With the appointment of Sol Trujillo as the new Telstra chief the Government has its crash through or crash team in place for the final Telstra sale. Former US telephone company executive Trujillo joins Chairman Donald McGaughie (appointed in mid 2004) as the public face of the planned $30 billion plus sale.

Their riding instructions are simple. Get the Government's final 50.1% of Telstra away at a price that will not alienate the 700,000 'mum and dad' investors who bought shares in the second round of Telstra's privatisation.

Both come with a record of deal making that has clearly impressed the Howard Government and the Telstra board - Sol Trujillo as head of telecommunications industry giants US West and mobile phone company Orange and McGaughie, as former National Farmers Federation President, who teamed up with Chris Corrigan of Patrick Stevedores in the 1998 waterfront battle.

They make an odd couple. The taciturn McGauchie, who had a late start in public life, having spent twenty years down on the farm, and the high profile and outgoing Trujillo, who has enjoyed the corporate and public spotlight over the last ten years as the most senior Hispanic businessman in the United States and as head of French-owned mobile phone operator Orange.

Although McGuachie once considered entering parliament he has not had a high profile other than his role in forming the union-busting Producers and Consumers Stevedores during the battle with the Maritime Workers Union. Trujillo in contrast appears to enjoy centre stage and has gathered numerous public awards on his way up the corporate ladder.

Trujillos's work at US West on minority employment issues led to a prestigious 'bridge builder' award in November 1999 from the Ronald H. Brown Foundation, named in honour of former US secretary of State Brown. It took him into the league of the great and the good, as previous recipients include Hillary Clinton and Archbishop Desmond Tutu.

Trujillo also gathered a 1999 'best in class award' from the Urban League of Metropolitan Denver and in May 2000 he was awarded an Honorary Doctorate of Law by the University of Wyoming, his former alma mater.

Such awards are critical in US corporate life, especially when you're fighting for a top job as Trujillo was in late 1999 and early 2000 when, as the Denver Business Journal reported, he was engaged in 'high-level struggle for power' as US West merged with fibre optic company Qwest headed by Joe Nacchio.

But for Trujillo it was perhaps better to give than receive, for as the Denver Business Journal also reported on 15 September 2000, US West under his leadership gave $1.02 million to the Urban League and $300,000 to the Ronald H. Brown Foundation. Similarly on awarding Trujillo with his honorary doctorate in May 2000, University of Wyoming President Philip Dubois confirmed US West had been ' a strong corporate sponsor of the University of Wyoming.

Original from The Australian, 2 Aug 2005

Following the award and after he had left US West with a substantial pay out Trujillo dipped into his own pocket to support the university. In January 2001 he and his wife Corrine committed $1 million to endow the 'Solomon D. Trujillo Center for e Business' at the University.

McGaughie has not been active in collecting public accolades, yet despite differences in style they have much in common. Both are reported to be forceful personalities and both are politically connected. McGauchie's role in setting up a non-union strike-breaking stevedoring company in 1998 clearly impressed senior coalition members including the Prime Minister, whilst Trujillo's success as a fund raiser for Republican Senator John McCain led to appointments as a White House adviser on trade.

McGauchie can only hope that the lobbying skills Trujillo demonstrated on Capitol Hill will translate into the same success as he takes on the politically-charged sale of Telstra. In the late 1990s, Trujillo and his company gave a US$107,520 donation to Senator McCain, the Chairman of the Commerce Committee which regulates the telecommunications industry, The Senator returned the favour by pushing the Internet Regulatory Freedom Act, legislation that would have allowed Baby Bells such as U S West to enter the lucrative broadband Internet market.

Trujillo, like McGauchie, will need all his skills to balance the conflicting pressures now obvious in the sale process. Queensland National Party politicians and particularly new Senator Barnaby Joyce, are nervous about the sale, fearing a rapid decline in rural telecommunications investment and service standards. Shareholders and especially the mums and dads who paid $7.40 in the Telstra 2 sale want to see the share price rise beyond the Government $5.25-$5.40 benchmark for the float. Employees, fearing job cuts as Trujillo chases much-vaunted cost savings, will also want some assurance.

What can Trujillo offer to meet these conflicting expectations? Employees might expect a little sympathy from a CEO who comes to Telstra after fifteen months without a job after he left Orange in March 2004. Trujillo must know that once you're over fifty in the telecommunications industry no-one wants to know you unless it's Donald McGaughie.

Employees might expect a little sympathy from a CEO who comes to Telstra after fifteen months without a job after he left Orange in March 2004. Trujillo must know that once you're over fifty in the telecommunications industry no-one wants to know you unless it's Donald McGauchie.

Trujillo's time at US West, which served the 14 mountain states of the North West of the United States suggests, at least to Mr McGauchie, that he has considerable experience in serving rural and remote customers. On announcing Trujillo's appointment McGaughie said,

His time with US West/Mountain Bell covering diverse geographies such as Colorado, Kansas, New Mexico and Arizona means he has experience running businesses in geographies similar to Australia.

