Telstra should move quickly to negotiate as favourable a strategic NBN position possible, analysts have warned after the government's bombshell announcement yesterday that it would separate the telco's retail and wholesale operations if the company didn't voluntarily separate first.
analysis Telstra should move quickly to negotiate as favourable a strategic NBN position possible, analysts have warned after the government's bombshell announcement yesterday that it would separate the telco's retail and wholesale operations if the company didn't voluntarily separate first.
Ultimately, the best thing for Telstra and its shareholders is
to work with the government
IDC senior analyst David Cannon
"The writing is on the wall," said IDC senior analyst David
Cannon, who believes Telstra should cash in on whatever goodwill it
can before negotiations with the government put it on the back
foot.
"Ultimately, the best thing for Telstra and its shareholders is
to work with the government to get a solution as fast as possible, and
deliver on this vision of an NBN," he said. "If that means
splitting shareholder value between the two organisations, there's
a multitude of ways you could do it to protect the interests of
those shareholders."
Cannon also echoed a sentiment that has emerged in the aftermath
of the announcement, in which Senator Stephen Conroy made the
government's firmest commitment yet to separating Telstra's retail
and wholesale operations.
That sentiment relates to the government's obligations to
shareholders, more than 1 million of whom bought into the Telstra
share float years ago on the assumption that it would be a strong
investment into the future. Despite the standoffish tone of the
government's announcement, Cannon believes it needs to work
together with Telstra to deliver the separation it wants as well as
the regulatory certainty for which Telstra's executives have been
clamouring for years.
Telstra shares, which were issued at as high as $7.50 per share,
were trading at just above $3 today after the announcement. That
reflected a more than 10 per cent decline from the $3.47 per share price
that the government's Future Fund extracted after dumping 5.5 per cent of
its Telstra shares last month.
With Telstra in a precarious position, Cannon believes Telstra
should resign itself to change and move quickly to help the
government secure a meaningful and effective legislative outcome.
"It's best for Telstra to get on-board, negotiate as much equity as
it can in the NBN, and take it to the next level as quickly as
possible," he said. "To keep fighting would seem like they were
trying to hold back the tide."
Proof in the pudding
Not all observers were convinced the
government's checkmate will mean smooth sailing towards separation,
however. IBRS analyst Guy Cranswick, for one, lauded the move as
"long overdue" but cautioned that the terms of separation are still
very much up in the air — and cited Labor's spotty track record in
telecommunications policy as a sign that Telstra isn't likely to
throw in the towel just yet.
"There's still a lot to look at, and my biggest question is to
see how the government handles all of this," he explained. "Their
track record, and their strategic planning internally around the
broadband issue has been less than outstanding: they went forward
on the basis of an election promise on the hoof, then created an
entire plan which, as time went on, has become less and less
realistic."
"Their single-minded focus [on separation] is quite intriguing,
but they've got to be able to have a wider view and think in many
directions so they don't walk into the same problems again and
again."
There's still a lot to look at, and my biggest question is to
see how the government handles all of this
IBRS analyst Guy Cranswick
Ovum research director David Kennedy agreed. "I don't think the
government really wants to have to manage separation itself," he
explained. "The fact is that they're likely to get it wrong: they
don't know enough about Telstra's internal operations to know where
is the best place to separate retail from wholesale. It's most
likely that Telstra will already have a proposal that's best for
all concerned."
Senator Conroy yesterday insinuated that the government and Telstra
have already discussed the potential nature of a separation push —
and that Telstra already has a blueprint for the change in
place.
"I think it would be fair to say Telstra have been preparing for
today for a considerable period of time," he said in a press
conference. "Since the change of leadership [and appointment
of current CEO David Thodey], they put an enormous [amount] of work, very
constructive work, into being prepared ... They were very well
prepared already when we had our first meeting."
Conroy was optimistic about the company's more open position
after meeting with Thodey in June, flagging the chance for
"meaningful dialogue" with the company, which had maintained a combative stance during
the leadership of former CEO Sol Trujillo. After Conroy's
announcement yesterday, Thodey said in a statement that he was "disappointed" in the decision but would continue
engaging in discussions with the government.
Whether or not Conroy's announcement came as a surprise to
Telstra, it has raised warning flags for some observers. Ed Husic,
national president of the union representing the most Telstra
employees, the Communications, Electrical and Plumbing Union,
expressed concern at the lack of consultation before the government policy was
announced, pointing out the uncertainties related to jobs and
arguing that much of the advice given to the government during its
consultation process was biased towards separation.
Ovum research director David Kennedy, however, believes the
government had no choice but to draw the line after separation
continued as a common thread throughout the government's
consultation process.
"It was clear from the discussion paper they issued earlier in
the year that this was what they had in mind," he explained. "This
is a golden opportunity to create a transition strategy from copper
to fibre. And if the government had not done it now, after
considering the results of its discussion paper, they would have
left themselves hostage to Telstra in the future. It was now or
never, and they've clearly decided that now is the time for things
to change."