Analyst: Conroy's Telstra threat just a 'negotiating tactic'

The Federal Government's threat to split Telstra into two entities contains clauses that could exempt the telco from giving up its holdings in Foxtel and the HFC business.

This morning, the Government proposed changes to Australia's telecommunications regulations that would require Telstra to split into separate retail and wholesale businesses.

However, the proposal is simply a negotiating tactic by Broadband Minister Stephen Conroy, according to BBY's technology, media and telecoms analyst Mark McDonnell.

"I think it's important to note that the legislation provides for the minister to exempt Telstra from the requirement to divest its stake in Foxtel and in HFC," McDonnell told iTnews. 

"In other words, the whole thing reads to me like yet another document around what Stephen Conroy likes to call flexibility but which I would simply describe as an ongoing negotiation."

McDonnell said that Government threats to ban Telstra from licensing future wireless spectrum will not affect the carrier's current business.

"It is important to read the fine print. The government is not threatening to abrogate any rights of access to existing spectrum that Telstra has, it is purely talking about some incremental spectrum for services that may be developed in the future," he said.

Geoff Johnson, research VP at Gartner, disagrees with McDonnell when it comes to spectrum. He believes the prospect of losing future spectrum will get the telco's attention.

"Telstra's big ace at the moment is its great mobile strategy. Globally it has blown away the competition with its speeds and coverage -- price is still at a premium. You need spectrum and you need innovation. Telstra needs what the government controls," said Johnson.

Indeed - the mobile spectrum specified by the legislation - anywhere between 520 MHz and 820 MHz or between 2.5 GHz and 2.69 GHz - is commonly viewed as the two sweet spots for future rollouts of LTE (long term evolution) services, otherwise known as 4G.

David Kennedy, Research Director at analyst firm Ovum, said any separation process will take several years.

"Separation takes time to accomplish, because separation requires IT systems to be redesigned or even duplicated. While the Government will seek agreement by year's end, a separation process might take two years to fully execute," Kennedy said in a statement.

Telstra, for its part, has committed to remaining at the negotiating table.

"We are actively and constructively engaged with Government," Telstra CEO David Thodey said.

A good time to invest in Telstra?
BBY's McDonnell said that although Telstra shareholders will be unimpressed by the instant hit -- Telstra share price down 4.3 percent to $3.11 by lunchtime -- a sale of assets could generate a welcome windfall.

"If [Telstra] does make various asset sales, it depends if it realises a good price. If Telstra sold its cable and Foxtel interest and realised some billions of dollars, and then paid that back to shareholders in the form of a special dividend or capital return, we could be talking quite a good opportunity to earn a return at an investment at the $3 level," he added.

Further coverage:

Telstra forced to separate

Telstra 'disappointed' with separation plans

Regulatory reform: Telstra rivals praise Conroy's separation ploy