Telstra forced to separate

By Brett Winterford on Sep 15, 2009 10:28 AM
Filed under Telco/ISP

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'

17 comments in this discussion

"@Graeme: I may not have always agreed with you on some other topics, but your comments in this thread are absolutely right. They should be required reading for some other posters who are off in ..."

By anonymous

Tags

telstra, structural, separation, accc, regulatory, reform, conroy

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Comments: 17

Johnny Sep 15, 2009 10:43 AM	Wow that's awesome made my day.
MerariSchroeder Sep 15, 2009 10:46 AM	Hooray!! Well done Senator Conroy!
Mun Sep 15, 2009 10:51 AM	In case anyone is interested, below is the full text of the Minister's press release. Also, this is a link to the reforms: http://www.dbcde.gov.au/communications/telecommunications_regulatory_reform Historic reforms to telecommunications regulation The Minister for Broadband, Communications and the Digital Economy, Senator Stephen Conroy today announced fundamental reforms to existing telecommunications regulations in the interests of Australian consumers and businesses. These reforms will drive future growth, productivity and innovation across all sectors of the economy by: * addressing Telstra’s high level of integration to promote greater competition and consumer benefits; * streamlining and simplifying the competition regime to provide more certain and quicker outcomes for telecommunications companies; * strengthening consumer safeguards to ensure services standards are maintained at a high level; and * removing redundant and inefficient regulatory red-tape. “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. Telstra is one of the most highly integrated telecommunications companies in the world across the fixed-line copper, cable and mobile platforms. “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 Government believes it is possible to achieve a win-win outcome in the interests of Telstra, its shareholders and, more broadly, all Australians,” Senator Conroy said. The reforms will also promote competition and strengthen consumer safeguards. “The existing telecommunications anti-competitive conduct and access regimes have been widely criticised as being cumbersome, open to gaming and abuse, and provide insufficient certainty for investment,” Senator Conroy said. Since the commencement of the regime in 1997 there have been more than 150 telecommunications access disputes compared to only three access disputes in other regulated sectors, including airports and energy sectors. The Government will strengthen consumer safeguards including the Universal Service Obligation, Customer Service Guarantee and the Priority Assistance arrangements to ensure consumers are protected and service standards are maintained at a high level. In line with the Government’s commitments to address impediments to Australia’s long-term productivity growth, it will remove unnecessary regulatory burden on the industry. “These fundamental reforms address the long-standing inadequacies of the existing telecommunications regulatory regime. They will drive lower prices, better quality and more innovative services,” Senator Conroy said. The reforms are supported by the overwhelming majority of the submissions received in response to the National Broadband Network: Regulatory Reform for 21st Century Broadband Discussion Paper released by the Government on 7 April 2009. The legislative package is available online: www.dbcde.gov.au Date: 15 September 2009 BACKGROUND Addressing Telstra’s vertical integration The legislation will allow Telstra to voluntarily submit an enforceable undertaking to the Australian Competition and Consumer Commission to structurally separate. The Minister can provide guidance to the ACCC on the matters it would take into account when considering whether to accept the structural separation undertaking. If Telstra chooses not to structurally separate, the legislation provides for the Government to impose a strong functional separation framework on Telstra. This Bill proposes implementing a functional separation regime by altering the Telecommunications Act 1997 to require that: * Telstra conduct its network operations and wholesale functions at arm’s length from the rest of Telstra; * Telstra provides equivalent price and non-price terms to its retail business and non-Telstra wholesale customers; and * this equivalence of treatment is made transparent to the regulator and competitors via strong internal governance structures. Addressing Telstra’s horizontal integration The legislation will seek to promote competition across telecommunications platforms while allowing Telstra the flexibility to choose its future path. Telstra will be prevented from acquiring additional spectrum for advanced wireless broadband while it: * remains vertically integrated; and * owns a hybrid fibre coaxial cable network; and * maintains its interest in Foxtel. The legislation provides scope for the Minister to remove either or both of the second and third requirements in the event that Telstra submits to the ACCC an acceptable undertaking to structurally separate. Reforms to the Competition Regime * The legislation will streamline the arrangements in Part XIC of the Trade Practices Act 1974 (TPA) which allow parties to access regulated services so that: * * the ACCC will determine up-front terms and conditions for a three to five year period, following consultation with industry; * the ACCC can determine principles to apply for longer periods; and * the ACCC can make binding rules of conduct to immediately address problems with the supply of regulated wholesale services The legislation will also reform the arrangements in Part XIB of the TPA so that the ACCC can