THE DISTILLERY: Telstra plug

Two jotters say Telstra’s well placed to shore up asbestos concerns, while others predict the cash rate will stay on hold.

Telstra Corporation shares took a small slip yesterday as investors dealt with a word that has a long, sad history in Australia – asbestos. But two commentators point out that Telstra is surely well placed to deal with this problem. Asbestos is hardly a new thing for a company routinely involved in construction.

Meanwhile, the Reserve Bank of Australia meets today to decide on interest rates. The consensus is that Governor Glenn Stevens will keep rates where they are for the moment, but that’s hardly a vote of confidence in the Australian economic outlook.

But first, let’s look at Telstra. The Australian Financial Review’s Jennifer Hewett writes that because asbestos is such an emotionally-charged problem, the government has put forward the likeable Bill Shorten as their frontman to make sure the heat lands on Telstra boss David Thodey.

“For Thodey, it’s too late to do other than try and contain the political and market damage as quickly as he can by taking responsibility without quibbling. The fall in Telstra’s share price shows how sensitive the issue is. In fact, the tiny number of potential cases from the NBN rollout, compared to around 2 million of Telstra’s 4 million pits believed to be contaminated with asbestos, put this particular drama in perspective. Telstra has regularly and quietly dealt with small numbers of asbestos exposure claims over many years. After all, asbestos is ubiquitous in Australian suburbs and housing stock. But digging it up carelessly – even a few times – on the company’s behalf on such a high-profile project multiplies community concern exponentially. Along with the political and reputational risk."

The Australian’s John Durie similarly observes that Telstra is very likely to have dealt with asbestos before. But the company’s share price had been on a downward slide over the days leading up to the news.

“The prominence given to the asbestos issue has magnified the uncertainty. But as one analyst noted yesterday, the company's linesmen faced similar exposure issues for decades and to date there has been no major problem. The Communications Electrical and Plumbing Union is also said to be playing up the concerns in part to protect its members but also out of frustrations that the Telstra NBN work is being handled by contractors who are not employing CEPU members. The potential for any asbestos exposure was not a major issue in the long-running talks between the government, NBN Co and Telstra because – in the words of one insider – that was an ‘operational issue’ to be dealt with in the normal ways."

Elsewhere, the Herald Sun’s Terry McCrann, an interest rate sage, says the Reserve Bank will be staying put today.

“Unless I am very much mistaken, that decision will be to leave the official interest rate unchanged. It will be combined with a return to the RBA's mild easing bias. That if in any month, it sees the need to cut the interest rate, it will. In a sense, be warned. That given that statement it could in any month unveil a cut – as it did in May."

The Australian’s Henry Thornton (not his real name) points out what the fall in the Australian dollar presents yet another problem for the central bank.

“Most public discussion has focused on the high value of the Australian dollar, which seems finally to be falling. But domestic costs have also been rising faster than cost increases in both competitor and customer nations. This has inflicted double-barrelled, double-digit cost disequilibrium on Australian businesses. Assuming it continues, the fall in the Australian dollar will not solve the problem of competitiveness, because what is needed is a reduction in costs measured in foreign currency, which requires future increases in domestic costs to be severely restrained. Further cuts in interest rates will encourage cost increases, not restrain them. This is the major dilemma facing the Reserve Bank. A falling exchange rate combined with restraint of costs happened at a time of deep depression in the 1930s and to a lesser extent during the ‘Banana Republic’ crisis of the 1980s. The feature of both episodes was careful and believable explanations by government of the sacrifices needed to minimise the costs of recovering competitiveness.”

Fairfax’s Adele Ferguson has a brilliant follow-up story to yesterday’s yarn about the cover-up at Commonwealth Bank of Australia. It’s about the process of being a whistleblower and how the corporate regulator’s processes around it are just terrible.

Fairfax’s Elizabeth Knight previews the coming announcement from Cricket Australia that Nine will continue to broadcast the gentlemen’s game, but Ten Network will get the Big Bash League.

In other company news, The Australian’s Barry Fitzgerald looks at the move by Perth’s Neon Energy into Vietnam’s offshore oil and gas industry.

And finally, The Australian Financial Review’s Chanticleer columnist, Michael Smith, likens the lowered earnings expectations at Cochlear to a problem that Apple faces with each new product. Cochlear is about to release a new model and consumers are hesitant to jump on board with the old technology.

Why would you buy an iPhone 4S when the iPhone 5 is right around the corner? The same goes for the hearing implant leader.

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