Separating Telstra not the answer

Naïve approaches to the issue of Telstra's separation could do serious damage to the Australian telecommunications industry, according to David Kennedy, Research Director at Ovum.

According to Kennedy, British Telecom's separation of its access network and wholesale division back in 2005 has paved the way for subsequent seperations, most recently witnessed with Telecom New Zealand.

“Ovum’s view is that separation is always a local solution to local problems. And it is not essential to success. France, for example, hasn’t adopted separation as policy, but it is a fibre-to-the-home (FTTH) leader in Europe,” he said.

Kennedy claimed that overseas policies cannot simply be copied into the Australian market, which has many significant differences to the UK and New Zealand. Operational separation might be implemented in Australia, but before that could happen a lot a hard work would need to be done to identify the right approach, he said.

“The reality is that we haven’t even begun to do this work. It’s important to remember that operational separation also has costs. When the New Zealand Government announced its 2006 package of reforms, which included operational separation, Telecom New Zealand’s share price dropped around 30 percent,” he said.

Kenneday cautioned that separation made a major contribution to that drop, and it is too early to say whether the cost of separation will generate compensating benefits.

“If we saw a similar drop in Australia, it would crimp Telstra’s capacity to invest in new networks and technologies,” he said.

Kennedy believes this could have the perverse effect of delaying investment in new broadband infrastructure and that these are the kinds of factors that a separation policy would need to take into account.