For decades, we have basically been conditioned to look at the telecoms market based on the regulatory arrangements that exist around it.
The Postmaster-General’s Department (PMG) which became Telecom Australia was a state-owned business that had the monopoly on all telecoms services and was mainly paid for by taxpayers.
The market was opened in the early 1990s and slowly more competition and less government ownership were introduced. Nevertheless, it remained a highly regulated business and Telecom Australia remained by far the largest player in the market, based on the vertically integrated structure of the company — it controlled infrastructure, wholesale, retail and services. After privatisation in 1997, it still held on to 65 to 70 per cent of the market.
In the 00s, further changes happened when the government-owned company National Broadband Network (NBN) was given a broadband wholesale monopoly. The original plan was sound — to leapfrog old technologies and provide the country with a first-class digital infrastructure based in fibre-to-the-home infrastructure (FTTH).
However, party politicking got in the way and a second-rate technology – mainly based on re-utilising old infrastructure technologies – was provided. Suddenly Australia started to fall behind internationally in relation to good quality broadband services. The country dropped from about 20th position in 2005 to about 60th position currently.
The arrival of the NBN put enormous pressure on Telstra. On one hand, many of its traditional services are now provided by digital companies, free of charge. But now, also, the NBN company has become the infrastructure provider for the national network. Telstra can no longer charge what it wants for its services as it is dependent on (high) wholesale charges from NBN Co.
It is within this context that we need to look at the recently announced restructuring of Telstra. The focus for companies such as Telstra – this is something that applies to all national telecoms providers around the world – is shifting from the value they can create from their services to the value they can create from their infrastructure assets.
All digital companies depend on telecoms infrastructure to deliver their services, be it search, video, advertising, shopping and all other services. Governments depend on them for the delivery of e-health, education and economic development, to name just a few. At a time of high geopolitical tension, telecoms infrastructure has become even more critical national infrastructure.
Telstra has recently launched two new infrastructure companies: InfraCo Fixed and InfraCo Towers (as separate from their core services activities company, ServeCo). In theory, this means that these companies can now independently pursue new business opportunities and sell access to Telstra infrastructure to other parties such as Optus, TPG/Vodafone and many other Retail Service Providers and corporates.
On the other hand, again theoretically, Telstra ServeCo can independently buy its infrastructure service requirements from other parties. If that level of independence will be allowed, then this is indeed a truly transformative development. It will break through the decades-old artificial monopolistic structures that have governed the industry.
This is of course not to say that the market will be totally unregulated, far from it. The national digital infrastructure is of such massive national importance that regulations will always be needed and perhaps even strengthened in the wake of the geopolitical crisis that we are facing.
However, beyond that, this could be an enormous game-changer for the telecoms industry, if indeed that level of independence will be provided by the Telstra Group holding company.
I have been advocating for a breakup of the company for more than 20 years, so it is interesting that finally, Telstra sees the value of it. Obviously, Telstra has another strategy beyond this break-up. It wants to position itself for the opportunity to buy the NBN company, once the Government decides to privatise the state-based broadband wholesale monopoly.
When this happens, the Australia Competition and Consumer Commission (ACCC) will most certainly become involved to avoid going back to yet another monopoly. So it remains uncertain how positive this will be for Telstra if they do succeed in buying the NBN.
But on the more positive side, below are a few examples of the mix and match infrastructure strategies that potentially could be developed. This could open the market for more innovation and more competition.
You could have a fibre-to-the-street network connecting 5G towers. If that infrastructure is provided in a structurally separate way, a range of independent retail service providers could provide their retail access services over such infrastructure combinations.
It could also provide a breakthrough in sharing infrastructure rather than overbuilding infrastructure — both in fixed and mobile networks. In relation to the latter with 5G, thousands of new towers will have to be erected around the country and it does not make economic sense to have three networks, as well as many private companies, overbuilding all of that infrastructure.
In regional areas – where there is only one mobile provider – we could now see other mobile operators be allowed Telstra towers to provide access to their services.
Of course, there will be scepticism among Telstra’s competitors, so we will need to wait for details to see if Telstra will indeed be able to offer interesting infrastructure products and services. If that is the case, then we will see a significant shape-up of the market.