But whilst US West's service area does include remote communities and farms much of the responsibility for serving high cost customers in the North West fell on dozens of independent telephone companies that are typical of service in the rural USA. .

Nor can Telstra customers take much comfort from US West's tag as US Worst. Although Trujillo shrugged off his former employers tag for poor service and whilst he is credited with significant improvements in US West service quality in the second half of the 1990s, the fact remains that US West suffered far more consumer complaints than other large phone companies in the North Western area such as GTE.

Despite claims that US West made massive gains in service quality under Trujillo the problems remained so severe in 1999 that the state regulator in Colorado took the extraordinary step of issuing a notice to consumers explaining why they couldn't get dial tone i.e. why they couldn't always make a call. The Public Utilities Commission stated that the problem lay in underinvestment, a criticism of Trujillo's time at US West that was mirrored in a class action taken by customers in the 14 states the company served.

In US West's home state Colorado the complaint accused the company of providing 'fraudulent' service and the lawsuit accused US West of:

Deliberately not telling customers of service delays, assigning higher service priorities to wealthier neighborhoods and diverting money that should have been used for serving its phone customers to instead bolster its newer product lines.

In October 2000 US West's successor, Qwest, although not admitting liability, agreed to a settlement offering $36 million to the 244,000 customers who were affected by poor service over the previous seven years.

Those complaints take some of the gloss of Trujillo's much praised initiatives in rolling out high speed broadband services because it would seem this new investment was at the expense of basic network investment in the rapidly-growing mountain states area. The rate of basic investment was so slow that many US West customers were still being served by old technology analogue telephone exchanges, nearly a decade after Telstra had completed full digitalisation of its exchange network.

Indeed under Trujillo it would seem that rather than nurture and develop its basic customer network and give real meaning to Trujillo's mantra of 'customer intimacy', US West set out to divorce large numbers of high cost rural customers. In June 1999 it struck a US$1.65 billion deal to sell 540,000 subscriber lines to the Citizens telephone company of Connecticut. This followed a 1995 sale of 45 rural exchanges to Century Tel. The Citizen deal fell through two years later after Trujillo left US West when Citizen, after acquiring an initial 17,000 lines, complained that customer revenues did not match US West's earlier estimates.

Despite that mixed record, on announcing Trujillo's appointment, Telstra's Chairman Donald McCaughie said:

Mr. Trujillo has successfully led a number of major cultural and business change programs. We believe Telstra will similarly benefit from his pragmatic innovation, strategic and tactical thinking and outstanding implementation.

Perhaps Mr McGauchie should have looked more closely to see where Mr. Trujillo's ' pragmatic innovation, strategic and tactical thinking and outstanding implementation' has led. Whilst it might have escaped Mr. McGaughie, a number of Australian journalists quickly discovered Trujillo's deal-making skills might not be in shareholders' long term interests - especially his biggest deal, the US $85 billion merger of US West with telecommunications newcomer Qwest in mid 2000.

On 16 June 2005 the Bulletin's Luke Collins reported.

Just two years after merging the company (US West) with Qwest Communications, Qwest wrote off tens of billions of dollars from the deal. Earlier this year, several Qwest executives including CEO Joseph Nacchio were charged with fraudulently reporting revenues that assisted the merger.

There can be no suggestion Trujillo or US West were engaged in the innovative accountancy that marked Qwest's books and that have led to ongoing civil and criminal law suits against senior Qwest executives, including former Qwest CEO Nachio who brokered the merger with Trujillo. But if Trujillo really had the strategic and tactical thinking that so impressed McGaughie he would have understood that the merger with Qwest was fraught with risks for US West's shareholders, employees and customers.

As the Bulletin reported, Trujillo did not join the new company. He left US West just before the merger departing with a package of $56 million, although the Bulletin noted some sources suggest Trujillo left with up to $200 million. Trujillo had been expected to take a senior operational role in the new company and in a letter dated 23 June 1999 outlining Qwest's offer for US West, the CEO of Qwest Joseph Nacchio had suggested Trujillo take the role of chairman. A later joint US West/Qwest press release of 18 July 1999 outlined the benefits of the merger, with Trujillo suggesting there were synergies that will 'create significant benefits for customers, employees and shareholders.' Trujillo said:

Together we will create a powerhouse with end reach, innovative products, integrated wireline (fixed) and wireless services and broadband and Internet capabilities that are truly cutting edge.

The reality after Trujillo's departure fell far short of the rhetoric.

The deal Trujillo helped engineer effectively exchanged one US West share for 2 Qwest shares. At the time of the merger US West shares were worth around US $75 and on opening after the 30 June 2000 merger date the new Qwest shares were trading at US $40.

