Senators air concern over cost of Telstra split

Representatives from the Department of Broadband, Communications and the Digital Economy (DBCDE) today admitted the Government had done no analysis as to what it will cost Telstra to undertake structural or functional separation.

Grilled by Senators at a public inquiry into the Telecommunications Amendment Bill, DBCDE secretary Peter Harris was unable to provide an estimate as to what it would cost Telstra to split.

Harris said the department could only rely on Telstra's own figures - which estimated the cost of functional separation at around one billion dollars.

"We have taken some account of what others overseas have said of the costs... but generally the parties in the market know better than us," Harris told the committee. "Telstra in particular, will know better the costs - bearing in mind, we consider their [estimates] to be in the upper end of the envelope."

Grilled by Liberal Senator Ian McDonald, the department conceded it had done no modelling of costs of its own.

Harris and three colleagues dismissed the need for such calculations, as legal advice sought by the Government concluded that "no compensation" would need to be offered to Telstra under the legislation as it stands.

The department is relying, meanwhile, on "international experience" to model how long it should take for Telstra to separate.

Under question from Liberal Senator Simon Birmingham, the inquiry was told the experience of BT  in the United Kingdom and Telecom New Zealand suggests a timetable of five to seven years.

"When you talk to people in the UK and New Zealand about their experience, the way they organised it is to have a set of steps and milestones," said Rohan Buettel, assistant secretary of the networks regulation branch at DBCDE.

"What they do is require the most important measures to be taken upfront. They then tend to see the big gains from separation very much in the early years... within 12 months of embarking on functional separation. The less important measures take a longer time to put in place."

Rosemary Sinclair, managing director of the Australian Telecommunications Users Group (ATUG), also appeared before the inquiry and said BT experienced a much faster separation process than the six to eight years estimated by Telstra.

"It was a much faster process than that," she said. "I couldn't readily accept the claim that it would take a well-resourced company like Telstra six years."

She also disputed Telstra claims that separation had worked against BT and its shareholders.

"It provided them with clarity and certainty and enabled them to move on," she said.

Sinclair said separation took BT from fighting its wholesale customers to having constructive conversations with them about its investment plans.

"After four years, [BT] still think it was the best thing for their organisation," she said.

David Forman, executive director of the Competitive Carriers Coalition told the inquiry a "reasonable timeframe" for separation would have Telstra complete the task "within three years, and for some elements, within a few months."

Divesting assets into the NBN or conducting trade sales could see the process occur even faster, he said.