NEWS ANALYSIS: Telstra/NBN - Now we play the waiting game

NEWS ANALYSIS: Telstra/NBN - Now we play the waiting game

The challenge for Telstra is to find new ways to make a profit

This year’s Telstra Annual General Meeting (AGM) on October 18 was particularly significant for the telco.

Shareholders were asked to vote on the $11 billion deal between Telstra and NBN Co which would spell significant changes for the company.

Along with deciding whether Telstra would have an amiable partnership with the government-owned company, their vote would also determine whether the telco would undergo a structural separation of its retail and wholesale arms.

There were the predictably disgruntled shareholders that expressed their disdain for the National Broadband Network (NBN) and the way that Telstra has apparently been bullied into accepting an $11 billion deal with NBN Co.

After all, should Telstra refuse to voluntarily separate its business, it would not only have a functional separation forced upon it but it will be prevented from accessing spectrum to develop wireless broadband services.

The emotive “gun-to-the-head” analogy was used at one point during the AGM.

Nonetheless, 99.45 per cent of proxy votes supported the deal.

This would have been music to the ears of Telstra board members who unanimously recommended for the deal to go ahead. Even independent expert, Grant Samuel, said the agreement was “approximately $4.7 billion greater than under the best available alternative.”

So what does this mean for Telstra besides being able to breathe a small sigh of relief?

It means the business will now have a better financial outcome and regulatory stability.

Let’s do a brief recap of the deal which was finalised in June:

  • Telstra will decommission its copper network and migrate customers onto the NBN over the next 10 years.
  • Telstra will lease its telecommunications infrastructure to NBN Co for the next 30 years.
  • Telstra will receive compensation of up to $500 million should the NBN get scrapped or if the rollout is too slow. Compensation will only be received if NBN fibre footprint hits 20 per cent coverage threshold.
  • Telstra will structurally separate its wholesale and retail business.

But there is still the structural separation undertaking (SSU) to consider.

The SSU is the document that details how Telstra would go about structurally separating itself.

Telstra submitted a draft SSU to the Australian Competition and Consumers Commission (ACCC) in August. After taking on-board scathing criticism from the telco industry, the consumer watchdog virtually told Telstra to go back and fix the document then resubmit it.

The ACCC wants to see more safeguards around transparency and equivalent access of Telstra’s network for other operators in the SSU.

“That is the big thing on the horizon right now,” Ovum research director and telecommunications analyst, David Kennedy, told ARN. “The SSU will probably detail a more clear and enforceable separation of Telstra’s access operations and the rest of the company.”

The rest of the telco industry would hope that’s the case. But years of being dominated by a monolithic monopoly has bred a high level of cynicism.

Internode managing director, Simon Hackett, recently claimed Telstra is, in some way, blackmailing the ACCC and the Government with its inadequate SSU.

If the ACCC doesn’t approve of the current SSU, the document may have to be subjected to yet another Telstra shareholder’s vote which could delay the NBN Co deal, he said.

That would bring delays to the NBN and in turn headaches for the Government that has faced mounting criticism for the expensive broadband network.

Though Kennedy can see where Hackett’s coming from, he doesn’t agree with the Internode managing director’s concerns. Even the ACCC has come out to say it was under no pressure from the Government – or anybody for that matter – to speed up its SSU approval process to get the $11 billion deal rolling.

“The real pressure is actually on Telstra because it doesn’t have forever to sort out the SSU,” Kennedy said.

After December 31, Communications Minister, Senator Stephen Conroy, would be free to come in and impose a functional separation on Telstra at the advice of the ACCC.

“That’s why I don’t think Telstra is in a very strong bargaining position,” Kennedy said. “Whether the telco likes it or not, it is going to have to provide the ACCC with an undertaking the watchdog finds acceptable.”

Even if Telstra does make changes to the SSU, the $11 billion deal wouldn’t be held up by another shareholder vote, according to the Ovum analyst.

“The condition on the deal is that Telstra agrees on an SSU,” he said. “I don’t think there are any specific requirements for it to achieve any particular undertaking.

“So as soon as that is agreed, the Telstra-NBN deal would come into effect and another vote would not be needed.”

Structural Separation

Based on examples around the world, Kennedy expects Telstra’s structural separation process to take around 18 months. In that time, the telco would have to rebuild its IT systems and change the management of the business. It’s more a reorganisation process than an actual separation of its physical network.

The challenge for Telstra is to move from being a company which focuses on running an access network monopoly to one that has to find new ways to make a profit.

“It has to become more nimble, more focused on things like services and content than it has been in the past,” Kennedy said.

Telstra has been making investments in a wide range of areas including Cloud computing and providing content through its BigPond online portal and T-Box.

So it looks like Telstra’s path has already been set. But what about the other party involved in the $11 billion deal, NBN Co?

Its wholesale broadband agreement and special access undertaking, both concerning how third-party operators can access the NBN, are still being looked at by the ACCC. At the end of September, the watchdog called for comments on the revised documents.

“We’re not really sure when that will be finalised,” Kennedy said. “But I don’t think we are too far way from seeing the last two pieces of the puzzle – Telstra’s SSU and NBN Co’s access undertaking – in place.”

This article first appeared in ARN Magazine's highly popular telco watch section - edited by Senior Journalist, Spandas Lui

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Tags TelstraTelecommunicationsNational Broadband Network (NBN)Australian Competition and Consumer Commission (ACCC)mobile solutions


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