address breaches of competition law and conduct damaging to the market. The ACCC will no longer have to consult with a party before issuing a competition notice; a process previously prone to delay and obstruction. In addition, the reforms include clarification that the competition notice regime applies to content services – such as subscription television services – delivered by carriers and carriage service providers. Strengthening consumer safeguards Universal Service Obligation (USO) The USO requires Telstra, as the universal service provider, to enable all people in Australia to have reasonable access on an equitable basis to standard telephone services, including payphones. The legislation will strengthen the USO by enabling Minister to specify the standards, terms and conditions of services, connection and repair periods, and reliability requirements of the standard telephone service. Telstra will be required to meet new minimum performance benchmarks. Failure by Telstra to meet the requirements will expose Telstra to a civil penalty of up to $10 million. The legislation also includes more stringent rules on the removal of payphones and new provisions to allow people concerned about a payphone removal to apply to the Australian Communications and Media Authority (ACMA) to direct Telstra not to remove a payphone. Failure to comply with the new rules will expose Telstra to civil penalties or on-the-spot fines. Once the detailed operating arrangements for the National Broadband Network (NBN) have been settled, the Government will consider the broader range of issues associated with the delivery of universal access. Meanwhile the Government will maintain the USO levy at the same rate for this financial year. Customer Service Guarantee (CSG) The CSG currently provides that telephone companies must financially compensate customers where certain minimum performance requirements are not met. The legislation provides new minimum performance benchmarks to require telephone companies to meet or exceed the CSG time periods for a certain proportion of cases. Failure to comply may result in civil penalties or on-the-spot fines. Priority Assistance (PA) PA arrangements require the highest level of telephone service to residential consumers who have a diagnosed life-threatening medical condition. The legislation will require telephone companies to either offer PA services or inform the customer where they can purchase these services. Effective Enforcement of Consumer Safeguards The legislation will provide the ACMA with increased powers to issue infringement notices (on-the-spot) fines instead of commencing procedures in court. Removal of Unnecessary Red Tape The Government will exempt carriers with a revenue less than $25 million per annum from paying an annual Carrier Licence charge and reporting to the ACMA, as costs of compliance is often considerably higher than their monetary contribution. The ACMA will reduce reporting requirements under the CSG, PA and the Network Reliability Framework, so long as performance benchmarks are being met. The legislation includes measures to repeal unnecessary accounting and operational separation requirements once functional separation is in place or Telstra has submitted an enforceable undertaking to structurally separate that is acceptable to the ACCC. The Government will remove the requirement on Telstra to provide technical assistance to enable customers to achieve 19.2 kilobits per second internet services, as the Australian Broadband Guarantee offers broadband speeds of 512 kilobits per second or higher to Australians who cannot access metro-comparable broadband services. Edited by BrettWinterford: 15/9/2009 01:13:49 PM
BrianMadsen Sep 15, 2009 10:53 AM	That's excellent news!!! the micro-monopoly the tier one telco's are running is flawed with problems - unfortunately it's the end users that gets hit with the penalties for how the telcos run things. Anyways, now we just need Conroy to flex those muscles of his and get the telcos inline with what's better for the consumers rather than punishing them financially each month with outrageous service fees!
Bob Sep 15, 2009 11:12 AM	It is interesting the government sold a big chunk of Telstra shares just before announcing this. So what does this mean for successful private companies in Australia? I can see a High court coming on.
greg.t Sep 15, 2009 11:20 AM	This has got to be Sol's greatest accomplishment - creating a commercial environment where such drastic actions are applauded and welcomed. Sucks to be little Johnnie who stuffed it up in the first place, but 5 stars to Conroy for fixing it.
Graeme Harrison (prof at-symbol post.harvard.edu) Sep 15, 2009 1:07 PM	I don't know that giving Telstra the choice will hasten the changes, or delay it all in court challenges. I dined with former Minister Alston on Friday, and went over the thrust of my submission to him before his approval of the dual roll-out of HFC in 1996(?) that separation was needed, either then or later, but inevitable. Then of course the government was wanting to first off-load its shareholding, but in fact once you want competition, you need a way to determine a fair wholesale price. It's taken a decade lost with Sol, but finally we are getting to the point of having a pro-competition environment.
anonymous Sep 15, 2009 3:59 PM	This is an outstanding move if the government is able to go through with it. It will fix the huge problems built up by previous governments, who created the Telstra monolith and then sold it with the monopoly intact. @Bob, it wasn't the government that has just sold some Telstra shares (they don't own any); it was the Future Fund, which is completely independent of the government. The Future Fund was overloaded with Telstra shares, so it seems to make good commercial sense for them to rebalance their portfolio.
