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Split decision: Telstra’s carve-up plan is 23 years late for customers and competition

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Telstra’s plans to separate into three entities is the most drastic shake-up of Australia’s largest telecommunications provider since 1997 when the Howard government privatised it.

David Hetherington is a senior fellow at Per Capita’s progressive think tank. He suggests that is 23 years late.

The Howard government created an environment for imperfect competition by privatizing a public monopoly, which was responsible for controlling copper wires and other infrastructure. This meant Telsta had to compete against other telcos that it provided critical infrastructure services. It was not ideal.

The market is now even more murkier after the botched and politicized roll-out for the National Broadband Network.

Julia Gillard and Kevin Rudd, Labor’s Labor governments, have proposed the NBN model. This would replace the century-old copper wire network that connected the nation to its homes and businesses with fibre optics. It could have also corrected the mistakes in how Telstra was privatised.

The Abbott government threw out that plan and launched a half-baked NBN. Now, the federal government is planning to privatize the broadband network.

Telstra is looking to break up into three separate entities. Telstra is attempting to buy NBN, which would put it back in a monopoly situation. This might be good news for shareholders. It’s not good for consumers and competition.

Strategic sense – For shareholders

This is Telstra’s Plan. InfraCo will continue to manage Telstra’s fixed-line assets. InfraCo Towers will become the mobile infrastructure. ServeCo will be the third entity that owns Telstra’s active mobile phone business. This includes its radio access network, spectrum assets, and network coverage.

Telstra sees this as strategic.

To make way for the National Broadband Network in 2010, the Australian parliament passed legislation that required Telstra to separate its wholesale and retail divisions and to sell its copper broadband networks and its cable broadband networks to government-owned NBN Co.

At the time, analysts said that it was a positive for Telstra because it would get a return from its aged assets and be able to concentrate on higher-margin revenue business such as Next G Mobile and HFC Cable networks.

It has also lost approximately A$3.5 Billion in earnings due to the loss of control over its network.

Positioning for a privatised NBN

Telstra will have the chance to purchase a privatised NBN through the split.

Last year, Paul Fletcher, Federal Communications Minister, disapproved of any possibility that Telstra could acquire the NBN. He stated that no entity providing retail telecommunications can own the broadband network. A vertically integrated telco cannot own the NBN.

The restructure reveals that it won’t take Telstra to buy NBN, but InfraCo.

Vicki Brady was Telstra’s chief financial Officer.

We are aware that the government indicated their intention to privatise NBN at some point. However, we wanted to ensure we have the option at that point.

Analysts believe that Telstra is the best partner for privatizing NBN. It could provide a better service to NBN customers and make Telstra more efficient.

NBN Co is clearly not doing well. It reported in February a A$2.8 million half-year net loss, after tax. This is on top of multiple multibillion-dollar losses. Although it was a significant improvement, the latest half-year result still reflected a loss of A$648 millions.

The biggest problem with the NBN is its inability to be created without political interference.

In 2013, the Abbott Coalition government was elected and claimed it could deliver NBN faster by reducing from a pure fibre-optic network to one that uses coaxial cable.

It claimed it would deliver the NBN at $29.5 billion instead of the A$50 billion Labor had planned. The results: has been unable to fix outdated technology, and NBN Co has produced a substandard product.

The NBN is far over budget and over time and is delivering an expensive product. Australia is ranked 62nd in the global rankings for download speeds. This places it ahead of Montenegro and Kazakhstan, while Uruguay is in the last place.