Telstra separation 'could hurt Australian market'

Further separation of Australian carrier Telstra’s retail business and access network division could cause “serious damage” to the Australian market, an analyst has warned.

There have been increasing calls for operational separation of Telstra as the deadline for bids to build a national fibre network rumbles ever closer.

But David Kennedy, research director at Ovum, said this week that that separation is always a local solution to local problems and it is not essential to success.

Since UK incumbent BT separated its access network and wholesale division back in 2005, operational separation has been held up as a model. Subsequently, Telecom New Zealand has been through the same process.

Yet France hasn’t adopted separation as policy, but it is a European leader in the fibre to the home (FTTH) market in Europe.

Kennedy said overseas policies, “cannot simply be copied into the Australian market, which has many significant differences to the UK and New Zealand. Operational separation might be implemented in Australia, but before that could happen a lot a hard work would need to be done to identify the right approach. The reality is that we haven’t even begun to do this work,” he said.

Also, when the New Zealand government announced its 2006 package of reforms, including operational separation, Telecom New Zealand’s share price dropped around 30 per cent. “If we saw a similar drop in Australia, it would crimp Telstra’s capacity to invest in new networks and technologies. This could have the perverse effect of delaying investment in new broadband infrastructure,” said Kennedy.

Telstra, Australia’s Macquarie Bank, and the G9 consortium led by SingTel Optus – now known as Terria – are all understood to have tabled a bid for the proposed broadband network. The FTTN network is expected take around four years to build, and it will be used for decades, delivering speeds of at least 12Mbps to 98 per cent of Australian homes. The government is planning to provide about A$4.7bn in funding for the network, with the balance to be provided by the winner of the tender. The total price was originally expected to extend to about A$8bn, but Telstra CEO Sol Trujillo recently commented that a A$14bn price tag now seems more likely.