certainly see each other if he goes to New York. I expect he will be going there. Most world leaders are going; it's an important meeting for the UN. We will be talking about overseas aid. This Government has a good record on overseas aid but I have to say that the Australian taxpayer wants to be reassured that when we give overseas aid it is not corruptly used and goes to the people who need it most. And I will be wanting to see that any future provision of increased aid by this country is dealt with in a way that the money is not corruptly frittered away because unfortunately some countries that receive overseas aid are corruptly run, and I don't want the money of hard working Australian tax payers to be used in that fashion.
STEFANOVIC:
Alright Prime Minister just finally a subject matter extremely close to your heart. Now Britain's trade union council has urged bosses to allow workers to follow the progress of the 5th test, surely you should issue a directive to Australian bosses to do the same?
PRIME MINISTER:
Well of course the hours are a little different.
STEFANOVIC:
Well for the night time workers then?
PRIME MINISTER:
Well I would encourage as I do in all matters relating to workplace relations; flexibility, flexibility. And there should be workplace flexibility and that means that where it's possible that there should be flexible arrangements so people could watch the boys and I say to Ricky good luck. I think it is wonderful for the game that there is such huge interest in both our countries. I'm glad Glen McGrath is back, he is a tremendous asset, he's such a reliable accurate bowler that he will make a big psychological difference.
STEFANOVIC:
Alright from one cricket tragic to another, thank you very much for joining us this morning Prime Minister.
PRIME MINISTER:
Thank you.
[ends]