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Optus aims to split up Telstra

Dominic White | May 19, 2009
Australian Telco giant Telstra should be forced to de-merge its retail division from its network and wholesale operations

SYDNEY, 19 MAY 2009 - Australian Telco giant Telstra should be forced to de-merge its retail division from its network and wholesale operations under a sweeping reform of the telecommunications sector to be proposed to the Rudd government by fierce Singtel-owned rival Optus.

Australia's No. 2 telco will tell the government's hotly anticipated review of the industry that Telstra shareholders should be given a share in each entity for every share they own.

This classic de-merger should be coupled with stronger powers for the Australian Competition and Consumer Commission to ensure Telstra's retail arm does not enjoy bulk discounts from the demerged wholesale arm, argues Optus.

Optus, owned by SingTel, has long argued that Telstra should be split and greater powers be given to the competition watchdog.

Now its arguments will be put in a 100-page submission to a formal review, which has already raised the prospect of such a split.

Telstra itself is increasingly open to discussions of greater separation between its network and retail divisions but the views of new chief executive David Thodey on a full de-merger are unknown.

Mr Thodey began talks last week with the government, which is planning a $43 billion national broadband network (NBN) that would effectively supplant much of Telstra's dominant fixed line network within eight years.

The government wants Telstra to vend in some of its fibre-optic assets to help get the network up and running. It will consider allowing Telstra to take a large minority stake in the venture but only if the company restructures.

Telstra shares are trading near historic lows amid tremendous uncertainty over the outcome of the regulatory review and Telstra's likely role in the NBN.

In its submission, Optus will argue that a full-blown demerger would "potentially unlock value for Telstra shareholders".

"Telstra's regulatory approach over the last three years has wiped $10 billion off the share price," said Optus's general manager of regulatory affairs, Andrew Sheridan.

However, Tim Smeallie of Numerico Advisory said: "There are infinite variables in relation to a demerger and . . . establishing a definitive outcome in terms of value accretion or destruction would be extremely challenging."

Short of a demerger, Optus would like to see a so-called functional separation of Telstra's retail and network assets, similar to those undertaken by Telecom New Zealand and the UK's BT Group.

Optus says such a split would require a series of complex ring-fencing measures to replicate a demerger - such as divided marketing functions, brands, incentive schemes and IT systems.

Optus also wants rules put in place to ensure Telstra's retail rivals get access to its network "on truly equal terms at the same prices and using the same operational support systems".


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