ABS ASSESSMENT

23 In considering the issue as to whether and when Telstra moved from a public sector unit to a private sector unit the ABS notes the following:

1. the T3 sale has effectively reduced the Australian Government's shareholding in Telstra to 17% - this is not sufficient to give it control in terms of determining general corporate policy through the appointment of the majority of directors;
2. the instalment nature of the T3 sale means that while investors will have beneficial ownership of the shares in terms of rights to dividend and instructing the trustee how to vote at meetings of shareholders, the shares will be held in trust until payment of the final instalment in May 2008;
3. from a statistical perspective the ABS has concluded that the trust is a private sector unit, reflecting the trustees' obligation to act in the beneficiaries' interests;
4. for statistical purposes the trustee, Telstra Sale Company Ltd, is a Commonwealth owned company and should be classified for ABS statistical purposes as a public financial corporation;
5. until the Australian Government transfers the balance of its Telstra shares to the Future Fund it retains some element of control through its legislative powers.

24 Taking into account the above, the ABS has concluded that the T3 sale will result in a change in sectoral classification of Telstra from being a public sector non-financial corporation to a private sector non-financial corporation.

25 In terms of the timing of the change the ABS has concluded that the final instalment date of May 2008 is immaterial in that the trust holding the shares is a private sector unit. As such, the combined shareholding of the trust and other non Australian Government shareholders is about 83% of Telstra shares, a clear majority.

26 As to the remaining options there are arguments for each. In a strict legal sense the Australian Government has a degree of control over Telstra, through the Communications Minister’s power to direct Telstra in the public interest, until such time its shareholding fell below 15% through the transfer of its Telstra shareholding to the Future Fund, which was to take effect no later than 24 February 2007. Whether this constituted "the ability to determine general corporate policy by appointing appropriate directors, if necessary" as required under the SNA definition is debatable. In relation to the final option - ie 20 November 2006, the view is that 83% of voting rights and effective control at Telstra shareholder meetings effectively resided with the private sector as shareholders, or through their capacity as instalment recipient holders to direct the trustees on how to vote.

27 In considering the issue the ABS view is that while the Australian Government notionally retained some control of Telstra through its legislative powers, it is not clear that it constituted control as defined above, nor is it obvious that within the narrow window of opportunity ie 20 November 2006 to 24 February 2007 that the Australian Government could effectively invoke those powers.

28 The ABS on balance assessment is that the classification of Telstra changed from public sector non-financial corporation to private sector non-financial corporation with effect from 20 November 2006.