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Regulatory reforms

The Minister’s announcement is providing the industry with very interesting and innovative options in relation to the new regulatory environment.

While setting clear parameters it also allows Telstra to make its own choices.

The main decision Telstra will have to make is where it wants to be – in the telco space or in the media 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). 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.

We do not believe the latter option would be acceptable to Telstra.

In BuddeComm’s opinion this announcement will lead to the split of Foxtel, which would allow Telstra to create a very strong digital media company, and this would be good for innovation and competition.

As we have been saying for over five years, Telstra could create a strong digital media company by also including other ‘content assets’ (Big Pond, Sensis). That company could then take a national, and even international, leadership role in this emerging market, which would be good news for shareholders as it would have the potential to significantly increase in value.

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. 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.

Telstra will still have to negotiate with the government (NBN Co) about whether it wants to participate in this new company, and, if so, how this will be done; but decisions on this won’t be made until 2010 and Telstra will, of course, take all of this into account when making its plans for the future.

Recent announcements at Telstra have indicated that it is accepting that changes will have to be made and the company has indicated that it is prepared to work with the government on this. This announcement actually could produce a win:win situation, as follows:

  • For the national outcome – more innovation and competition – and this, together with some of the other announcements in relation to consumer issues, will necessitate improved customer services. These separations, linked to the NBN, will begin to pave the way for a trans-sector approach (healthcare, education, smart grids, etc) towards the infrastructure.
  • Competition – a level playing field will finally be established, which will create a fairer competitive environment between Telstra and the rest of the industry. This will be further assisted by the extra powers that the ACCC will have, based on the proposed changes to the Telecoms Act. A more open environment will also offer more opportunities for new players entering the market.
  • Telstra will be required to make choices, to focus on its future and sharpen its strategies, and, as the end result (the NBN) will actually lead to an increase in the overall telecoms pie, it will also have plenty of room to grow.

Throughout the telecoms reforms the Minister, his team of policy advisors and the Department have demonstrated an innovative approach and at every turn have surprised the market, in a positive way, with their handling of this complex matter. They should be complimented on their creative solutions.

Paul Budde

This entry was posted on Tuesday, September 15th, 2009 at 2:29 pm and is filed under From Paul's Desk. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

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2 Responses to “Regulatory reforms”

  1. Owen Paynter Says:
    September 16th, 2009 at 8:22 pm

    Dear Paul, RE Telstra

    Mr Budde, my brother works at Telstra, and I have studied internet and telco directions, hence my receival of your excellent emails. I suggest you may be very wrong in todays 16 September theory of what “could happen” to Telsra.

    I think this will occur:- Telstra will issue or allow(from Govt) new shares in 5 new companies- to all shareholders. Co 1:- Telstra Smile (retail phone). Co 2: (NBN co with Aust Gov and others) wholesale in which Telstra debt is taken by Govt, plus 12 Billion cash, plus 30 % shares allocated to TLS shareholders in exchange for existing wholesale infrastructure, Co 3 Telstra Media (Foxtel etc). Co 4:- BigPond. Co 6 Telstra International.

  2. Tony Simons Says:
    September 17th, 2009 at 4:41 pm

    Senator Minchin should be shamed for his recent statements on the interests of Telstra shareholders. ( versus the public interest). The Howard government’s major blunder of not spltting into wholesale and retail and signing off on the appointment of that terrible bully, robber baron Trujillo and his fat amigos. I have been a Telstra shareholder since T1 , traded in and out frequently and see excellent value at the moment.

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