As Telstra is clearly in the sights of the Australian Federal Government ot force separation of its retail and wholesale operations, the company is predicting high costs should such a move become a reality. In its recent 2009 earnings presentation, the telco’s CFO, John Stanhope claimed the value of the company could fall by more than $1.2 billion if the Government followed through on its threat of functional separation.
On the other side of the equation, dozens of submissisions received by The Communications Minister, Stephen Conroy, in support of the separation claim the increased competition is essential before building of the national broadband network.
The next question is what type of separation model is likely to satisfy the Government. Most of Telstra’s competitors are in support of the more stringent structural separation, whilst the Government [at this point] has indicated it favours the less rigourous functional separation. Still a significant change and financial burden.
Claims by Mr Stanhope indicate that operational separation will likely cost $120 million and take six months, whilst functional separation [as adopted by British Telecom] could cost more than $1.2 billion – and take five years. That represents 10c per share based on current shareholding.
Following shortly thereafter, the the wake of their recent forced separation based on the British Telecom model, Telecom NZ Ltd reported a 43.9 per decline in Net Profit for the year to June 30th 2009, driven largely by Telecom Retail and AAPT. Another indication of the high cost of divorce?