FLashy Sep 15, 2009 7:32 PM	I think you will find it is a non-event internally in Telstra. There is separation along similar lines already.
funkyg Sep 15, 2009 10:49 PM	I agree with splitting Telstra, it should have been done ages ago, but ...I really can't agree with the way this is being done. How can the ACCC stand by and let the government say "and by the way if you don't agree we're not going to let you buy spectrum". I always thought one of those C's in ACCC stood for competion? Obviously not! And what has Foxtel got to do with anything? Seems like it would just be a way to punish if Telstra don't agree! Telstra is a commercial enterprise, the government created this mess by selling them, they shouldn't now be able to impose new conditions on them. Goverment and ACCC, my message to you would be yes this is a good idea, as it always has been (you should have kept control of the infrastrucure in my opinion). Unfortunately you realized that too late. Force Telstra into price parity for selling access. Ensure they don't drive competition out of business with either anticompetitive pricing or legal actions, but don't try to force a commercial company to split. You sold them now we have to live with the consequences, like them or not.
dt Sep 16, 2009 9:47 AM	What about Optus? should they separate their wholesale & retail divisions too? - to be fair.
MichaelJM Sep 16, 2009 10:20 AM	How much more damage will this dork Conroy do to the ICT industry? Will the National Broadband Network ever get built? Your guess is as good as mine. One thing is for sure, Rudd needs to replace Conroy with someone who is a doer and not persist with Conroy whose only contribution is to engage in pointless argie-bargie.
Neon Sep 16, 2009 11:02 AM	Yep let all cheer when an Australian company get told how to run its business. Optus should not even be allowed to operate in this country with its oh no its all telsta's fault mantra . Singapore owned and operated gimme a break. If you want to compete build your own infrastructure. $14844000000.. that what sing tel earn in revenue
anonymous Sep 16, 2009 1:20 PM	There, there, Neon, have a cuppa tea and a good lie down. Fixing earlier mistakes which created a monopoly juggernaut is definitely not the end of the world (unless perhaps you are part of the problem). Aussie monopolies are just as odious and against our public and national interest as any others. Instead of whingeing about competition, you should be welcoming the fact that consumers will now have some real choices available.
Alex G Sep 18, 2009 1:12 PM	I bet you all cant wait for telstra to sell their network into the NBNCo. But I'll be watching and waiting for the wholesale price for line rental to go up because they'll instantly be making a loss on it, if they continue charging what Telstra are forced to charge by the ACCC. The ACCC call this it "Fair and Just" price, but I bet they'll come lax on that if the NBNCo raises that price so they don't fold. And if they do Telstra will have a field day in Court, because that will mean it wasn't a "Fair and Just" price and they'll have Legal grounds to claim back from the Government / ACCC all the money they lost.
Graeme Harrison (prof at-symbol post.harvard.edu) Sep 22, 2009 5:11 PM	Fynkyg asked "And what has Foxtel got to do with any of this?" But the root cause of the vertically-integrated monopoly was the dirty deal done at Foxtel's formation, where the government of the day allowed the cable TV industry to be a monopoly collaboration of some media mogul-mates and the national telco. No competition regulator would ever have allowed NewsCorp, PBL and Telstra to conspire a monopoly, but a nod from a PM allowed it, without expressions of interest, tender or other 'openness' or transparency... ie no other party had an ability to participate. News/Fox was locked in as having exclusive content feed arrangements, to boot. But Australia can live with monopolies, if the supplier understands the sensitivities, which Sol never did. Instead of having 'acceptable' methods to open it up (allowing content provision by smaller players etc), Telstra was gung-ho on providing only mobiles that fed into Foxtel sites, where Foxtel downloads were excluded from otherwise expensive download charges, and the market was charged what it would bear. The only small glimmer of hope was that, after decades of slumber, the Free-to-Air channels announced (but haven't delivered) true multi-casting... to justify the cosy relationship they've had with governments to maintain their own oligopoly on the TV spectrum (fighting hard to keep other wanna-be broadcasters like Fairfax and smaller players out of TV broadcast). We are all worse off for it. Yes, structural separation will be a free kick for Singtel, and welcomed by Apple (as Telstra may give up its aspirations to have an Apple-like front-end to control content on the phones it supplies). But that is a 'lesser evil' than allowing the vertically-integrated monopoly to continue. Let's have a monopoly (with many shareholders and stakeholders) that ONLY owns the highway... then we'll get all sorts of innovative and price-competitive offerings of data and voice packaging which use that highway.
anonymous Sep 26, 2009 11:50 AM	@Graeme: I may not have always agreed with you on some other topics, but your comments in this thread are absolutely right. They should be required reading for some other posters who are off in lala land on these issues. Apart from the broadcasting details you refer to, there's another aspect of the cosy Foxtel deal that needs scrutiny. In more enlightened countries a pay-TV network can be used to offer csp competition to the fixed line telcos, but here it all seems to be controlled by the same 300kg gorilla.