Tuesday, 23 March 2021 19:30

Budde applauds Telstra changes, but questions whether it is too little, too late Featured

Paul Budde: "If telcos keep struggling, what will be the role of the government in all of this?" Paul Budde: "If telcos keep struggling, what will be the role of the government in all of this?" Courtesy budde.com

Telstra's belated bid to restructure deserves applause but the main question that remains is whether it is too little too late, Australia's best-known independent telecommunications consultant Paul Budde says.

Another important aspect was how much independence each of these new units would get to address these challenging market conditions, he told iTWire in response to a request for comment on the announcement Telstra made to the ASX on Monday.

"A key problem is that to do so, they need to be able to compete. For example, if Service Co needs new capacity, they should be free to use any infrastructure supplier, not just Infra Co. The same applies to the other units," Budde said.

"The next step will be a full separation of these units with separate shareholdings. How long will the holding company resist this? How much more damage needs to occur within the declining telco market to move in that direction?

"I can see Macquarie Infrastructure and Real Assets being interested in buying Infra Co Fixed and/or Infra Co Towers. If this makes sense, will it be allowed to happen?"

Telstra initially announced the division of the company into three units back in November: InfraCo Fixed, InfraCo Towers and ServeCo. On Monday, the big telco said there would be an additional international business under a separate subsidiary within the Telstra Group, to keep that part, including its sub-sea cables, together as a single entity.

The company hopes to complete the legal processes by the end of the year.

Budde said the restructure had been forced on the company due to the changing times, with the digital giants having grabbed a lot of the revenue that had formerly gone to traditional services,

One had to view everything in the right context, he explained. "This is not a 'voluntary' restructuring. The telco industry has seen a slow decline over the last few decades, with the digital giants taking over a lot of the revenue from traditional services such as voice calls, data services, messaging and so on.

"The NBN is another disaster for the telcos as they have squeezed margins and are frustrating the market as the next new telco monopoly. Telstra and other telcos too are suffering from this declining market and Telstra's structural changes need to be seen in that light. They very urgently need to restructure to try and save their skin."

Budde said many people, including him, had been arguing for decades that the telco industry needed to restructure in order to align itself with digital developments.

"However, they preferred to hang onto their vertical integrated business models, milking whatever they had, for as long as possible and basically fighting rear-mirror battles," he said.

"Back in the early 2000s during a TV interview, I argued for structural separation, to which former Telstra director Ted Pretty said, 'so you want us to be in dumb pipes'. My answer to that was 'no, in intelligent pipes'."

Two decades later, Budde said the digital giants were stronger than ever in the telecoms market.

"We also see large-scale global telecommunications infrastructure developments happening; the number of sub-marine cable projects that are underway are mind-boggling.

"Look at the international telecoms infrastructure activities from Macquarie Bank (now set to buy Vocus Communications) and the onslaught that LEOS [low-earth orbit satellites] are preparing on the market.

"The market is very rapidly internationalising, in the hands of a relatively few global operators. After all of that happened, at five minutes to 12, Telstra has now finally decided to start a process of structural separation to try and play a part in the market."

Budde said apart from the straightforward commercial developments, there was also the increasingly more important national interest argument for telecoms infrastructure.

"If telcos keep struggling, what will be the role of the government in all of this?" he asked. "Will all national telecoms infrastructure be nationalised?

"The Telstra restructuring is a key development in a process of market changes. On a national level this market is declining; on an international level it is growing, and, at the same time, telecommunications are playing an increasingly more important role in geopolitics.

"There will be many more changes happening in the national telecoms industry over the next few years; the Telstra restructuring is only one step in this process."

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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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