Sensis is the directories business of Telstra and it’s a prime candidate to be floated in the next few months or so in some investment banker-inspired way to create a magic pudding to lighten the parent’s debt load, suck cash out of the pockets of the owners, and make some fat fees. Here’s some background on the float idea.

Proceeds of $10 billion for Sensis and its monopoly on the White and Yellow Pages directories (physical and online and businesses like the Trading Post) will make for a fee-hungry investment banker’s paradise. A rich warm-up for the T3 sale. Under the plan Telstra will load it up with debt and cop some cash. Easy money!

But from Britain, here’s some news that should cause a pause to those planning this sale and if our competition watchdogs are up to the mark, send them off on a similar hunt.

Britain’s competition regulators are going to take a look at the directories business in the UK because of growing fears that there’s little competition, that businesses pay way too much to advertise in them and the chances of that changing without some official prodding, is remote.

Britain’s Office of Fair Trading has referred the industry to the Competition Commission after a seven-month investigation found price regulation had failed to loosen the stranglehold of the two main directory companies, Yell Group’s Yellow Pages and Thomson Directories.

The OFT claimed the two companies earn profits from their telephone books far above other businesses which sell advertising space. Yell’s return on sales – operating profits divided by revenue – is 37%, higher than forecast when price caps were renewed in 2001. Competitors are earning between 3% and 10%.

The OFT said: “This casts significant doubt on claims that competition in the market is increasing. Barriers to entry are significant. The two leading suppliers account for the large majority of advertising revenue and their shares have not changed significantly over the past decade.”

What of Sensis and its directories business? Time for a hard-edged inquiry from the ACCC and its chairman Graeme Samuel? Sensis is essentially a monopoly here and it would be great if the ACCC did a proper inquiry to see what controls or what encouragement should be provided to ensure greater competition.

That’s something the government and its advisers, such as UBS and Caliburn, definitely don’t want to see this side of the T3 sale, whenever it happens. But a solid inquiry into the competition aspects of Sensis business wouldn’t go astray. It would sort of, clear the air and settle any issues before any spin-off or float.

The ACCC last looked at Sensis earlier this year when it approved the purchase of Universal Publications, a map maker and street directories company. There was not considered to be any competition problems. But the problems referred to by the British regulators are more endemic and have similarities here. The ACCC is already in a big brawl with Telstra over reducing charges and costs to consumers and increasing competition.

If it’s good enough for the Poms to probe this area, then it’s good enough for the ACCC.

Peter Fray

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