Case for the separation of Telstra broadened by Optus

In a submission made to the senate inquiry into the plans by the government, the broadband service provider, Optus has widened its argument for its competitor Telstra Corp Ltd to undergo structural separation.

Using many of its previously stated positions, Optus, which is owned by Singapore Telecommunications Ltd (SingTel), has urged that legislation be passed by the government that will separate the wholesale and retail businesses of Telstra as quickly as possible.

Optus advised “Many of the problems with the current market structure and the regulatory arrangements have their root cause in the vertically integrated structure of Telstra and the corresponding misalignment of incentives this creates.”

The fact that Telstra is currently one of the world’s most vertically integrated incumbent carriers is one of the key reasons the broadband service provider maintains a dominant position in every market it enters said Optus.

Optus advised “However, it is as the dominant retail and wholesale supplier of fixed line services that Telstra’s market power is most pervasive. This position of dominance gives Telstra strong incentives to act in a manner that discriminates against its competitors.”

Arguments from the representative bodies and Telstra shareholder were also attacked by Optus.

A submission from the Australian Foundation Investment Company Ltd, which is an institutional shareholder continued to state its opposition to the proposals and its arguments echoing the Australian Shareholders Association (ASA), which reacted very angrily on the day that the news was announced, by saying that it “would result in a permanent reduction in shareholder value.

Based on the experiences with BT in Britain, where 2006 saw a similar proposal carried, Optus has also argued that this shows that the claims that relate to the separation costs are not in line with that experience.

Optus advised “In respect of shareholder value, Optus notes that many industry analysts have retained their ‘buy’ recommendations on the Telstra stock following the government’s announcement predicting share price accretion over the next twelve months as these reforms are implemented.”

Source – Business Spectator