Telstra separation the “deal of the decade” for shareholders: IDC

If Telstra shareholders want to see growth in their shares, separation is the way it has to be done, the analyst firm says

The separation of Telstra presents a once in a decade opportunity for its shareholders according to IDC telecommunications analyst David Cannon.

Speaking to Computerworld, Cannon said having a cashed-up, reforming Federal Government in power was in the long-term interest of the telco.

“I’m one of the few people who believe that, with the Federal Government having so much money to play with around telecommunications, that the separation is one of the best things that could happen to Telstra,” he said.

“The timing is right for Telstra to [separate] in the way that [telecommunications] technology is working, and the way that service provider business models are changing at the services layer. That means you need the big bandwidth to be able to deliver on those new service visions.”

According to Cannon, neither Telstra nor a rival conglomeration of service providers had the funding to cost-effectively roll out an NBN equivalent, meaning that both government intervention and funding was required. And it is this intervention and possible capital injection into Telstra via a cash and equity swap in the NBN, that presents shareholders with a lucrative opportunity.

“I think it is a very opportunistic time for Telstra and Telstra shareholders if Telstra and the Government can do a deal - particularly around a combination of cash and equity in the NBN,” he said.

“That will give Telstra a solid business model and roadmap with much lessened regulatory uncertainties and will be the most beneficial thing for shareholders, certainly in the last five years. Really, it’s the deal of the decade for Telstra, and if Telstra shareholders want to see growth in their shares, [separation] is the way it has to be done.”

Cannon said the firm was anticipating that Telstra and the Federal Government would most likely come to agreement on a separation and NBN deal by Christmas, in line with the Government’s intention to conclude the matter by December.

“Fighting [the separation bill] in the courts is just going to prolong the situation, and even if Telstra does gets some favourable wins out of it, they’ll still be penalised from a regulatory perspective,” he said.

“There’s also still the issue of needing the bandwidth out to the masses to deliver on these new service models. Not having that would be even more detrimental to shareholders. Telstra’s board’s obligation is to shareholders first and foremost, so I think a deal before the end of the year could be very possible.”

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