The Australian Government wants Telstra to structurally separate and if the telco giant won't do so voluntarily the Rudd administration will use regulation to achieve the goal.
At a press conference in Canberra, communications minister Stephen Conroy, said telecommunications legislation, to be introduced into parliament today, will allow the government to impose a strong functional separation framework on Telstra unless it separates of its own accord.
The legislation gives Telstra the opportunity to decide how it will structurally separate, and submit its own plans to the Australian Competition and Consumer Commission (ACCC).
The changes come on the back of the upcoming roll out the government’s $43 billion National Broadband Network (NBN), which has the potential to change the current telecommunications regime and outmode Telstra's fixed-line copper network.
“It is the government’s clear desire for Telstra to structurally separate, on a voluntary and cooperative basis,” Conroy said.
The communications minister admitted the separation will not be an easy commercial negotiation but the government had seen a change in attitude from Telstra, in recent times.
“Telstra are as hard nosed as they come,” he told journalists at the press conference. “It will be a tough 8-13 weeks towards the end of the year. We won’t be speculating daily. In the end, Telstra will only agree to this if they believe it’s a win-win.”
The reforms aim to:
- Address Telstra’s high level of integration to promote greater competition and consumer benefits
- Streamline and simplify the competition regime to provide more certain and quicker outcomes for telecommunications companies
- Strengthen consumer safeguards to ensure services standards are maintained at a high level
- Remove redundant and inefficient regulatory red-tape
Telstra is one of the most highly integrated telecommunications companies in the world across the fixed-line copper, cable and mobile platforms. But its copper network is looking rather long in the tooth.
“The copper access work is literally collapsing in the ground,” Conroy said. “There’s an enormous maintenance requirement every year to try a keep it where it’s at.”
Conroy said the government had not undertaken a cost benefit analysis of the NBN, but maintained that level of diligence is not required as broadband coverage in Australia required a major overhaul.
“Have we done a cost benefit analysis? No. We’ve had eleven-and-a-half years of watching small business and regional Australia struggle to get access... the cost benefit analysis is staring us in the face.
“The market didn’t deliver us an outcome so we’ve prepared to do it ourselves and partner with the private sector to do it.”
He said despite claims of 80 per cent coverage for ADSL2+ technologies, the reality was quite different.
“It’s probably only around 50 per cent access to ADSL2+,” he said. “It’s what happens once you leave the exchange – the infrastructure in the ground blocks the access to the broadband. There is an inherent end to the copper era coming.”
The reforms will drive lower prices, better quality and more innovative services, he said.
Internode's carrier relations manager, John Lindsay, has welcomed the reforms, saying they address most of the issues of the competitive fixed line telecommunications sector.
“Separation, functional or structural, which ensures equivalent price and non-price terms to Telstra's retail business and non-Telstra wholesale customers with transparency, will help to ensure retail prices remain affordable and the breadth of services remain wide," Lindsay said.
“Moving the access price setting regime to ‘price setting’ rather than ‘negotiate, arbitrate, litigate’ will dramatically increase certainty for access seekers and reduce our legal bill significantly."
The legislation also requires that Telstra sell off its 50 per cent stake in Foxtel and its cable networks if it wants to acquire additional spectrum for wireless broadband.
The price of Telstra shares has fallen 4.31 per cent today to $3.11 on the back of today's announcement.
Telstra CEO, David Thodey, said in a statement that the telco is disappointed the government felt it necessary to overhaul the telecommunications legislation, but remains committed to working with the government.
"It is Telstra's view that many aspects of this package are unnecessary and need never be implemented if a mutually acceptable outcome can be reached on the NBN," Thodey said.
"Telstra supports the Government's NBN vision. We are willing to discuss options around separation."
He said Telstra will carefully examine the package but its approach would continue to be driven by the need to protect the interests of its shareholders.
"We are actively and constructively engaged with government," Thodey said. "Much remains uncertain, but we will continue to provide updates whenever it is appropriate to do so.”