Within two years (see chart) Qwest's shares had fallen catastrophically to a low of US $1.37 in July 2002. Even significant financial restructuring which saw Qwest write off $20 billion and offload one of the former US West's crown jewels, the directory business, the shares are still worth little more than US $3. If that loss of shareholder value wasn't bad enough, shareholders found that, unlike the former US West which paid a solid and consistent dividend stream, Qwest has not paid a dividend since 2000.

The share price collapse led to law suits by investors including the California State Teachers' Retirement System, the third largest superannuation fund in the US, and the State of New Jersey who alleged that Qwest was one of four companies responsible for more than $150million in State pension system losses. What had been a blue chip stock which superannuation funds needed to hold had sunk to near junk levels.

Employees of US West also found out that the promised future was not bright when Qwest chief Nacchio announced the loss of 12,800 jobs in September 2000, only months after the merger. Nor were former US West employees immune, with retirees who held US West shares as part of their retirement packages suffering significant hardship as the dividend stream dried up.

What went wrong and why did Trujillo take a conservative and solid Baby Bell telephone company into such a disastrous merger? In Trujillo's words, US West had to grow. He found himself CEO of the smallest of the Baby Bells, the seven local phone companies split off from giant AT&T in the mid 1980s, and US West had missed out on the round of mergers that saw the other six Baby Bells consolidate into three in the 1990s.

US West under Trujillo had also missed out on the explosive growth in mobile services in the late 1990s when it sold its wireless business in 1997 to Airtouch Communications for $5.7 billion. Within twelve months of the sale Airtouch merged with UK mobile company Vodafone in a deal that valued the former US West wireless business at more than double the price US West had negotiated.

In his search for growth Trujillo was apparently seduced by the promise of access to Qwest's millions of kilometres of fibre which would take US West far beyond its existing market.

But whether it was just puffery and optimism or fraudulent, Nacchio's promise of massive growth for Qwest was sufficient to get Trujillo on board for the merger, but not sufficient to keep him on board for the longer term.

After that bruising encounter with Nacchio and as the laws suits flew whilst Qwest unravelled, Trujillo took a lower profile position with high tech start-up Graviton, a remote sensing company partly funded by the CIA's venture capital arm.

He stayed three years, leaving before a before a failing Gravition was taken over. Trujillo then left to join Orange, the European mobile operator owned by France Telecom. His tenure was brief and the reasons for his leaving are unclear. Perhaps France Telecom just wanted an outsider who could crack heads and bring together Orange's largest divisions in the UK and France. It was perhaps just a short-term task.

But the Telstra job is not being posited as short term, even though Trujillo has immediate priorities which are cost reduction and increasing the share price.

The questions arises as to why is an obviously wealthy man is taking on such a difficult task, a task which respected conservative economic commentator Terry McCrann described as 'mission impossible'. On the 18 June McCrann asked whether Trujillo had been appointed because he offered a promise of growth that would lead to a higher share price. Specifically McCrann asked:

Does the new Telstra chief executive officer Solomon Trujilllo believe he can get the share price back to the $7.40 paid by retail investors in T2? Does he intend to try? ... if so it spells disaster for Telstra and it would result in small investors in the third tranche being burnt 'every bit as badly as they were in T 2. The Australian, 18 June 2005

McCrann noted that Telstra is, if not the world's most profitable telephone company, amongst the top three and it earns:

a staggering 50c of operating profit on every dollar of revenue ? to suggest it could lift its margin to 75c in the dollar is simply ludicrous.

As Terry McCrann points out Telstra could get its share price up;

by, for example, sacking half its workforce (which) would destroy its business and its existing profits.

But Trujillo comes to Telstra after a decade of cost cutting in which Telstra's investment progam has fallen by 40% in real terms and the workforce has been halved while it has lost 30% market share under regulatory rules stacked against it. Trujillo may believe he can get growth from some regulatory relief and he has certainly made the right noises about the nonsense of breaking Telstra up, but the Australian regulatory regime is far different from the US.

In the late 1990s Trujillo's US West stonewalled competitors with fourteen law suits that limited interconnection and access to US West's network. The Australian Competition and Consumer Commission will not respond kindly to such a litigious approach.

Given Telstra's continued loss of market share and a share price that did not rise with his appointment, Trujillo has little room to move constructively to deliver what the Government wants.

Telstra - once Australia's largest employer and a key institution in the formation of Australia's economy driven by a public service ethos that took telephones to all Australians irrespective of cost - will become a shell. The full sale can only be achieved by savage cost cutting that will, in McCrann's words, destroy Telstra. But as Maccoby suggested in the Harvard Business Review, narcissistic leaders like risk and sometimes ignore the costs.

Will McGaughie also be bothered by the long-term costs of delivering what the government wants? Probably not, if his record on the waterfront is any guide. Despite committing the National Farmers Federation to backing the strike-breaking labour force they had mustered, after the dust settled and the wharfies came back, he walked away from his ideological foot soldiers.

Perhaps he and Trujillo can walk away as readily from a fully privatised Telstra once the job is done.