Analysts clash over Telstra split

Debate heats up over need for separation.

Analysts have clashed over whether Telstra should be cleaved in half to ensure fair pricing of the National Broadband Network (NBN).

Structural and functional separation has become the hottest topic in the broadband debate as Communications Minister Stephen Conroy and his office quietly pick through industry feedback on how the regulatory environment for the NBN should be framed.

Telstra has vehemently refused to accepted any form of separation, telling Conroy he can take its proposal for an NBN with 18 percent ROI or be left to the smaller players.

This model, local analyst Paul Budde said, is unworkable because Telstra holds all the cards and therefore must be the one to build the network, in part at the very least.

"The focus is on the outcomes, not the means, and we need equivalence of service which requires separation of infrastructure," Budde said, adding that even an NBN built on a series of state models would interface with Telstra and therefore require strong wholesale regulation.

"There is no workable alternative to separation, which is a pity, because other overseas incumbents have voluntarily worked with regulators."

Proponents of separation point to the success that the United Kingdom, New Zealand and parts of the European Union have enjoyed by dicing up their incumbents.

Others, including analyst firm Ovum, and Telstra argue the model will not work in Australia because the incumbent could face a share price fallout and would be less capable of investing in infrastructure.

"Separation is always a local solution to local problems and it is not essential to success," research director David Kennedy said.

"France, for example, hasn't adopted separation as policy, but it is a Fibre-to-the-Home (FttH) leader in Europe. Overseas policies cannot simply be copied into the Australian market."

Budde, an avid supporter of carving up Telstra, agreed with Kennedy but challenged him to come up with a viable alternative to a split.

He said the success of New Zealand's $1.5 billion broadband plan could not have happened without functional separation of the incumbent Telecom New Zealand. This opinion has been echoed by NZ's telecommunications commissioner Ross Patterson.

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