Telstra Structural Seperation: Advantages / Disadvantages

Tonight I thought I’d look at structural seperation, the advantages and disadvantages of tearing a Telstra’s thorax away from the rest of its body, and what that might have as flow on effects..

Now, I’m not a corporate pro (far from it), so as is always welcomed, comments on any missed item will be both taken in and presented.

The obvious one to start with are the Advantages, since it is only being considered for any advantages it will have, it makes sense to cover these first (otherwise, there’s no point even talking about it).

Advantages:
1. Investment in infrastructure from competitors will increase, because they have no uncertainty surrounding the investment in infrastructure.

2. Regulation will be reduced, or even removed, because there would be no retail, wholesale, network conflict of interest.

3. Multiple wholesale bodies from the network provider would start up, and we’d be able to see another layer added to the mix competing based on numbers for the best prices.

4. Providers would have a base network rate to determine their investment from, and will not have to base their decisions in an uncertain market.

5. Telstra would shut up, because the seperation will remove regulation, and therefore all of the arguments they have against the government, would be invalidated.

6. Shareholders have the potential to see increased value in both the retail Telstra, because it could compete fairly (cough, like it would), but also, regulations on Telstra would be removed, and therefore Telstra would be a open market company, as would any other company.

7. Investment by the network owner would increase. Competition to the network owner would increase, so that there would be multiple layers of network investment happening. Essentially, I’m suggesting here that someone would start up a competing network infrastructure unit to compete with the new network owner.

8. Pricing structure from the network owner would be reviewed, and averaged prices might end up a thing of the past, with deaveraged (user pays) systems appearing, simply to create competition in the smaller areas, where there would be concentration on those single areas by a single company for example, and thus price competition on the network would occur.

9. We wouldn’t have to visit the issue of Telstra’s conflict of interest in any government in the future, as the market would essentially end up left to open forces. Build, invest, profit. Don’t build, go down the drain. Compete on the network layer.

10. Facilities based competition would end up much like markets such as VoIP and Web Hosting, where there are a lot of providers and prices would reach near input prices, with the focus on profit being the service income, or the added extras income.

Those are the first 10 advantages that I can think of. There’s probably more, and some of those really do look very tempting to simply take it up now.. I haven’t thought of the disadvantages as I write this.

Many of the advantages will see a booming market form, but I get the feeling there are negatives in the disadvantages..

Disadvantages:
1. Network investment might not occur at all, and instead we end up with a single network company, selling access to the network, and slowing raising prices to increase investment, or not investing in the network at all, just as Telstra currently do not invest in the network.

2. Prices will reach rock bottom web hosting style prices, where you find that providers cut costs so much so that they are light operations, running purely at cost, or below in some cases, and this might cause the market to drop, and no boom for investment, instead, a simple continuation, or even degradation of the network, or a price rise to maintain the network, with the new company still seeking profits.

3. Could see service prices rise due to additional layers of profit.

4. Shareholders of Telstra could be disadvantaged if either of the division sides fails to perform adequately, as a result of the split.

5. The government could be exposed to a class action should they split Telstra, and the chosen split method goes outside of the T3 prospectus guidelines.

6. The network owner might not upgrade, and competition might not invest, leaving the situation in a stalemate.

7. Averaged prices going, could see deaveraged prices cause regional and rural users wondering where to find the wheat to pay the bills in the drought.

That’s all I can consider about disadvantages right now.. The advantages seem good, and all do seem likely to occur, but we cannot ignore either.

The advantages might see a market boom, and really take off. The other hand, it could see the market take a real sharp downward turn, no investment, no maintenance, no competing networks, no innovation, and we could be worse off than we are now.

Such a big issue to pull apart! I’m interested in any other advantages or disadvantages if anyone has any. Let’s not focus on a biased interest here either, shareholder profits aren’t a major concern, but taxpayers being exposed to a lawsuit is certainly a big concern.

Enjoy!