Telstra decapitated !

For decades Telstra has been the bully boy trying to dominate the Australian communication industry. Yesterday the Federal government took a very sharp axe - and applied it to the Telco's neck !

Telstra has been ordered to separate it's wholesale and retail functions, and divest it's interests in cable television - and it's fifty percent stake in Foxtel.

Telstra thought it held all the cards by way of it's ownership of the copper wire connections linking homes and businesses with the nation's telephone exchanges.

It used this leverage to disadvantage competitors. If a rival company signed up a new phone user Telstra would deliberately delay installing the connection - sometimes by a matter of days, but on occasion extending this for weeks and even months. By contrast, a Telstra customer was connected in hours.

Push came to shove when the Federal government called tenders for a high speed broadband system to bring Australia into the internet age. Telstra arrogantly ignored the guidelines and in place submitted a plan of it's own that would leave the Telco with control over access and prices.

The government acted swiftly. It dismayed Telstra shareholders when it announced that it would reform it's options to extend the plan. Originally it sought to cable high speed broadband to the node - to the various telephone exchanges and channel them from there to homes and businesses by way of Telstra's copper cable system. Now the plan would take broadband all the way to the end customer.

Suddenly Telstra's prime asset turned into a liability. The arrogant management people departed with their tails between their legs and Telstra found it had no other options other than to grovel - and hope that the government might relent and share a few crumbs from the broadband pie.

That is probably what will now happen. A more reasonable management is in charge and compromise is likely.

The government may again bring broadband to the node - and take it from there by Telstra's copper cable network - but not with Telstra dictating the terms.

The separation of Telstra's wholesale and retail networks will mean rival telephone companies will at last be operating on equal terms - and subscribers will get better service.

All that depends of how Telstra reacts. Yesterdays announcement wiped two billion dollars off the Telco's worth and that hit Mum and Dad shareholders in the pocket.

If Telstra decides to fight this order in the courts then all bets are off. The government would most likely revert to it's plan to by-pass Telstra and implement it's threat to cut the Telco off at the knees.

Litigation could sap the financial strength of even a big company and it would be a fight between a loser and a giant with deep pockets - and the power to pass laws.

An interesting lesson to the shareholders of any company with a tendency of management arrogance.

That's a sure way to send the share price on a long journey south !