Telstra could let other mobile operators access its nationwide tower network, potentially accelerating Australia’s 5G rollouts as a proposed major restructuring prepares the company to wash its hands clean of the national broadband network (NBN)’s financial impact – and, potentially, to acquire it.
The restructure, which executives proposed at the company’s Telstra investor Day, would be the largest business change since Telstra was privatised in the early 2000s.
It would transfer ownership and operation of Telstra’s mobile network towers to a separate company called InfraCo Towers, a division of the Telstra InfraCo business unit established in 2018 under Telstra’s T22 strategy.
By engaging third parties, InfraCo Towers would seek “to monetise over time given the strong demand and compelling valuations for this type of high-quality infrastructure”, the company said.
While it wouldn’t go so far as to open its Telstra’s own 5G network to mobile virtual network operators (MVNOs) – as Optus recently did with its network – the new structure would provide what CEO Andy Penn called “optionality and opportunity to better realise the value of our infrastructure assets”.
As Telstra transitions from business building to business operations and asset monetisation, InfraCo would let emerging mobile operators install 5G mobile equipment on Telstra’s physical towers, while keeping its own mobile network at arm’s length.
This would speed network rollouts that have historically been weighed down by ponderous local approvals processes, high capital costs, and construction delays.
The restructure would also create two other divisions, called InfraCo Fixed and ServeCo.
InfraCo Fixed would assume ownership and operation of Telstra’s physical infrastructure – including ducts, pipes, fibre-optic cabling, data centres, subsea cables and exchanges.
ServeCo – which Penn said “will focus on how we create innovative products and services, support customers and deliver the best possible experience” – would manage the “active” parts of the 3G, 4G and 5G networks that Telstra operates across its licensed radiofrequency spectrum.
From next year, 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,” Penn said.
Connecting the new normal
InfraCo Towers will challenge established operators like Axicom, which maintains around 2000 wireless towers and traded as part of global operator Crown Castle until Macquarie Group bought the Australian business for $2b in 2015.
The restructure would diversify Telstra’s business activities as it pivots away from an NBN rollout whose impact, Penn noted, “remains as expected and will be largely complete by FY22”.
Telstra is “absolutely focused” on boosting EBITDA to $7.5b by fiscal 2023, with its enterprise business expected to return to growth in fiscal 2022.
“We can now see the point in FY23 where the NBN migration will be fully complete and its impact fully washed through our financials,” Penn said.
“This will be an historic moment because the net cost to Telstra of this has been huge…. Transforming Telstra, and preparing it for the future post the rollout of the NBN, has been what T22 is all about.”
Telstra has over 400,000 5G devices on its network and expects that to reach 750,000 by year’s end as it aggressively promotes fixed 5G wireless services – a potential NBN competitor – “where it makes sense for our customers”.
The proposed InfraCo Fixed and InfraCo Towers businesses account for $2.6b in annual revenues, while ServeCo would manage operations worth $1.7b per year.
As a separate division managing Telstra’s fixed assets, InfraCo Fixed would be poised to assimilate part or all of the NBN if a widely-mooted government sale eventuates.
A sale could be nearing reality as NBN Co ramps up the rollout of higher-margin, ultra broadband services running at up to 1Gbps.
According to the ACCC’s newly released Wholesale Market Indicators Report, 57.5 per cent of broadband connections are now running at 50Mbps or more – increasing from 4.9m to 5.2m over the last quarter alone.