Friday, 13 November 2020 07:08

Success of Telstra move will depend on freedom for units: Budde Featured

Paul Budde: "It is a real change from Telstra’s long-standing position that it sees itself as a technology company, its real value is in infrastructure." Paul Budde: "It is a real change from Telstra’s long-standing position that it sees itself as a technology company, its real value is in infrastructure." Courtesy YouTube

Telstra's success or failure with its new move to split up into three units will depend on how much freedom the parent group gives them to operate, based on what makes financial and economic sense, the well-known independent telecommunications analyst Paul Budde says.

"At the same time, the terms and conditions under which it will operate will be of great interest to those companies who want to trade with Telstra (as sellers as well as buyers)," Budde pointed out, in his reaction to the announcement by Telstra chief executive Andrew Penn on Thursday.

In his statement, Penn said Australia's biggest telco would split into three independent units: InfraCo Fixed, InfraCo Towers and ServeCo.

"InfraCo Fixed will own and operate our passive physical infrastructure assets: the ducts, fibre, data centres, subsea cables and exchanges that underpin our fixed telecommunications network," Penn said.

"InfraCo Towers will own and operate our passive physical mobile tower assets, which we will look to monetise over time given the strong demand and compelling valuations for this type of high-quality infrastructure.

"Finally, ServeCo will focus on how we create and innovate products and services for our customers and deliver the best possible customer experience, including maintaining our significant network leadership. ServeCo will also own the active parts of our network – things like software defined networking that allows us to operate in a dynamic way."

Budde said initially there would be scepticism among Telstra's competitors "so we will need to wait for the details to see if Telstra will indeed be able to offer interesting infrastructure products and services".

"If they can do so they can indeed increase the value of the organisation through this restructuring."

He added that if that was not really going to happen then the only purpose of the restructure would be to "dress themselves up for the privatisation of the NBN company. In that case we will have to see if that will indeed increase the value of the organisation".

Budde said the restructure was also a public admission by Telstra that it had lost the technology battle to digital companies. "It is a real change from Telstra’s long-standing position that it sees itself as a technology company, its real value is in infrastructure," he said.

The split up came at a time when Telstra was under enormous pressure. "On one side, many of their traditional services are now provided by digital companies, free of charge. Further, the NBN Co is the infrastructure provider for the national broadband network. Telstra can no longer charge what it wants for its services as it is dependent on the (high) wholesale charges levied by NBN Co."

Budde said it was plain that a key reason for move was to position Telstra for the purchase of NBN Co once the latter was privatised.

"But at the same time, depending on how much freedom the new infrastructure companies will get from the parent organisation, they can independently buy or lease infrastructure from others and, at the same time, sell and lease infrastructure to others in the market," he explained.

"In that way they can truly increase the value of their infrastructure assets. It could be a breakthrough in sharing infrastructure rather than overbuilding infrastructure – both in the fixed and mobile networks.

"In relation to the latter, with 5G, thousands of new towers will have to be erected around the country and it does not make economic sense to have three networks, as well as many private companies, overbuilding all of that infrastructure."

However, he said it was good to see that Telstra had finally recognised that a significant part of its business was infrastructure. "The business model of infrastructure is rather different from that of services. Infrastructure will not necessarily achieve high returns, but it will deliver long term, very steady returns and there are plenty of investors who are interested in such businesses," he added.

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Sam Varghese

Sam Varghese has been writing for iTWire since 2006, a year after the site came into existence. For nearly a decade thereafter, he wrote mostly about free and open source software, based on his own use of this genre of software. Since May 2016, he has been writing across many areas of technology. He has been a journalist for nearly 40 years in India (Indian Express and Deccan Herald), the UAE (Khaleej Times) and Australia (Daily Commercial News (now defunct) and The Age). His personal blog is titled Irregular Expression.

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