Analysts weigh in on Telstra break-up

Analysts weigh in on Telstra break-up

Several industry analysts welcome the Federal Government's proposed telco regulatory reforms to structurally separate Telstra into retail and wholesale arms

Separating Telstra is at the heart of proposed telecommunications industry reforms announced by the Federal Government today. But while the industry was quick to welcome the news, analysts say there is still a long way to go before the restructure can be finalised.

The proposed legislation claims separating the incumbent telco’s wholesale and retail arms will promote competition in the telecommunications industry. Under the changes, the Australian Competition and Consumer Commission (ACCC) will be granted additional powers to oversee a possible voluntary structural separation of Telstra. If the telco fails to comply, the Government will impose a strong functional separation framework on the company.

Arguably, one of the biggest blows for Telstra will be its disqualification from acquiring additional wireless broadband spectrums unless it separates or forsakes its hybrid fibre coaxial (HFC) cable network, which is capable of 100Mbps transfer speeds, and its interest in Foxtel. The company will also be required to meet new minimum performance benchmarks under the Universal Service Obligation (USO) dictated by broadband minister, Senator Stephen Conroy, with fines of up to $10 million if it fails.

Despite years of protesting against separation, Telstra said that it is now open to discussions around separation.

"It is Telstra's view that many aspects of this package are unnecessary and need never be implemented if a mutually acceptable outcome can be reached on the National Broadband Network (NBN),” Telstra CEO, David Thodey, said in a statement. "Telstra will carefully examine the package over the coming days."

The proposed legislation amends several parts of the Trade Practices Act (TPA), enabling the ACCC to address regulated wholesale services issues more efficiently. The Australian Communications and Media Authority (ACMA) has also been given increased powers to issue on-the-spot fine for telcos that breach consumer safeguards.

Ovum research director, David Kennedy, raised concerns over Telstra’s structural separation.

“There is no doubt that separation creates a more level playing field and a more dynamic market. However, it also increases static costs and there are suggestions it reduces investment incentives,” he said in a statement. “It remains to be seen where the long-term balance lies.”

While the ramifications of the move are not yet known, Kennedy saw it as a good opportunity for the Government to articulate a transitional strategy to its $43 billion NBN and the newly established NBNco.

“This is the perfect time to vend Telstra’s copper access network into the NBNco, providing an immediate wholesale revenue stream for the NBNco,” he said.

Rather than building a fibre network from scratch and going head-to-head with Telstra, NBNco can opt to upgrade the telco’s copper network to fibre-to-the-home (FTTH) instead.

The separation of Telstra will not be a quick and easy. Factoring in the need to redesign or even duplicate IT systems, Kennedy expected the process to take two years to fully execute.

Frost and Sullivan analyst, Phil Harper, agreed the legislation sat well with the Government’s vision of the new NBN and viewed it as an important step in implementing the network. But he also warned Telstra’s separation would be a long process and called for more details on the Government’s plans.

Layer 10 founder and analyst, Paul Brooks, said it was indeed possible for NBNco to snap up the HFC network and upgrade it to fibre, but claimed equipment capability may be an issue.

“There is a possibility that the company will have to revamp the whole thing and build it from scratch, which means essentially overbuilding it,” he said. “The interesting part of the architecture will be how the Government will use the cable headends to achieve a wholesale only separation among multiple ISPs. That is not currently supported by the HFC network, so there is going to need some work in the back-end to accommodate virtual channels through the network for each customer of competing service providers to separate out the customer base.”

The Bill will be debated in Parliament in the coming weeks.

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Tags NBNTelstratelecomunications industry reformsACCC< Senator Stephen Conroy


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