Michael Pascoe writes:

Fresh from being snubbed again by the
Federal Government for a role in the T3 fees
frenzy, Macquarie Bank has sent its clients a damning research note on the dominant telco.

Some cynical souls might form an opinion
about whether such a report would have seen daylight if the Millionaires’
Factory was still in the running for some of the Telstra action. Even more
cynical souls might have an opinion on whether there was a direct relationship
between being dumped and the dump on Telstra – but they of course would be
absolutely wrong as the outstanding regulators of the ASX and ASIC assure us
that there is no relationship between investment banks’ research
recommendations and their multi-million dollar fee generation activities. So

Macquarie has reportedly been frozen out
by the Feds over a leak that forced
it to pull out of a Defence Department tender in October. Mac Bank
might start wondering if it’s getting value for money from all those
former Liberal politicians and bureaucrats on its payroll if it
continues to
lose government business.

Aequs Securities is telling its clients
that the Macquarie report is one of the worst it’s seen for Telstra for some time. The
MacBank analyst headlines that Telstra is in its sixth year of
underperformance, it’s expensive (at 14.6 times 2006 forecast price earnings),
there’s significant execution risk in Solly Trujillo’s transformation plan,
copper wire revenues have fallen faster than expected, regulatory uncertainty
has increased significantly, more competition is likely as barriers to entry
continue to fall, there’s little evidence of anyone else making a go of content-based
growth and, all in all, Maccas think the bear case is a more likely outcome for
Telstra than the bull case.

The bull case seems to consist of saying
the downside has already been factored into the share price, so all the risk is
on the upside. Macquarie rated three other telcos as “outperform,” one as neutral and
Telstra as “underperform” – which means

Not everyone is so down on Telstra –
certainly not those in the running for a piece of the float action. Beyond
those with vested interests, Aequs points to funds manager Perennial Value
Management which is happy to be sitting on $500 million worth of Telstra shares
for reasons including the new management’s willingness to confront regulation,
the fully franked dividend yielding 10.5% pre-tax, the general
underweighting by other institutional shareholders and the possibility that T3
might not yet happen.

Now that would cause some broker angst.

Disclosure: A minuscule proportion of those Telstra
dividends flow into the Pascoe family super fund