Public private partnership Case Study

Telstra: The telecom giant in trouble

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Abstract:
By 2006, Telstra Corporation Ltd. (Telstra), an Australian telecommunications and information services company under the joint public-private ownership held a dominant position in the industry. Despite some setbacks during the dot.com bust, it had remained a profitable company. The Australian Federal Government, which held 50.8% stake in Telstra, announced its intention to sell its remaining share in 2006.

The giant faced many regulatory and competitive scenarios, which ultimately impacted its bottom line. The first tranche of Telstra shares, comprising 33 per cent of the company, was sold in 1997 at $3.40. Thousands of investors made huge losses on the second-tranche privatisation of Telstra. While the second-tranche Telstra (T2) shares were sold for a value of $7.50, they dropped below that level in 2000. Many Telstra shareholders were wondering why their investment in Australia's biggest telecom had gone haywire while the share market hit record levels. The Australian share market reached 5000 in March 2006. In contrast, Telstra share lost about 9% of their value in the same period. In March 2006, Telstra’s share fell to an all-time low on the Australian Stock Exchange, falling as far as AD$3.65. Telstra's shares were trading near the lowest level since the government's initial public offering in 1997.

The case captures the telecom industry scenario in Australia, the competition faced by Telstra and the regulatory hurdles it faces. The investors’ point of view has also been inculcated.

Pedagogical Objectives:

• To understand the nature and structure of telecom industry in Australia
• To discuss the strategy followed by the market leader Telstra
• To discuss the political, legal and economic environmental impact on the functioning of Telstra
• To discuss public-private partnership and its probability of success in the given sector
• To analyse the goal duality of profitability vs. social responsibility
• To discuss shareholder’s point of view for investing in Telstra.

Keywords : Public-Private Partnership Case Study, Privatisation, Public-Private Partnership, Growth Strategy, Telecom sector, Australia, Investment decisions, Competition Globalisation, Divestment, Market leader