Earliest sale for Australia's Telstra late 2003

Analysts are pencilling in a possible sale of Australian telco Telstra Corp. Ltd in late 2003 on speculation the self-destruction of the Democrats may help the government proceed with the US$16 billion privatisation.

Conservative Prime Minister John Howard won a more flexible Senate on the weekend after former Democrats leader Meg Lees deserted Australia's third political force and Democrats Senator Andrew Murray exiled himself to the party's backbench.

The government needs to win four Senate votes in addition to its own 35 to sell the rest of Telstra, 49.9 per cent of which was sold off in two tranches in 1997 and 1999.

While opposition Labour and the Democrats have blocked privatisation attempts ever since - backed by 66 per cent of Australians according to a recent poll - analysts said government pork-barrelling will almost certainly win over critical votes needed for the sale within a year.

Lees, who will sit as the Senate's third independent in the upper house's non-aligned rump, has said she remained opposed to selling the government's remaining 50.1 per cent Telstra stake.

But analysts said the willingness of Lees and other senators to negotiate with Howard in return for a slice of the revenues from Telstra's sale to support their favourite causes has boosted government hopes for a Telstra sale near the end of 2003.

"Clearly that's what independents, and if I read Meg Lees in particular, that's what they want. They regard this as a big bucket of gravy and they've got their soup ladle at the ready," said Chris Richardson, director of forecaster Access Economics.

"(But) the sheer administrative processes, if you like, suggest that it is difficult to do in much under a year. And to then get the political kick-off ahead of the process means that surely we are a year away at best," Richardson said.

There are now six senators, including a right-wing One Nation senator and two Greens, who can be wooed by the government in its bid to sell the remaining Telstra stake to end the telcos's partially privatised status and to pay down government debt.

Shaw Stockbroking analyst Scott Marshall said while the market seemed to be expecting a sale in about six months - with the share price kicking up in recent weeks on increased media speculation about the sale - 12 months were more likely.

Telstra shares closed 13 cents higher at A$4.88 yesterday after it said it expected broadband revenues to pick up.

"There's got to be mandates done, a lot of marketing etc, so I would say 12 months before anything concrete happens," Marshall said.

Independent telecommunications analyst Paul Budde agreed. "There has to be a lot of pork-barrelling that needs to be done before it happens, so it is going to take some time, and I find it very hard to believe that anything would happen before winter (June-August) next year," Budde said.

Like Richardson, Marshall is taking Lees's assertions that she remained opposed to the sale of Telstra with a grain of salt.

"She previously said that there is a balance that everyone has to work out in their own mind, so I think there may be some flexibility there even in her own mind," Marshall said.

One of the biggest hurdles to the sale is the government's own promise not to proceed until services are improved in rural areas, in line with criticism of the Besley inquiry into telecommunications that reported in 2000.

Last week, the rural-based National Party, which flexes some muscle as the junior coalition partner in Howard's conservative coalition, said it would like to see a similar inquiry into service standards before a sale was considered.

Cabinet is expected to consider the matter on Tuesday. One possible scenario is the rehiring of former Commonwealth Bank of Australia head Tim Besley to check on progress without going into the six-month roadshow undertaken in his first inquiry.

No matter the method, analysts believe the review will find that service levels are good enough to proceed with the sale, a key step in winning over reluctant National Party senators.

"Eventually they'll come out with a review that's going to keep everyone happy. That'll get Queensland Nationals over the line, and maybe some independents as well," Marshall said.

A final consideration in the sale's timing is the belief the government will wait until Telstra unveils its annual results, in August or September 2003, before announcing the float.

"You would be unable to float it to make a sale before the final results are presented next year," said Scott Maddock, a director of equities at Rothschild Asset Management.

"If the Senate approves the sale, then you could do it probably in the December quarter of next year."