Federal Government wants Telstra to be broken up

The Federal Government will introduce a package of telecommunications reforms that will force Telstra to separate its retail, wholesale and infrastructure businesses unless it voluntarily agrees to separate these businesses, Federal Communications Minister Stephen Conroy announced this morning.

Conroy says the regulations, expected to be debated in Parliament in October, are part of a group of “historic, fundamental reforms that will address the longstanding inadequacies in existing telecommunications regulatory regimes,” Conroy says.

Conroy says Telstra will be able to choose whether it voluntarily submits a proposal to the Australian Competition and Consumer Commission outlining plans to separate.

But if it does not agree to separate, the Government will block the company from buying additional spectrum for advanced wireless broadband services while it remains vertically integrated, owns a hybrid fibre coaxial cable network and owns a stake in Foxtel.

“It is the Government’s clear desire for Telstra to structurally separate, on a voluntary and cooperative basis,” Conroy says.

“The Government believes it is possible to achieve a win-win outcome in the interests of Telstra, its shareholders and, more broadly, all Australians.”

Telstra says it is disappointed with the legislation, but will continue Federal Government negotiations with the aim of minimising the legislation’s effects.

“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 National Broadband Network,” says chief executive officer David Thodey.

“Telstra supports the Government’s NBN vision. We are willing to discuss options around separation.”

“At all times, our approach to regulatory reform and the NBN will continue to be driven first and foremost by the need to protect the interests of our shareholders.”

The new regulations will also require the telco to meet Government set benchmarks in customer service standards, to “strengthen consumer safeguards, give priority assistance programs, maintain service standards, and aid consumer protection,” Conroy says.

But Ovum BB analyst David Kennedy says the forced separation will make it “a lot tougher” for the telco to operate in the Australian market.

It will also force Telstra to provide equal price and non-price terms for retail business and non-Telstra wholesale customers, which will be transparent to the regulator and competitors.

“It could have a very significant impact in terms of their market share and in terms of enabling other companies to compete and grow their own market share.”

“What we’ve seen in other countries where separation has happened, particularly separation in the UK and New Zealand, is that it’s made it much more difficult for the incumbent to operate.”

Conroy’s announcement comes as the Federal Opposition raises questions about whether the growth of wireless broadband could make the proposed National Broadband Network redundant.

Yesterday, Opposition communications spokesman Nick Minchin quoted ABS data saying mobile wireless broadband subscriber numbers have increased by 51% in the last six months, taking the mobile wireless market share from 20% to 27%. In June this year, two million Australians held wireless subscriptions.

“This is just the latest data to confirm the overwhelming growth in wireless broadband services, a trend that appears to be either misunderstood by the Rudd Government or ignored,” Senator Minchin says.

Kennedy says there is still “a lot of work to be done to establish the case for an NBN”.

“It really depends on demand. That’s the big unknown about the NBN and the primary risk factor.”

“All we can say at the moment is that wireless will compete in segments, and it will be complementary in other circumstances, such as business applications where people want access in and out of the office.”

Kennedy says that while a demand for high speed fibre optic broadband may emerge, Australians are currently content with ADSL 1, ADSL 1.5, or even 8 megabits per second.