Don’t be so quick to separate Telstra: Ovum

The proposed operational separation of incumbent telco Telstra could have disastrous consequences for Australian telecommunications.

The proposed operational separation of incumbent telco Telstra could have disastrous consequences for Australian telecommunications, according to analyst firm Ovum.

“Naïve approaches to the issue of Telstra separation could do serious damage to the Australian telecommunications industry,” said David Kennedy, a research director at the firm.

Several incumbent telcos overseas have previously undergone separation with good degrees of success, including British Telecom in 2005 and Telecom New Zealand earlier this year.

But according to Ovum, fundamental differences in the local market mean such a project undertaken in Australia could have dire consequences.

As evidence, Kennedy pointed to the immediate 30% drop in Telecom NZ’s share price when that telco’s separation was first announced.

He said that if the same thing happened to Telstra, the company would not be able to make significant investment in future telecommunications infrastructure, including broadband.

“Operational separation also has costs,” Kennedy said. “[It] 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.”

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