Telstra’s plan to radically reshape itself in a reorganization that could ultimately transform the telecommunications sector is on track.
Telstra said Monday that the reorganization will eventually transform the existing group into four discrete entities split is expected to be completed by December this year. Shareholder approval of the agreements creating the new structure will be obtained at the annual meeting in October.
Telstra said the restructuring, which will eventually split the existing group into four discrete entities, is expected in December this year will be completed.
Photo credit: Joe Armao
Telstra outlined its plan to split its assets and operations into three new units last November when it was announced that the existing infrastructure business would be split into two separate units – InfraCo Fixed and InfraCo Towers – ???? The retail stores, as well as the spectrum and technology they support, would be in ServeCo.
It has now been decided to add a fourth leg to the structure, whose international assets will, over time, be moved to another new entity, Telstra International to be converted. All four new companies will own another new company, with shareholders swapping their existing shares for shares in a new holding company.
Telstra has been working towards this moment since 2018 when Andy Penn unveiled its T22 strategy.
T22 has always been much more than a cost-cutting program, although it has resulted in significant cost reductions. It included a large investment in price to regain competitiveness, a radical simplification of Telstra’s product offering, and most importantly, the first step in separating its network resources from its customer-facing businesses.
All of Telstra’s non-mobile infrastructure was integrated into one new entity, Telstra InfraCo, to recognize that infrastructure assets receive higher ratings as a stand-alone company, but also to position the group for the key seat at the table when NBN Co is finally privatized.
Since the establishment of the This initial strategy became more detailed as Telstra saw the benefits of creating more transparency and segregated valuations for its quite different assets and considered how best to monetize the latent appreciation it believed could be achieved through the restructuring.
The mobile towers are already on the market. Telstra will attempt to sell its property to InfraCo Towers. valued at between $ 4.5 billion and $ 5 billion by the market early next year.
It’s likely that it will do something similar to the other infrastructure-based companies over the next few years, not necessarily sold out or the Giving up control, but bringing in strategic or institutional investors to get some cash and, more importantly, to get cash out of their discreet valuations.
It is conceivable that Telstra’s new holding company will at a later date essentially a retail store and a collection of the more active and differentiated elements of its cellular network, with potentially strategic investments in the other units.
It may have to sacrifice the benefits of full ownership of the restructuring? It will inevitably have to open up third-party access to its infrastructure in order to maximize the value of the new units. However, this would be part of the process of opening up and creating value for the shareholders.
Simplification, focus and more efficient capital allocation would be further advantages, while for the rest of the sector access to Telstra’s infrastructure, if it is held at real market conditions, could lead to massive efficiency gains and reduce capital requirements. It could change the telecommunications landscape.
As Telstra said, the new structure will create options and transparency. It is conceivable that at some point in the future, Telstra’s new holding company will essentially be a retail store and a collection of the more active and differentiated elements of its cellular network, with possibly strategic investments in the other units.
It is also conceivable â ?? ?? in fact, it was part of Telstra InfraCo’s original design â ???? that the Telstra shareholders (but not the Telstra holding company) will end up owning a large portion of the national broadband network.
In the original agreement, the Rudd government, which imposed Telstra on NBN Co, had to pay a source of revenue for subscribers who migrated from Telstra landlines to NBN, and NBN Co was also required to pay Telstra an ongoing source of income for access to its channels, pits, exchanges, and fiber and copper loops.
That first stream from NBN – Subscriber payments (combined with much smaller payments to Optus) peaked at $ 2.4 billion last fiscal year as the NBN was effectively completed and is now rapidly falling. An estimated $ 1.5 billion remains between this fiscal year and 2024.
The second stream â ???? Payments for access to Telstra infrastructure amount to approximately $ 1 billion per year, payable through 2046 and possibly beyond.
The dwindling of this first stream enables the concept of a merger between InfraCo and NBN Co while the continuation of the second stream is attractive for both Telstra and the federal government, be it for the coalition or for Labor.
NBN Co achieved positive EBITDA (earnings before interest, taxes, depreciation and amortization) for the first time in December. </ Telstra has been working towards this moment since 2018 when Andy Penn presented his T22 strategy
It was a historic moment for the NBN. Cash generation will now increase rapidly as subscriber payments decrease and capital build-up is practically complete and capital expenditures decrease.
By generating positive funds, the taxpayer burden of the introduction is steadily decreasing and decreasing. Also, NBN Co can self-fund upgrades to the network that are currently in progress, adding value for NBN Co.
It was always considered that NBN Co would eventually be privatized once the network was up and that Business generated strong cash flows, with a rigorous process in place for a future sale at the start. Right now, the window appears to be opening for a transaction around the middle of this decade.
A transaction that merged InfraCo with NBN Co would result in payments from NBN Co of $ 1 billion per year to Telstra internalize and take over the merged business control of all NBN-related infrastructure.
Telstra would not be allowed to own or influence a combination of NBN Co and InfraCo, but its shareholders could. Telstra could use its infrastructure assets and NBN Co’s revenue streams to develop a value-adding government-owned exit strategy for the NBN.
That would be the “big bang”. Example of the optionality Telstra is seeking through the restructuring â ???? the ability to sell or sell the infrastructural companies through transactions that either yield value that is squeezed or not recognized within the existing corporate structure, or that create value through the kind of synergistic combination that a merger of InfraCo and NBN Co
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Stephen is one of Australia’s most respected business journalists. Most recently, he was the co-founder and co-editor of the Business Spectator website and co-editor and senior columnist for The Australian.
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