Telstra's numbers won't ease CEO Ziggy's woes

Lachlan Colquhoun, Sydney

Friday 23rd April 2004

Telstra's third-quarter results beat market expectations this week but that is unlikely to relieve much pressure on embattled chief executive Ziggy Switkowski.

Australia's dominant telco reported sales for the three months to March were up by 1% to $A5.014 billion, a welcome relief from the 0.1% fall announced when the company reported its half-yearly profit in February.

The market had been expecting a smaller overall improve-
ment, of about 0.5%, and the results provided much needed relief for the company, still reeling from last week's shock resignation of chairman Bob Mansfield, a Switkowski ally.

In stark contrast to the company's vaunted Hong Kong investments, TelstraClear outperformed the overall result, with revenues up 7.3% in Kiwi dollar terms for the quarter and 4.5% for the nine months so far. At Hong Kong mobile business CSL, in contrast, nine-month revenues are down 8.9%.

Although total sales over the first nine months of the current financial year are in the black to the tune of 0.3% before asset sales the performance is nowhere near the 4% growth Mr Switkowski has targeted to achieve by 2006.

"Unfortunately, he has set very high standards for himself and he will be judged on that," independent industry analyst Paul Budde said. "Sure, it's a good result, but I don't think it takes the pressure off him."

Mr Switkowski confronted the issue head on, telling a media conference to accompany the results that he had "absolutely no intention of waking away from this job" in the short term. But he did say that if Telstra did not hit his 2006 target his job would "clearly be at risk."

"I've put that line in the sand, it's clear, it's unambiguous, it's not qualified and I'm accountable to delivering on that performance."

Prime Minister John Howard, whose government was seen to influence Mr Mansfield's 1999 appointment as chairman, last week voiced his support for Mr Switkowski, describing him as "a very good CEO."

But with an election due this year, Howard's Labor party opponent Mark Latham have a good chance of winning government, and if they do there will be significant ramifications for Telstra.

"There is a backlog of reports on Telstra, from regulators to senate committees, and they say things like Telstra will have to look at structural separation, or divesting itself of (pay-TV interest) Foxtel," Mr Budde said. "But the government has pushed that aside because it wants to privatise Telstra. If you get a change of government the new one is going to start digging up those reports, and one of the first things I think it will do will be to make Telstra sell Foxtel."

Mr Budde's tip is that although Switkowski has a contract until 2007, he will be forced out before the election.

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