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After walloping McMillan Shakespeare, Rudd takes aim at News Corp

Newly re-installed Prime Minister Mr Kevin Rudd isn’t pulling his punches against companies and business leaders as he steamrolls towards Election Day. It started with the PM announcing significant changes to the fringe benefits tax (FBT)which led to McMillan Shakespeare’s (ASX: MMS) share price crashing from $18 to a low of $6.75. Whether you agree with the policy changes or not, most would agree the PM could have gone about it in a better way.

As the commotion subsided last week, the PM turned his attention to a comment by New News Corp’s (ASX: NNC) Chairman Rupert Murdoch questioning just how a Rudd government would fund the National Broadband Network (NBN). Rudd seemed to take umbrage with Murdoch’s question and fired back, accusing Mr Murdoch and News Corp of self-interest in not seeing the Labor government’s NBN framework succeed. The PM suggested that pay-TV business Foxtel — half owned by Newscorp and half owned by Telstra (ASX: TLS) — would face less competitive threats under the Coalition government’s broadband proposal.

Given the increasingly poor near-term outlook for the Australian economy and the weakening budget position – it would seem a fair question by Mr Murdoch – particularly given the dire need to upgrade so many other hard infrastructure assets across the country.

Fairfax (ASX: FXJ) also got involved and appeared to side with the PM, or perhaps it was just taking the opportunity to criticise its main competitor News Corp, by reporting that, “News Corporation has a deep commercial interest in defeating the government and subverting the National Broadband Network.”

While on the one hand all this can just be seen as ‘politicking’, it is interesting to consider the technical differences in Labor’s and the Coalition’s broadband policies.

Labor’s version of the NBN, which will provide fibre-to-the-home as opposed to fibre-to-the-node (FTTN), is a better option in terms of providing bandwidth. While Turnbull rightly argues that ‘most’ homes should be perfectly well served by FTTN, some are suggesting Turnbull isn’t allowing for the significant increase in bandwidth required should  internet protocol TV (IPTV) become widely adopted. Thus Labor’s NBN would create the infrastructure to allow competitors to set up IPTV channels to rival Foxtel whereas arguably a Coalition’s FTTN would not make this competition viable.

Malcolm Turnbull, the Shadow Communications Minister, issued a response stating that under the Coalition’s broadband strategy the roll out would occur much quicker and if anything this speedy roll out would damage Foxtel sooner.

However according to Emma Dawson, the Exec Director of the Institute for a Broadband Enabled Society and also a member of the ALP, Turnbull is being clever by saying FTTN can deliver IPTV by ignoring “the reality of broadband use in the home: there’s no allowance for the use of other applications at the same time as the operation of IPTV.”

Foolish takeaway

The dive in McMillan Shakespeare’s share price is a stark reminder to investors of the influence politicians and government policies can have over the future outlook for companies. Foxtel is arguably the engine room of News Corp now that it has split from Twenty-First Century Fox (ASX: FOX). The vulnerability of News Corp to any negative policies affecting Foxtel is cause for shareholder concern.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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