Telstra Christmas turkey being prepared for carving

Stan Beer
Wednesday, 08 December 2004 10:41

IT Industry - Development

The past week is likely to be looked upon as a watershed in Telstra's history, not because of the announcement of Dr Zigmunt E Switkowski's departure, but because of the decisions that were taken in that fateful board room meeting.

It has not escaped anyone's notice that the meeting took place when it did and in what context. We have a newly re-elected Federal Government with a majority in both Houses of Parliament and a clear mandate to go ahead with the full privatisation of a telecommunications giant that continues to enjoy a virtual monopoly of fixed line voice and data services at the wholesale level. Telstra has often been accused of using that wholesale monopoly to the advantage of its own retail business and to the disadvantage of competitors through vertical integration of its divisions.

Clearly, in a fully privatised scenario, such a monopoly cannot continue to prevail. It would be in no-one's interests, including Telstra's. Thus, decisions were taken in that boardroom meeting that we believe will eventually lead to the end of the Telstra we have all known under its various names. In effect, the decisions were taken in order to prepare Telstra to be neatly carved up into discrete businesses that will be synergistic to some degree and able to leverage off the capabilities of each other, but will nonetheless be completely autonomous.

The first and most obvious step in this direction has been the announcement of the hiving off of the wholesale business into a separate division. Make no mistake, this is just the first step - a precursor to the main event, which will eventually see the wholesale division spun off as a separate company, providing infrastructure services to a wide range of clients on an equal footing. The provision of voice communications packages, including mobile, which has rapidly become a commoditised service, will be retained within this wholesale infrastructure provider, and resellers will have equal access in a fully transparent business environment. Likewise, access to and provisioning of network infrastructure will necessarily be fully transparent and governed by trade practices legislation.

However, the separation of the wholesale business is just one step in the direction to unlocking the real value of Telstra. According to telecommunications market analyst, Paul Budde, Telstra's retail division will move away from the provision of voice services and into more interesting areas, such as IT services, gaming, broadband services, interactive media, videoconferencing and other content and services. Budde predicts that by 2015, less than 10% of Telstra's revenue will come from voice, including mobile, and that this will be provided by the infrastructure provider – the wholesale company.

Finally, the move of Bruce Akhurst, current group managing director of Telstra wholesale, broadband and media, to the position of CEO of Sensis is a significant signal, which portends things to come. Sensis is now a fully fledged media company, which plays in both the print and online spaces. It is not a good fit with the rest of Telstra's business, which involves the provision of telecommunications services. Sensis has 3,000 staff, owns significant profitable assets, is cashed up and is therefore in a good position to expand its media empire. Akhurst has dropped hints that TV could be on the cards at some stage in the future. Thus, there is a strong possibility that Sensis is directly in the firing line as a possible Telstra spin-off. If so, then it could become one of Australia's major media companies and create significant value for shareholders, unhindered by Telstra's legacy bureacracy.

Telstra's shares have been going south for some time now and it is clear that if the Government is going to make a success of T3, the float will have to be structured differently than the previous two tranches. It is obvious that a public that has been stung badly by the first two floats is not going to be particularly interested in Telstra at anything less than a bargain basement price in its present form. That was precisely the point of that recent board room meeting and why Telstra will be carved up like a fattened Christmas turkey.