Stanhope details Telstra break-up risks
Telstra chief financial officer John Stanhope yesterday outlined the increasing risk levels the Federal Government's National Broadband Network timeline faced if it were to opt for more "extreme" forms of separation for Telstra.
Telstra CEO David Thodey talking to Telstra CFO John Stanhope yesterday
(Credit: Liam Tung/ZDNet.com.au)
Stanhope's message to financial analysts and media about separation was that the most extreme form of separation considered in the government's regulatory reform discussion paper — a British Telecom-style "functional separation", which was the highest level — would be costly.
"Whilst more extreme separation would probably be enticing for our competitors, it could take five years or more to implement and would be a major disruption of Telstra inside the company, but also a disruption for us in serving our customers," said Stanhope.
Such a delay could have flow-on effects to the government's plan to roll-out the NBN within the eight years it has said it hopes to.
Asked by an analyst what the cost of the most extreme form of separation would be, Stanhope estimated it to be between $800 million and $1 billion. It would also incur ongoing costs of $50 to $100 million for the following six years, and he explained that it would mean "unwinding Telstra's IT systems". Telstra yesterday revealed the company has spent $200 million more than it initially budgeted for on revamping its IT systems, which was equivalent to 2 per cent of the total cost.
Onlookers are keenly eyeing Telstra's so-called "passive network" of ducts and piping (minus its copper access network), which Goldman Sachs JBWere analysts recently estimated would reduce the cost of the National Broadband Network build by up to 30 per cent were they to be made available.
Warning against what Telstra would view as over-regulation, Stanhope highlighted the upshot of Telstra's cooperation in the building of the NBN.
"That the NBN can proceed in a timely fashion, we believe, is a crucial issue," said Stanhope. "And Australia must learn from the lessons overseas, where onerous regulation of legacy assets can stifle investment and innovation and can take a long time and be a huge distraction, from what now is the main game in the NBN."
Stanhope noted that Telstra had acknowledged industry views that the telecoms industry was short on equivalence and transparency, but added: "We also did not overlook the NBN and made the point that any changes or remedies to the current regime must assist, not impede, the transition to NBN."
The message was a reminder that while Telstra chief David Thodey has emphasised the company would engage in constructive discussions with the government, it knows what power it wields in the telecoms sector. Thodey yesterday said, "The final arbiter of everything is our shareholder".