Telstra forced to separate

 

ACCC given new powers under revolutionary telecommunications reform.

The Federal Government has delivered sweeping changes to the regulation of Australian telecommunications, with market incumbent Telstra being asked to structurally separate or have a form of separation imposed upon it by law.

IN BRIEF: REGULATORY REFORMS

  • Telstra asked to structurally separate or have strict regulation imposed upon it.
  • Telstra banned from future wireless spectrum auctions should it not separate or sell off its HFC cable network or its interest in Foxtel.
  • ACCC given new powers to regulate wholesale access to Telstra's network and hand out competition notices without prior consultation.
  • Minister Conroy given an exclusive power to change the requirements of the Universal Service Obligation (USO), with a capacity to fine Telstra up to $10 million for not meeting such conditions.
  • ACCC given capacity to issue on-the-spot fines for breaches of 'consumer safeguards'.
  • Carrier licenses no longer required for operators with revenue less than $25 million per annum.

In legislation due to be debated in parliament within weeks, the Federal Government proposes that Telstra "voluntarily submit to an enforceable undertaking" to structurally separate.

Structural separation would see Telstra split into two distinct wholesale and retail entities.

The Government has developed a plan that will force Telstra to accept this arrangement.

If the company does not structurally separate, the Government will impose a "strong functional separation framework on Telstra." Under this arrangement, Telstra would be forced to keep its wholesale and network operations at arms length and provide price equivalence to access seekers.

But more importantly, Telstra would be barred from acquiring additional mobile spectrum for the next generation of wireless broadband while ever the company remains vertically integrated, owns a HFC cable network or an interest in Foxtel.

The mobile spectrum specified by the legislation - anywhere between 520 MHz and 820 MHz or between 2.5 GHz and 2.69 GHz - is commonly viewed as the two sweet spots for future rollouts of LTE (long term evolution) services, otherwise known as 4G.

The Government said these requirements - none of which Telstra is likely to accept - will be scrapped should Telstra undertake structural separation.

Senator Conroy, facing questions from the press today, denied the Federal Government was forcing Telstra into a corner.

"We are not actually requiring Telstra to make a choice to structurally separate," he said. "It's a voluntary situation where they get to choose how they want to go forward.

"We are offering them a choice. If they want to purchase the new spectrum that will be necessary for the future wireless technologies, then they need to divest a number of other platforms."

New powers for the competition watchdog

The legislation also arms the Australian Competition and Consumer Commission with a swathe of new powers around the regulation of the provision of wholesale services, plus the ability to hand out competition notices without prior consultation to affected parties.

The legislation also allows the ACCC to impose on-the-spot fines to any telecommunications carrier found to have not met consumer safeguard standards.

"For years industry has been calling for fundamental and historic micro-economic reform in telecommunications. Today we are delivering this outcome in Australia's long term national interest," Senator Conroy said whilst announcing the reforms.

"The reforms address the structure of the telecommunications market and provide Telstra with the flexibility to choose its future path. It is the Government's clear desire for Telstra to structurally separate, on a voluntary and cooperative basis."

The legislation should be put before the House of Reps and Senate in the October/November session.

If passed, Telstra will be given 90 days to submit to the Government a separation plan - whether it be a structural (self-imposed) one or a functional (Government regulated) one.

Conroy told journalists today that Telstra would have seen the changes coming.

"I think it would be fair to say Telstra have been preparing for today for a considerable period of time. I think since the change of leadership at Telstra, they put an enormous amount of work, very constructive work, into being prepared. So without revealing the extent of the negotiations and discussions, they were very well prepared already when we had our first meeting."

Conroy defended accusations the Government was out to kill a business it had sold to shareholders, saying that Telstra needed to make a choice in any case.

"The CAN or Copper Access Network is literally collapsing in the ground," he said. "Every time there is a flood, every time that there is heavy rain in New South Wales, Northern New South Wales, Queensland, there is a further degradation of some part of Telstra's copper network. There's an enormous maintenance requirement every year to continue to just try and keep it where it's at."

Further coverage:

Telstra 'disappointed' with separation plans

Regulatory reform: Telstra rivals praise Conroy's separation ploy

Analyst: Conroy's Telstra threat just a 'negotiating tactic'


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