Has Telecom CEO Paul Reynolds finally conceded thatstructural separation of Telecom - that is the sale of its Chorus business - ison the table?
That's interpretation given by the Dominion Post to Reynold's statement on the Ultra Fast Broadbandinitiative during yesterday's profit downgrade yesterday. And it's one Telecomisn't denying this morning.
The sentence in Telecom's statement yesterday that has given rise to theseparation speculation is this: "We are open to working with the government ona full range of approaches to its UFB initiative.
TR soughtclarification on this statement from Telecom. Its head of external media MarkWatts referred us to the Reynold's comments at the conference yesterday "wherehe said that Telecom is considering a full range of options. We are veryopen-minded, and will assess options through the filter of what benefits NewZealanders.
The idea that Telecom could be contemplating structuralseparation has been seized upon by TUANZ, who are trumpeting the idea in apress release issued today:
"Splitting Telecom's network business, Chorus, into acompletely separate company would be an excellent outcome for users and wouldfuture-proof Telecom's leadership in telecommunications," says TUANZ CEO ErnieNewman.
"The series of visible setbacks that Telecom is suffering atpresent must not be allowed to obscure the fact that the company is thecornerstone of New Zealand's telecommunications infrastructure.
The UFB is designed to prevent a telco selling retailservices from owning the core infrastructure – in other words, the governmentis keen to ensure that the monopoly position Telecom has enjoyed with its thecopper network will not carry over into the new fibre world.If Telecom sold Chorus it would enable it to participate in offering both layer 2 (wholesale) and layer 3 (retail) services on the UFB.Also, the sale of the copper network infrastructure (cables, exchanges,cabinets, copper wire) would clearly boost Telecom's coffers.
But it's a big call.
During yesterday's briefing an analyst referred to statementsmade in the memoir by Theresa Gattung, the former CEO of Telecom, in which sheclaimed the CTO at the time suggested that structural separation would bebetter for the company in the long run than operational separation. Here's anextract from page 165, Bird On A Wire:
The recommendation wasstrongly based on the British Telecom operational separation model which hadbeen talked up ad nauseam by the government and some industry commentators.Media headlines that Telecom had been 'let off the hook on full split' helpedcompound the view that a more benign outcome had occurred. We didn't think so.We were shattered, because we understood that it was going to impose huge costs– unnecessarily, in our opinion, as we already offered a voluntary operationalseparation which would have dealt with the key issues in a much less complexway. It felt like a government hell-bent on changing the telecommunicationsregulatory environment one and for all (as if)!
The market at thatstage saw it as an outcome tilted towards the better end of possibilities, butMarko (Bogoievski the CTO), told analysts that he believed the market wasunderestimating the complexity and costs of New Zealand-style separation.
Paul Reynolds' experience in managing the operationalseparation of British Telecom was the reason why Telecom's board was so keen toemploy him in 2007. Reynolds told TRin December last year that the New Zealand's operation separation requirementsare more onerous. "Telecom has embraced operational separation, but because itwas born out of an adversarial relationship, the detail of it is much moreprescriptive than the UK model.
