The Distillery: Tight-lipped Telstra

Jotters pick over Telstra's recent offshoring news, with one saying secrecy around such announcements only feeds curiosity.

In today's business pages, scribes examine the logic of Telstra's latest offshoring move – particularly the strange way it was announced – while others debate the impact of a series of economic warnings on Kevin Rudd's electability.

The Australian's John Durie is confused about Telstra's vague statement about possibly shifting 170 jobs from its network services division to somewhere in India if its network applications and services business signs a contract with an unnamed party. He asks the question: "Why was Telstra playing its cards so close to its chest?"

"The obvious answer is the sensitivity over the offshoring issue and given staff were briefed yesterday it didn't want word to leak out in a distorted manner, potentially jeopardising the business opportunity. That is plausible, but it is overly defensive when most would see the merits of Telstra growing internationally even if it meant some jobs going with it… The trouble when a company bends over backwards to ensure staff members are treated carefully and the message isn't mangled is that it can raise as many questions as it answers."

Fairfax's Malcolm Maiden compares Telstra's "definitely-maybe" decision to QBE Insurance Group's plan to build, own and operate a captive overseas insurance service centre in Manila. He says it shows "offshoring isn't a straightforward phenomenon: there are different models to choose from".

"Each model has advantages and drawbacks. QBE has management control over the creation of its overseas service centre, the people who work in it and the work it does, but the centre will have greater operational inertia than the model towards which Telstra is leaning. If the demand for its services moves significantly in either direction, it will take time for QBE to adjust. Telstra would have less management control, but a more rapid response time."

Other commentators, meanwhile, are attempting to reconcile Kevin Rudd's strong bounce in opinion polls with economic warnings from National Australia Bank's business survey and the International Monetary Fund.

The economy looks so bad, quips the Australian Financial Review's Jennifer Hewett, that Rudd's Labor leadership reforms could make a career in politics "slightly more stable than a career in business". But despite the gloom, she thinks the ALP's new leader has put the party back into contention. 

"Kevin ’13 is clearly working on an October surprise. If he wins – still highly unlikely despite the latest poll euphoria – the party would forgive and forget all that has gone before. If he loses, he is still looking like transforming it into a real competition rather than a 10-lap win by Tony Abbott operating on cruise control."

The Australian's economics editor, David Uren, also seems reluctant to write off Rudd: "The softening economy will hit the budget bottom line but also increases the likelihood of more rate cuts in the lead-up to the federal election."

The chance of a rate cut is also the only positive Fairfax's Adele Ferguson sees in a new report suggesting Australian creditors are happy to accept an average of less than three cents in the dollar on debts owed – "a portent of dark days".

At the Australian Financial Review, Alan Mitchell declares that Tony Abbott, as the likely next prime minister, "badly needs a renewed commitment to economic reform to boost competition and productivity". 

"Abbott’s core promise is to drive the budget back into structural surplus. He will cut spending, as John Howard did in the mid 1990s. But Howard didn’t have to sustain his early spending discipline. He had major assets to sell and, in the first half of the 2000s he won the Chinese lottery, with the biggest mining boom in a century. Unfortunately, there is unlikely to be any huge Chinese lottery prize for Abbott. Rather, with our mineral prices in secular decline, Abbott will need accelerated productivity growth just to generate the tax revenue necessary to deliver the meagre surpluses forecast in the Gillard government’s last budget."

Also assuming a Coalition win, the newspaper's property guru Christopher Joye says an Abbott government must launch "an independent, vigorous and transparent public examination of how to prepare Australia’s economy for financial storms that originate closer to home".

"... if analysts pin the causes of the global financial crisis on poor policy decisions in the open North Atlantic democracies, the prospects for similarly grave mistakes being made at some point in the future, in more volatile and closed economies such as China, are just as high."

In the same pages, Chanticleer columnist Tony Boyd reports "fund managers are enjoying a bonanza in performance fees after a year when the simple strategy of avoiding resources stocks delivered above-benchmark performance for long-only equities products".

And finally, The Australian's Criterion writer, Tim Boreham, runs a ruler over Alcoa's second-quarter loss, which hasn't dampened his cautious optimism about Alumina.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles