It’s too easy to think of Telstra (ASX:TLS) just as a telco and one analyst believes that’s why it will split into four subsidiaries.

After first indicating of a split last year, Telstra yesterday unveiled just what it would be putting to its shareholders to vote on later this year.


What Telstra split will look like

A new company (Telstra HoldCo) will be formed to act as an umbrella for four subsidiaries:

  • InfraCoFixed – which will own Telstra’s passive or physical infrastructure assets such as data centres and exchanges
  • InfraCo Towers – which will operate its mobile tower assets. These are the biggest network of mobile phone towers in Australia.
  • ServeCo – which will focus on active parts of the network such as the radio access network and spectrum assets.
  • Telstra International – which will house its overseas assets including (but not limited to) subsea cables.
Telstra’s new corporate structure post the split (Pic: Telstra)

It’s easy to point to the competitive environment, with ASX-listed companies such as Aussie Broadband (ASX:ABB) and Pentanet (ASX:5GG) threatening to eat into the market share.

But Morningstar analyst Brian Han says, while there are such competitive pressures, this was an afterthought at best in this transaction.

He says the rationale for the split was so that Telstra wouldn’t be treated simply as a consumer telco and potentially attract M&A interest.

“I think they’re just trying to keep their strategic options open and have as many vehicles for monetisation as possible,” Han told Stockhead.

“They’ve been under competitive pressure for quite a while and that’s why they’re doing the cost-cutting.

“This is more strategic and structural stuff in terms of separating out all their assets so people just don’t treat Telstra as a pure telco getting bombarded with competition left, right and centre.

“What they want to show people is ‘we do have these infrastructure assets that are being ignored’ and if markets around the world are valuing these infrastructure assets at double digit multiples, then we are going to separate our infrastructure assets into separate vehicles so that you can see what infrastructure assets we have and you can value it accordingly in your sum of parts [valuation].

“And hopefully that sum of parts is bigger than the current share price.”


Which of Telstra’s business will look most attractive?

Stockhead also asked Han about which of these assets will be most attractive to investors once the Telstra split is complete.

InfraCo Towers is the business Telstra is most keen to shift, having told investors last month it hopes to sell them before the year is out.

It has wooed potential buyers with its expectation InfraCoTowers will generate $230 million in earnings on FY21.

But Han said every individual investor’s perspective is different and with it, which business would be most attractive.

“I think some people might be interested in the infrastructure – if they have a deal in mind with an NBN down the track,” he said.

“There are some superannuation assets or investors who are interested in Towers because of its long durations and security of earnings.

“And there might be international telcos that might be interested in the international telco vehicle because it might fit in very well with their own business footprint in these areas around the world.

“So it really depends on the investor and what he or she is looking for.”