Telstra Threatens Against Structural Separation

Nov.24.08 | About: Telstra Corporation (TLSYY)

Conventional wisdom is: an incumbent building a NGN equals re-monopolisation; it therefore must offer open access to rivals. But if it has to offer open access, it has no way of earning a decent return on NGN investments.

So much for conventional wisdom.

Just a few days left for the National Broadband Network [NBN] RfP deadline (November 26) and Telstra (OTCPK:TLSYY) is rattling its guns. No structural separation, or else we won't bid. It looks like Telstra wants to have monopoly-style rights, or else it is afraid it will not be able earn a decent return.

Let's poke some holes.

  • If Telstra is structurally separated, THERE IS NO MORE TELSTRA (which is something that must be a worrying idea to Mr. Trujillo). I'm quite sure the Netco that will arise from the ashes will be more than happy to take a AUD 4.7bn grant to expand its network.
  • Open access is for the good of everybody. The more the merrier. More service providers means: more services, more marketing dollars, more take-up, higher utility rates.
  • It would not be good news if Telstra's existing network assets were excluded from the NGN. There would be excessive network duplication.
  • It really needs to take the plan a little bit further and aim for FTTH instead of FTTN.

The solution is quite simple - on the drawing board, at least. Put all those network assets and available funds together - Telstra, Terria, Acacia (NASDAQ:ACTG), Axia NetMedia (NYSEMKT:AXX) - invite third-party investors in (telecoms stocks are hot these days), and bring in government funds (Keynes-style).

Put differently: if Telstra refuses to bid if it is structurally separated, then the only way to make sure that Telstra's network assets are included in the NBN is to first structurally separate the company.