02 December 2004 by Richard Chirgwin

The Low Share Price is Structural, Not Personal

If nobody’s listening, I’ll tell you a secret: it’s not Ziggy’s fault.

Some things were Ziggy’s fault – the Asian expeditions, the Fairfax follies, the conviction that Telstra should become a dotcom.

But the share price? Only a brain donor blames the share price on Ziggy. A brain donor – and an institutional investor.

For a while now, a rumour that Ziggy was going to leave Telstra would send the share price upwards; this was the institutions’ signal that they wanted Ziggy gone. The reasoning, instantly seized upon by the business pages that the institutions were blaming Ziggy for the low share price.

They wanted to send that signal, but they were lying through their teeth, and worse still, they’re lying as a cartel. With the lie endorsed by all the institutions (whose representatives can be relied to ask the most clue-free questions any journalist can ever hope to hear), all they need do is act in concert and cast their vote.

The reason Telstra’s share price is between $4.50 and $5.00 is because that’s what the company is worth . The reason it was sold for a much higher price is that the government fudged its value, because the buyers were captive to the stupid idea that a utility stock was somehow magically transformed into a growth stock by the Internet; because the world believed that ‘Internet traffic is doubling every 180 days/three months/six months’. All of this was endorsed by the same goons who now play with the share price to punish an individual.

Three lies, put together, inflated the share price, which the government liked because it let them pay down government debt.

Back to Ziggy. He went along for the ride, and therefore deserves his share of the criticism, but for the institutions to personalise the share price in this way is reprehensible; particularly because it lets the institutional fee-farmers continue pretending they had nothing to do with the whole Telstra share debacle.

Why are the instututions lying to us?

First, because they don’t want the blame sheeted home to the government. They’ve eaten well at the hands of Canberra, and don’t want to ever close a door in Parliament.

Second, because blaming the CEO lets them divert attention away from their own role. The institutions were just as enthusiastic at priming the “Telstra is worth $10” as anyone else. They were either suckers or knaves.

Third, because most of all they want the Telstra privatisation to keep yielding fees for the financial industry.

Hence the share price rose on the news of rumours.

Strangely, when the reality came the first response was a fall in the share price.

My bet is that the institutions knew damn well that a change at the top is not going to help any of the things they want. It’s not going to roll back the competitive market, which caps Telstra’s growth capacity. It’s not going to materially affect the schedule of the privatisation fee-fest. It’s not going to change the economy of telecommunications, or the need to spend money on network upgrades, or the fact that there’s only so much fat you can cut from the carrier before you cut services.

In other words, with Ziggy’s departure, the truth becomes clear: it was personal. On rumours of his imminent resignation, the institutions gave the world their view of Ziggy the person, and pumped up the share price. When the rumour became fact, the real view became clear, and the share price went down.

Ziggy is responsible for some things. But the depressed Telstra share price? The institutions are far more responsible – and they don’t resign.