Telstra must act quickly to avoid the Australian Government forcing it to structurally separate, Craigs Investment Partners broker Chris Timms said yesterday.
"The Government's proposed legislation aims to force Telstra to volunteer to structurally separate to avoid a tough functional separation and preventing it from acquiring additional spectrum for advance wireless service.
"It's a crude tactic but may have some effect."
The Australian Government's requirements were worse than Craigs had expected but might not be as bad as they looked, he said.
A voluntary separation would inflict the minimum pain on the company as the Australian Government prepares to build a $NZ53.5 billion national broadband network (NBN).
The company was already under threat from the NBN and was seeking to shift its business away from relying on traditional fixed line phone services to new wireless and broadband businesses.
Although the proposed legislation was presented in terms of "addressing Telstra's vertical integration", its main purpose was to try to improve the NBN's bargaining position in negotiations with Telstra over transfer of assets or cut-over of customers from copper to fibre, Mr Timms said.
In proposing that, the Government was acknowledging that NBN was poorly placed to succeed without co-operation from Telstra.
Under the plan, Telstra, a former state monopoly privatised in 1997, would have to split its wholesale and retail operations or risk losing access to additional wireless broadband spectrum.
The split would mean Telstra could not hold on to its fixed line network and its 50% stake in Foxtel, Australia's largest pay-TV operator.
That could spur a sale of some assets and open the field for rival Optus, owned by Singapore Telecommunications.
Mr Timms said Telstra could decline to bargain but that was unlikely.
In that case, it would lose spectrum which might constrain mobile growth in four or five years' time.
"Although the risks are clearer with the Bill now tabled, we don't know how the process will play out.
"We still see the same co-operative versus competitive possibilities with the valuation impact favouring co-operation."
Although there was an added risk of Telstra having spectrum withheld, Craigs believed Telstra had a sufficiently strong bargaining position to achieve an NBN outcome that left Telstra shareholders better off than was implied by the current share price.
Telstra had an added incentive to agree co-operation but it was a secondary matter compared with realising the value of the access network, Mr Timms said.
