Monday, May 11, 2009

More about Telstra

The news on Telstra and the NBN flows thick and fast. We've seen a former communications minister offer his views on the topic. He's really a bit everywhere in this piece, but still seems to be wedded to an infrastructure competition view of life. He also doesn't get it that an all-fibre network deployed aerially can be run at the same level as the electricity wires and not cause the angst of the HCF roll-out.

What's more worrying is that he doesn't really get the fact that Conroy has as a primary goal the restructuring of the industry. John Durie got this writing in the Oz on the weekend, saying;

Taken at face value, Communications Minister Stephen Conroy has one mission and that is to overturn the mistakes made by a predecessor, Kim Beazley, in giving Telstra control over the wholesale and retail markets.
(though as I note in my forthcoming eview of Paul Fletcher's book that I've previously mentioned, the realit is that it wasn't Beazley's mistake it was Alston and Howard - they are the ones who privatised without separation).

But Durie goes on;
The new broadband network can only be part-owned by Telstra, but it makes sense for it to sell parts of its fibre network into the pool to give it the maximum 20 or 25 per cent stake allowed.

This model seem to be the one preferred by the Australian Government and seemingly acepted by the markets. However, it is a suboptimal outcome for both Telstra and the Australian Government.

It is suboptimal for Telstra because they wind up being a major shareholder in an entity that they have little control of, yet their ownership position will still be seen to be advantaging them so the regulatory battles will not completely go away. It is suboptimal for the Government because ultimately they want to sell down their 51% and the entity left after they sell down will have a controlling shareholder.

The only model that makes sense is for the Telstra Board to do a "One Steel" following the split of BHP's steel assets. All the assets to be sold into the NBNCo are identified and parcelled into a subsidiary company. All the contracts between the Telstra and the NewCo necessary for existing services are entered into. The shareholders in elstra are issued with shares on a 1 for 1 basis in the NewCo. The NewCo is merged into NBN Co so that each share on NBNCo becomes a share in NBNCo, but the total of NewCo shares only equals 20% (or whatever is figured out as the right number) of the total shares in NBNCo. (Another possibility is that NBNCo simply gets formed by the directors of NewCo forming it, and issuing new shares as needs be for capital).

That creates the real split and avoids any ongoing ownership elationship between Telstra and NBNCo. It would be a pity to screw up the chance to get the structure right!

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