The news that Telstra is going to be fully privatised and tightly regulated to protect the industry from anti-competitive behaviour may not be welcome news for the carrier’s shareholders. However, for users of telecom services it is sweet music.

The fact that the Government will no longer have a stake in protecting Telstra’s perennial monopoly will lead to greater competition in the marketplace. For Australia, which has been left behind in the broadband race because of Telstra policies, based on self interest, this is good news.

Another piece of good news is the attention being paid to the operational separation of Telstra’s wholesale and retail businesses. After all, we can’t have Telstra continuing its blatantly anti-competitive practice of favouring its own retail divisions over other wholesale customers. The only problem, however, is that nobody has told us exactly how operational separation is going to work exactly.

If Telstra the corporation still gets its consolidated revenue from both its wholesale and retail businesses, then there will always be an incentive for its wholesale and retail arms to work together for the mutual benefit of the parent company. Telstra may not be able to get away with some of the outrageous practices of the past and present, such as dropping its retail broadband price below its wholesale price, or insisting that ADSL subscribers pay for a PSTN telephone line rental whether they want it or not.

The question remains, however, is under an operational separation scenario, why would there no longer be an incentive for the wholesale arm of Telstra to provide more favourable service to its retail arm than to other retailers? Stories abound of consumers experiencing difficulty and long delays in getting broadband access from non-Telstra service providers, while Telstra retail muscles in and gets the consumers up and running in nothing flat. What process will be put in place for other retailers to prove that Telstra is acting anti-competitively in such a scenario? No doubt the regulators will try to come up with something to make Telstra play fair, as they have been trying to do for years.

The point is, there is no guarantee that operational separation will work because both the wholesale and retail divisions will be contributing revenue and earnings to the same company and there are powerful incentives in place for them to help each other. What would most likely work, however, is if Telstra was split up into two completely separate companies. One company would own and rent out the network infrastructure and the other company would be a service provider.

Both companies would still be extremely valuable businesses. After all, Telstra has the most extensive communications network in the country and its retail business has the largest customer base in the country. If both businesses were completely separate companies, there is a strong argument to suggest that both companies would become leaner, more innovative and more motivated to perform at a world class standard. Heavens, we might even see one or both companies being first to market with groundbreaking technologies instead of trying to hold the market back because they’re still able to make a killing by holding consumers to ransom with obsolete technology.

As for Telstra shareholders, who may be concerned about the fate of their precious stock, why worry? At present, your shares are on a downhill slide. Unless Telstra totally revolutionises its business model nothing is likely to change in that regard, no matter which hotshot CEO the company imports. However, if you were offered a piece of the action in two new lean and highly competitive businesses, both of which had a dominant market share, instead of a fading dinosaur from a bygone era of pre-converged telecommunications, would that be a bad thing? You may find your shares going up for a change and not having to rely solely on the dividend to justify holding on to them.

Of course, this is all conjecture and almost certainly won’t happen in the near future. What may happen, however, is that after Telstra is fully privatised and the company finds its grip on the fate of the Australian telecommunications sector continue to slip ever so gradually, it may well come to the same conclusion itself. For the sake of Telstra shareholders, hopefully that won’t be too late.