In a blog post this week, Alan Kohler raised an interesting question: do we need both structural separation of Telstra and the NBN? (If you’re interested, you can find it by looking at Alan’s articles at www.businesspectator.com.au, headlined “The NBN solution was there all along”).

His argument is that if Telstra is not separated, then the NBN must be built separately; but if the network is separate from the retailer, building out fibre would be so much in the interests of the wholesaler that there would be no need for the NBN. While Alan's ideas in this are seductive, they're also problematic.

Imagine first a world in which the government successfully crafted, passed and implemented legislation that separated Telstra’s network assets from the rest of the company.

The problem with seeing fibre roll out to the node or the home, at that point, is twofold: how long would it take, how far would it reach.

The timing of this putative rollout would be strictly commercial (unless the government provided funding anyhow). The “separated” Telstra wholesale would only create the fibre network on the basis of expected returns, and its timetable would likewise be strictly commercial.

And it would most likely leave the regionals lacking in access, just as they do today. It's not just the status of Telstra that inhibits broadband in "Hay, hell and Booligal" (with thanks to Banjo Patterson), but also the combination of remotenes and a sparse population. That's not solved by separating Telstra.

It's also why the Federal Government needed to provide $250 million in funding for the new competitive backhaul net.

So the two problems I've always seen as intractable, access outside the cities, and backhaul to serve those access networks, would not be solved by a separated Telstra (although they can be addressed by the NBN).

They would, however, be served by the NBN. The contract to Nextgen is a neat illustration: it delivers backhaul to places for which nobody had ever seen a reason for a purely-commercial backhaul deployment (even Broken Hill hasn't been able to attract the non-Telstra carriers, in spite of the presence of a satellite earth station nearby).

So I disagree with Kohler on his first assertion: I don't think separation alone would have delivered the same outcomes as the NBN. The other question posed by Kohler is this: with the NBN, do we need the separation?

It may not be necessary to the NBN, but if it can be achieved without excessive pain, it has the prospect to make some aspects of the network easier and possibly cheaper (such as duct access, for example). Certainly, Telstra has shown a willingness to negotiate with the government and NBN Co, up to a point - but there isn’t much public indication of the limits of Telstra’s co-operation.

There is also the devaluation of the copper network to consider: wherever the NBN arrives, the copper will be devalued.

Where a customer migrates from copper to fibre, that customer tail will be effectively worthless. With the physical network separated from the rest of Telstra’s operations, shareholders will have a choice to sell out of the physical network operator, but retain their shares in the second entity - the value of which will be insulated from the devaluation of the copper network (the other aspects of Telstra's physical network are far less vulnerable to the NBN; both fibre backhaul and the HFC network, for example, are not rendered worthless by the NBN).

As to the ACCC getting in the way of any mooted deal between Telstra and NBN Co: it will depend on so many variables (the nature of the deal, the nature of the assets, whether it impacts competition in a region and so on) that I think we'll just have to wait and see what happens. 

Richard Chrigwin