Telstra could be forced to split by national broadband plans

If Telstra, the biggest telephone company in Australia, is bypassed completely when it builds the $6.9 billion National Broadband Network, as the government has threatened, it is highly likely that the telco could be split up. Having been dropped from the planning of the new network Telstra could see the forced separation of its network arm in order to provide a network platform if one of its rivals wins the project bid.

The involvement of Telstra is a must if the 98 percent population coverage given as the target by the government is to be achieved by Telstra’s rival, say analysts, and this is due to the uncertainty of whether any of the other telcos have the ability to build a network that can span the inhospitable terrain and vast distances in Australia.

An investment manager at Karara Capital, Luke Sinclair said “This requires parts of Telstra’s network, and if they’re not prepared to provide it willingly, then it will have to be legislated.”

Compared to a lot of other developed countries internet access in Australia is both more costly and slower, which is something that the government has pledged $4.7 billion Australian dollars, or $3.2 billion, with the winner of the bid expected to add the roughly the same amount in order to build a national broadband network.

The latest confrontation between the government and Telstra, which is currently in a dominant position both in terms of infrastructure and the marketplace, are just one of many political issues that has hit the project.

Although five other bids were accepted the plan offered by Telstra was dropped on 18th December by a government panel that reviewed the proposals. The panel stated that one of the reasons for dropping Telstra’s plan was because it did not include smaller businesses.

In a note to clients Laurent Horrut, a JPMorgan analyst said “This decision reveals fundamentally a growing level of frustration from the government with Telstra’s very public demands and ultimatum for regulatory concessions.”

The forcible breakup of Telstra by the government was something the telco wanted to be assured would not happen but in response the government said that the network didn’t need Telstra there for it to be built. If the Minister for Broadband, Stephen Conroy, who will be making the decision in the end, choose to ignore the recommendations of the panel there is still a chance that Telstra might be chosen.