South African radio interviews Murphy

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quot;Midasquot; commentary for October 15, 2000

By Bill Murphy
www.LeMetropoleCafe.com
October 15, 2000

Market activity in the shares of Telstra, the
Australian telecom giant 50.1 percent owned by the
Australian government, accounted for nearly a third of
the total dollar turnover of the Australian Stock
Exchange on Friday.

This is one day prior to the holders of Telstra's
installment receipts being liable for a further A$2.90
becoming payable. The question being raised by several
Aussie stockbrokers at the end of the day was: Who was
the buyer?

Comments coming from some circles seem to point to
official buying coming from the government.

Has the Australian government joined Hong Kong and
Taiwan and started manipulating its stock market too?

Given the fall of the Aussie dollar over the last few
months, one could see the need for the government to
maintain some credibility. I am told that Telstra
comprises about 15 percent of the Australian stock
index.

Monday action in Telstra shares might be very telling.

The following story on Telstra appeared in today's
Australian Financial Review.

* * *

Australian Financial Review
October 15, 2000

Smart Money Column

Telstra: Everything you need to know to make the big
call on T2

By Christine Lacy

Investors who took up the federal government's second
offer to buy shares in Telstra Corp. last October have
been taken on a bumpy sharemarket ride, in what has
been one of the most controversial times in the
company's corporate history.

Since T2 instalment receipts were issued at $4.50 a
share with the prospect of a final $2.90-a-share
payment a distant year away, the receipt touched a
stunning high of $5.98 in November before plummeting to
a low of $2.59 last month, amid significant concern
over management's Asian strategy and slimming domestic
margins.

In between, holders of the 2.1 billion receipts on
issue, many of whom were first-time share investors,
were swept into the euphoria of the tech and telco
sharemarket boom and then dealt a dose of reality when
the bubble burst and stock prices plunged.

Now, amid uncertain times for the company, the
commonwealth has made the final call on T2 receipts,
whose trading price is languishing around $3, with a
third of shareholders' wealth already eroded.

Investors have only one trading day left to avoid the
commitment to pay the final instalment on the receipts
before the stock ceases trading at the close of
business on Monday.

By then, investors who retain their stock will also be
left with a demand to pay another $2.90 a share if they
bought in last October's offer, and $3.05 if they
bought on market after the float.

Investors now have to choose: sell or hold? Is payment
of the second instalment a case of good money after
bad? And what is the true cost of the alternatives that
have come to market in the past fortnight?

A fundamental re-rating of the value of
telecommunications stocks around the world has taken
place in recent weeks. Telstra has not been alone in
suffering a decline in its share price, and some market
analysts suggest things could get a lot worse before
they get much better.

Unfortunately for retail and institutional investors
alike, the second tranche of Telstra stock was sold
near the peak of the market before concerns over the
need for large licks of capital to fund expansion, and
news of a host of equity raisings in the coming year,
hit the streets.

Investment bank Goldman Sachs, in a report on Telstra
published during the week, says upcoming offshore
equity issues this year would limit the telco sector's
ability to outperform the wider market.

quot;We believe there's a substantial amount of paper to
come out and that this places a limit on sector
outperformance, especially among incumbents like
Telstra,quot; the bank says.

Telstra chief executive Ziggy Switkowski visited New
York during the week to sell the Telstra story to
northern hemisphere institutional investors, seeking to
instill confidence in Telstra's prospects.

quot;Telstra has a strong track record of performance
within a competitive environment. I have every
confidence we will continue this performance,quot;
Switkowski told a Merrill Lynch conference.

quot;I have a first-class management team in place with a
growth strategy and an appropriate operational
structure which will ensure a long-term sustainable
competitive advantage both domestically and in Asia.quot;

Concerns had been raised over Telstra's choice of
Richard Li's Pacific Century CyberWorks as its Asian
partner, along with the US$2.38 billion cost of the
pair's alliance.

In recent weeks, the proposed partners have returned to
the negotiating table to nut out a repriced transaction
to reduce Telstra's cost, which analysts criticized as
being too expensive and earnings dilutive for several
years.

On Friday they emerged from the bunker to reveal a much
cheaper transaction for Telstra, which will invest
almost $1 billion less cash to bring the deal to
fruition.

The extent to which executives are able to capitalize
on their better deal and execute the two joint ventures
to be created between the companies will be a critical
factor in Telstra's prospects going forward.

quot;The relationships we are putting in place with PCCW
and Hong Kong Telecom are the beginnings of a
significant long-term commitment to Asia,quot; Switkowski
said during the week. quot;We believe this deal creates a
strategic platform for significant growth
internationally.quot;

His Asian way comes against a backdrop of an intensely
competitive domestic market, where margins are
shrinking and Telstra is losing market share to new
entrants.

Switkowski believes the company's next $50 billion to
$100 billion in market value will be driven by offshore
endeavors, but as that strategy is executed, Telstra's
under-pressure domestic operations will act as the
engine room.

quot;I don't want anyone to have any illusion about the
importance to Telstra of the Australian domestic
market,quot; Switkowski said.

quot;It is the market where most of our revenues come from,
where just about all of our profits and all of our cash
flow will be generated over the next few years.quot;

But declining margins remain a key concern in the
marketplace as growth in expenses outstrips growth in
Telstra's revenues.

quot;Our fundamental operating concern is falling margins,
especially in the mobile sector,quot; says Goldman Sachs.

It forecasts that top-line operating earnings from
Telstra's OnAir mobile division will fall by about 10
per cent this financial year.

Further uncertainty over the company's future is
provided by its partially privatized status and the
future of the federal government's 50.1 percent holding
in the company.

The Howard government has made little secret of its
desire to take its holding in Telstra to market, but is
hamstrung by the opposition of the Australian Democrats
to further privatization.

Eventually, the stock will be sold to lift the shackles
of political considerations from Telstra's operations,
but until then management must contend with the
restriction.

Speculation also refuses to die over a strategy to spin
Telstra's infrastructure assets out from the group and
into public hands, with the retail components of the
company's $17 billion-a-year operations sold off.

Meanwhile, management has been criticized for a
scatter-gun strategy as it seeks to pick the way
forward to reinvent Australia's incumbent carrier as
early victims of the new economy revolution lie at the
feet of the market giant.

The strength of investors' faith in management's
ability to find a new way for the company to drive
shareholder value in coming years will be a defining
factor in the decision on whether to hold Telstra stock
into the long term.

Switkowski, for his part, urged his shareholders to
become believers.

quot;Telstra is taking full advantage of just how dynamic
our industry is, rather than being unsettled by change
and competition,quot; he said.

quot;We're a modern communications company, fiercely
competitive in the Australian market, with growth
opportunities in international markets, which in turn
will provide the best value to our shareholders.

quot;These factors give me every confidence in our future.
Because of these factors, Telstra stands out from other
telecommunications companies. Our future has never been
better.quot;