Telstra: Separation can be win-win

Telstra chief financial officer John Stanhope has said, subject to three key conditions, structural separation could benefit shareholders.
Written by Liam Tung, Contributing Writer

Telstra chief financial officer John Stanhope has said, subject to three key conditions, structural separation could benefit shareholders during the telco's Investor Day held in Sydney today.

The first condition Telstra wants met before it can sell the concept to its shareholders is that the government gives a "fair valuation" of assets that Telstra might vend-in to the NBN Co.

"The government's explanation sets out two broad forms of structural separation: the sale of the unbundled local loop (ULL fixed assets) or an agreed migration of our customers to NBN Co's fibre-to-the-premises network. In each case, Telstra's assets would be reduced. And shareholders would need to be made whole with some form of financial consideration," said Stanhope.

Stanhope said a successful negotiation with the government would be contingent on Telstra's separation undertaking not being overturned by a government minister or the Australian Competition and Consumer Commission (ACCC).

A third condition would be that Telstra retain its stake in Foxtel, continue to hold its Hybrid Coaxial Fibre assets, and that the telco could bid for future wireless spectrum.

"If these conditions are met, structural separation appears to be a win-win for shareholders, the NBN Co, the government and the nation," said Stanhope.

In contrast to structural separation, the telco's CFO said the proposed functional separation of Telstra, which in the government's current proposal would see heavy oversight by the ACCC, would mean it would face a long period of being "inwardly focused". This separation structure would also work against the government, which faced time constraints, said Stanhope.

Despite Telstra's assurance that it would be able to strike a deal with the government, Telstra CEO David Thodey highlighted some of the hurdles it would face under the two proposed models for transferring power to the NBN Co.

Exactly what Telstra does with its copper network was too early to say, said Thodey. Key factors to consider were its universal service obligation (USO), priority assistance, and the proposed migration strategies: either to push Telstra's customers to the NBN Co or simply sells its ULL network to the NBN Co.

"The easiest way to do this is as you put the fibre in, you pull copper out," said Thodey. However, he noted there was still uncertainty within the government over what would happen to Telstra's copper network in rural areas. Telstra currently is obliged to provide phone services, but under the NBN these areas would be serviced via satellite or wireless.

One thing was certain though, according to Stanhope: "There will be a depreciation of Telstra's copper assets."

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