27 September 2023

Telstra plans biggest restructure since privatisation

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Gareth Hutchens* says Telstra plans to split itself into three separate legal entities by the end of next year.

Telstra has revealed dramatic plans to split itself into three legal entities, amid widespread speculation it is positioning to buy the National Broadband Network in coming years.

The company is also investigating ways to push into renewable energy, with plans to exploit its renewable energy investments to re-sell cheaper energy to its customers.

Andrew Penn, Telstra’s chief executive, said it was the company’s “biggest and most complex” restructure since privatisation.

He wants the restructure completed by the end of next year.

Under the proposal, Telstra would split into three separate legal entities which would operate under an umbrella Telstra Group:

  • InfraCo Fixed — to own and operate Telstra’s physical infrastructure assets (ducts, fibre, data centres, subsea cables and exchanges)
  • InfraCo Towers — to own and operate Telstra’s physical mobile tower assets
  • ServeCo — to own and operate Telstra’s retail business

Mr Penn said the restructure would allow the company to unlock value from its infrastructure by allowing greater commercial use of its tower assets.

“Telstra intends to start seeking investment from third parties while maintaining control of our strategic towers and preserving our competitive differentiation for Telstra’s mobile business,” he said.

“We anticipate this will begin in 2021 and will follow a similar timeframe to the rest of the restructuring process.

“There are a range of commercial, regulatory, and operational requirements needed to finalise the structure, including consultation with our employees and unions.”

Telstra shares finished three per cent higher after the announcement.

Mr Penn also announced Telstra’s intentions to push into renewable energy.

“We are exploring the opportunity to re-sell energy to our consumer customers,” he said.

“These plans are at an early stage but we are about to apply for the necessary licences and you will therefore be aware of them in coming weeks.

“We are one of the largest consumers of electricity in the country and we have been heavily involved in the sector by underwriting renewable energy via power purchase agreements (PPAs), providing firming power capacity during times of extreme demand or grid instability, and neutralising the emissions from our total operations.

“We already underwrite projects that generate enough renewable energy to power about 100,000 homes, and we provide standby power that enables more renewable energy to be absorbed into the energy grid.

“We deploy machine learning and Internet of Things (IoT) to change the way we use energy. We also have a very experienced energy team.

“All of these things help us affordably access more renewable energy, and we also help some of our large customers do the same.

“We are exploring bringing this experience to the table with a consumer offer leveraging our strong in-home position with our customers, the investments we have made in the digitisation of our customer systems and our Telstra Plus loyalty program.

“We plan to do so with a simple affordable solution at a low cost for us.”

Telstra’s significant restructure plans have fuelled speculation it is readying itself to purchase NBN Co in coming years.

By splitting the company into three separate legal entities, it could free up InfraCo to potentially bid for NBN Co if NBN Co is privatised in coming years.

Earlier this year, Federal Communications Minister Paul Fletcher appeared to rule out the possibility of Telstra purchasing the $51 billion internet monopoly.

“I don’t see any scenario in which the very clear legislative restriction on the NBN being owned by a company which is also a retailer of telecommunications services is changed,” he said.

The Australian Competition and Consumer Commission has also rebuffed Telstra’s overtures.

However, Telstra’s plan to create legally separate companies for its retail and infrastructure businesses has kept the issue alive.

Mr Penn said the planned restructuring could potentially set up InfraCo to bid for a privatised NBN Co, but that wouldn’t happen for years.

He said there were lots of hurdles to jump first, including the need for NBN Co to start generating positive cash flow.

“I don’t think the NBN will be privatised for years,” he said.

*Gareth Hutchens is a business reporter for the ABC.

This article first appeared at abc.net.au.

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