Telstra separation: industry and analysts respond

Announcement has the potential to create a 'win-win' situation...

Telecommunications analyst, Paul Budde

Telecommunications analyst, Paul Budde

Industry Bodies

An open, competitive environment would be essential to delivering return on investment in national broadband and creating an environment that will support a thriving digital economy, the Australian Information Industry Association (AIIA) said in a statement.

Regulatory reform has been identified by AIIA and several independent parties as an important factor in the establishment of national broadband infrastructure that is competitively priced and widely accessible to all Australians.

“Moves toward regulatory reform complement government initiatives across the technology sector that aim to drive efficiencies and create a competitive business environment as part of the foundation of a genuine digital economy in Australia,” AIIA CEO, Ian Birks, said.

The announcement provided an avenue for Telstra to remain engaged and competitive in both areas and will lead to improved outcomes across the board, according to the industry body.

It anticipated that all areas of the digital marketplace will benefit significantly from Telstra’s experience, influence and active involvement under the revised regulations.

Internet Industry Association (IIA) chairman, Chris Hancock, said that the industry organisation had long called for this move, as the clear lesson from the past 11 years was that the negotiate or arbitrate access regime had struggled to enhance competition and open access.

“Last year we urged that nothing less than an open and competitive National Broadband Network (NBN) should be our goal and we regard the Minister’s announcement as an important advance,” he said. “The IIA regards the NBN as the future of the internet.

“As an essential facility it will underpin much of our social, economic and cultural development in the 21st century. It is therefore crucial we avoid repeating the mistakes of the past if we are to keep up with the rest of the world.”

Competitive Carrier’s Coalition (CCC) Executive Director, David Forman, said the Government’s package of regulatory reforms should result in better services and lower prices.

The organisation, which has been arguing for the separation of Telstra’s retail and wholesale businesses since 2004, was also bemused by reactions regarding the impact of separation on Telstra’a share price.

“Some commentators have expressed shock at the announcement, yet all of the proposals introduced to the Parliament yesterday were raised by the Government in a discussion paper in April,” Forman said.

“Furthermore, BT last year told a Senate inquiry that its share price actually increased after it implemented functional separation, so it is not clear that Telstra shares will necessarily fall.”

Forman said while it was important that the legislation is properly examined, the CCC urged the Parliament to pass the legislation this year.

“These issues have been examined time and again by successive Parliaments and the principles are well understood and broadly supported,” he said. “The sooner these changes are implemented, the sooner consumers will benefit.”

Telecommunications aggregator, Telcoinabox, represents more than 120 telecommunications companies throughout Australia. Managing director, Damian Kay, said Telstra’s separation of wholesale from retail would give industry players a fair go.

“In a separated environment, Telstra Wholesale should be in a position to offer its resale customers the full range of Telstra retail services at a fair price.

Kay said Telstra Wholesale had been limited for far too long by only being able to offer its resale customers a limited suite of ‘Value Added Service’ products at full retail rates.

“Under the current model resellers are required to wear the costs of acquisition, service set up, support and billing for these services. Despite this, they’re not in a position to provide the products and services at the same retail price while at the same time make a fair margin.

Kay predicts that services and products, such as, line hunt, fax duet, calling number display and calls to 13 and 1300 numbers should now be accessible to resellers with a fair margin under the rules of separation. He also predicts that Telstra Wholesale may now be in a better position to resell the Next G mobile services to wholesale customers, which it currently can’t do.

The Analysts

Commenting in a blog posting, Paul Budde, telecommunications analyst at, said the the biggest question Telstra had to face was whether it wanted to play in the media or the telco space.

“The options it has been given do put limitations on where, and to what extent, it can play in the various sectors (fixed telecoms, mobile, broadband, media),” he wrote. “The other possibility would be for it to hold onto Foxtel, but then it would have to forgo further expansion of its mobile network, as the government would block them from buying more mobile spectrum.”

Budde wrote that it was likely the separation would lead to the split of Foxtel, allowing Telstra to create a strong digital media company with the bonus of benefiting from innovation and competition.

“Telstra would be rather pleased with a functionally separate telecoms business, rather than being forced into structural separation, as this would enable it to retain full ownership,” he wrote. “It had already indicated a more cooperative and flexible position regarding its wholesale business and functional separation is a good way to formalise that.

“A functionally separated business would also enable the company to conduct a smooth transition to the NBN, which will be a completely structurally-separated business anyway. However, this is still several years away and so the company will have time to prepare itself for this with minimal disruption.”

Overall the announcement had the potential to create a win-win situation, Budde wrote, through improved customer service, a level playing field boosting competition, and growth in the telecoms sector.

Michael Warrilow, analyst at Hydrasight said if done properly, there may be little visible difference to the consumer, and possibly business, customer.

"If separation occurs, Telstra Retail would likely own the lion's share of the (metropolitan) markets and would have to find ways to avoid eroding that large base while leaving the 'back end' to a separate entity," he said. "However, the chance of this occurring 'properly' and/or 'ideally' are quite low. With Telstra and the government involved, there are bound to be glaring deficiencies and major forced compromises before a deal is hammered-out."

More responses to follow.

Will the Telstra announcement affect your business? Email Email Computerworld or follow @computerworldau on Twitter and let us know what you think.

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