Telstra’s bombshell announcement that it will split in two is “huge” news for consumers, resulting in cheaper, faster internet. But experts say it comes 15 years and $40 billion too late.
On Wednesday Telstra chief executive Andrew Penn unveiled what he called the ‘Telstra2022’ plan – a major restructure of the company to downsize it and make it more “streamlined”.
Alongside 8000 job cuts and a radical reduction in the number of consumer and small-business plans, this plan included hiving off Telstra’s infrastructure network to form a new company, called ‘Telstra InfraCo’.
In a somewhat cryptic statement, Telstra hinted that when the government comes to sell the National Broadband Network, Telstra InfraCo could end up buying or merging with it.
“Importantly, Telstra InfraCo will provide significant optionality for Telstra in the future for a potential demerger or the entry of a strategic investor once the NBN rollout concludes,” the company stated.
Telco expert Mark Gregory, associate professor at RMIT, told The New Daily such a merger was “absolutely inevitable” and that it would have a hugely positive effect on Australian telecommunications.
It would, he said, create a much more efficient national internet network and – crucially for consumers – much cheaper internet.
“This is a huge announcement – about as big as it gets. It will affect the future of Telstra and of telecommunication in Australia for decades,” he said.
How a Telstra-NBN merger could work
While the NBN is on track to become the nation’s main internet network, Telstra still owns a massive chunk of Australia’s telco infrastructure, upon which the NBN relies.
“The NBN is really 120 small networks. For traffic to move on to the NBN, it has to use ‘transit links’ or ‘back haul’, which Telstra owns,” Dr Gregory said.
Alongside these ‘transit links’, Telstra also owns the nation’s telephone exchanges, a huge network of ‘pipes, pits, ducts and traps’, and submarine cables to other countries.
All these would become part of the new Telstra InfraCo.
Initially, Telstra will wholly own this separate company. However, the company gave a strong indication that the long-term plan would be to sell it.
Dr Gregory said an Telstra InfraCo-NBN merger was inevitable and desirable.
“Currently you have two different companies whose computers have to talk to each other, and which have a large number duplication of roles. A merger of the NBN and Telstra InfraCo would make it a lot more efficient,” he said.
“It will mean Telstra can focus on retail and mobile, and it will bring certainty for the rest of the telco industry.”
He said that, were Telstra not to split in two, the government would never consent to Telstra buying the NBN, because it would give the telco giant far too much market power.
“You’d end up with a monopoly telco, and that’s what we’ve been trying to move away from.”
But he said all this could have happened in the mid-2000s, when the Howard government offloaded its final stake in the once nationally-owned telco.
Had the Howard government decided to split Telstra into an infrastructure-owning wholesaler and a separate retailer, then Dr Gregory said the infrastructure company would have built a national broadband network itself.
As a result, there would have been none of the political wrangling, confusion, or wasted money that came from the government trying to build the NBN.
But he said political concerns and the desire to get the highest price possible prevented the Howard government from doing this.
“The NBN is being built with second-rate technology and will all have to be replaced. This is going to cost around $40 billion. That’s $40 billion we didn’t need to spend.”
This article was published by The New Daily on the 20th of June. It was written by money editor James Fernyhough.