Just as with T2 the federal government is requiring investors to borrow money to get into the stock. Not only is it mandatory but they are targetting the bulk of the sale at small shareholders, and then allowing salesmen to use the gearing to disingenuously claim that the investment will yield a 14% dividend in the first year. This article has most of the elements in it, apart from a fair-dinkum analysis of the terms of the sale - http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2006-10-11T075159Z_01_SYD37881_RTRIDST_0_TELECOMS-AUSTRALIA-TELSTRA.XML.

Don't get me wrong: Telstra ought to be sold-off, but on terms that are straight up and down.

The way the basics of the government deal work are that you pay $2.00 now and an additional unspecified amount, but probably somewhere around $1.50, in 18 months time. This is what is called vendor finance. You owe the government the balance, and just like any other loan it has to be paid. It is a leveraged investment, and it is not appropriate for the small investor market.

The fact that you are geared around 62.5% means that the return on your deposit is artificially inflated and you are disproportionately exposed to pricing risk. As most institutional investors will be short of the stock, the price risk is minimal because they will be buyers after the float, but it is there, and a small movement in price could easily wipe-out the super dividend.

Unlike T2 this sale is being made at the bottom end of the market for Telstra stock, for which investors can thank Sol Trujillo, so there is unlikely to be the same amount of grief. Indeed, I bet some share salesmen are spruiking the benefits to T2 shareholders on the mathematically dubious basis of "averaging down", which is somehow supposed to make the first loss palatable.

Unethical?

Using more than $20 million of taxpayers money to promote and advertise for taxpayers to give the Government another $8 billion for a 19% share in what they once owned 100% of at no initial cost??

How exactly is that Unethical - do you reckon??

Thank you so much John Howard and Sol Trujillo!

You are worth every last peso.

Think we'll get a dividend that exceeds total nett profit this year??

BrainDrain, I don't see how it is unethical of them to use government money to sell the share issue. If they were selling surplus government equipment, say computers, you wouldn't deny them the right to advertise, would you?

And I think your valuation of the initial cost is well off the money - it's cost lots of money to set-up Telstra, as well as the money the rest of us have lost because it was a monopoly provider with such a poor level of service for so long.

I don't understand your point about dividends. They shouldn't exceed total profit.