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Analysts welcome Telstra breakup -

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ELEANOR HALL: Telstra shares have fallen more than four per cent, as investors absorb the
implications of a breakup of the telco giant.

But analysts say Telstra has little choice but to comply if it wants a stake in the Federal
Government's $43 billion national broadband network.

Long-time Telstra watcher Paul Budde spoke to Business editor Peter Ryan.

PAUL BUDDE: What you will see is that Telstra will have a totally separated wholesale and network
division and that cleans up the whole mess in relation to telecommunications.

At the moment, in the vertical integrated way, Telstra can favour its own retail division every
single time when it announces a new product.

You know, by actually taking that away you can create a level playing field between - for all the
ISPs and the content providers and the other telcos in the market.

PETER RYAN: Do you think that if Telstra plays ball with the Government and takes up these
suggestions voluntarily that it will get a piece of the $4 billion broadband project.

PAUL BUDDE: Peter, Telstra is in the boxing seat, you know, they have a large network and a large
part of that network could be used for the National Broadband Network, so that's point one.

They've got 10 million customers, so they have an enormous amount of customers. It's far more
easier to transfer customers from one network to another than to win new ones.

So you're in a very strong position to move them from one network to another, yeah. So I think they
have a hell of a lot of advantages in that area.

It would be in their total interest to work very closely with government policies rather than the
previous CEO who fought the government, who fought the prime minister Howard, who fought the
minister Coonan, who fought the regulator.

I think this Telstra is a changed Telstra. They have clearly indicated they want to work together
with the Government.

They see that you can grow the pie bigger if all those sectors are using it, that you have a bigger
telecommunications pie.

So they are very open in their view and in their vision that that's the way forward.

PETER RYAN: So do you believe that what we've seen today is a significant part of the healing
process between Telstra and the Federal Government?

PAUL BUDDE: Yeah, you know we've seen that Telstra has made the right sort of noises so far and we
have to wait and see what their reaction is today but I would be surprised if they would be very

They might have concerns like everybody else will have but I think, you know, they will have an
open mind to that.

Certainty is what we get today. It's great to say: "We have to change." But now you actually start
filling in, how are we going to change.

You know, what are the elements of change that are going to be implemented to make sure that we
don't fall in the same traps that we had under the previous CEO.

We don't want that anymore, we want a new environment and these are some of the first guidelines of
how this is going to look like.

It brings clarity in the market, it clearly starts to indicate where the Government is going - and
the Government is in charge of regulations, nobody else, so they can set the rules.

And the rules, in my opinion are looking good, both for the competition as well as for Telstra.

PETER RYAN: It seems very clear that Telstra will not be doing anything that would bock its access
to increasing wireless spectrum.

PAUL BUDDE: It would not make sense for me, no. It definitely would not make sense for me.

You know as we've seen Telstra has invested in Next G, which is a fantastic network. So it has put
a hell of a lot of its eggs in that particular basket, yeah. And I think that is true
telecommunications stuff.

Telstra will have to starting buying spectrum now, so it will have to make a decision, which way
does it want to jump. And my bet will be that they will jump in the direction of the mobile

PETER RYAN: If Telstra is forced to divest itself of some or all of its 50 per cent ownership of
Foxtel could that be an opportunity for Kerry Stokes to jump into his beloved area of pay TV?

PAUL BUDDE: Yeah definitely there is new opportunities and I think that's where Seven - Kerry
Stokes in particularly, but also I'm 100 per cent sure News Limited will be very interesting in
actually starting to have a look at that.

ELEANOR HALL: That's telecommunications analyst Paul Budde speaking to Business editor Peter Ryan.