Telstra Agrees to Structural Separation

Australia will join Singapore and likely New Zealand as countries in which there is a single wholesale provider of broadband connections and all retail providers lease capacity from the wholesale provider.

Telstra Corp. essentially has agreed to break itself up into distince retail and wholesale companies as the result of a new deal with Australia’s national government. A new framework agreed upon by both the government and Telstra, essentially results in Telstra selling its network to the government-backed NBN Co, which is building the new national broadband network, and putting its customer traffic on the network as well.

The new framework, which still must be ratified by a formal contract, a "yes" vote by Telstra shareholders, and approval by regulators, will launch Telstra on a new path. It essentially will not own and operate its own fixed networks any longer. It will not be required to provide universal service.

And it likely will be a much-bigger player in the fourth-generation mobile business than it is in the fixed business.

Telstra will be paid A$9 billion as part of the deal, which remains only a framework, not a contract, which will have to be worked out over the next few months. The deal also means Telstra is free to bid on new wireless spectrum, and can keep its 50-percent stake in cable operator Foxtel.

As part of the agreement, the NBN Co. will be able to use Telstra infrastructure, including ducts and backhaul fiber, rather than building duplicate infrastructure. Telstra also agreed to transition its current customers to the NBN network, becoming an anchor tenant.

NBN Co will operate as the wholesale supplier of last resort for fiber connections in greenfield developments starting January 1, 2011.

Telstra also will be shutting down its copper ADSL network as part of the new agreement.

A new entity, USO Co Ltd, will be established to take over Telstra’s universal service obligations starting July 1, 2012.

The terms of the lease were not disclosed but sources close to the negotiations told AAP the agreement was for a period much longer than 10 years.

Telstra and the government have been at odds about the  A$43 billion "fiber-to-the-home" broadband network, and the necessity of Telstra agreeing to at least a functional serparation of its wholesale and retail operations.

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