Opinion: Why Telstra should split in two

The greatest benefit of a decision to structurally separate Telstra into wholesale and retail organisations would be competition - and thus consumer benefit.

For the past decade, consumers in Australia have suffered greatly due to the dominance of the vertically integrated company privatised by the former Government - through high prices and lack of innovation.

Telstra has used its massive infrastructure access advantage to command monopoly profits while the rest of the telecoms sector fought over the remaining 10 per cent of those industry profits.

The massive cost difference between a broadband service based on a Telstra ADSL2+ port and an ADSL port built by a rival ISP clearly demonstrates the 'monopoly tax' forced on consumers who have no option but a Telstra-based service.

Same service outcome, hugely inflated price - with all of the price difference going to Telstra.
Telstra has consistently sought to entrench the status quo, and thus its dominance, by retarding competitors' legitimate access to its facilities.

Some exchanges are "capped" by Telstra, which prevents the installation of competitors' equipment. In others, competitors wait as long as two years or more to install DSLAM ports. Meanwhile Telstra adds capacity to meet its own needs at any time it likes.

While many believe that Telstra Retail buys its services through Telstra Wholesale, this logical, but completely incorrect, assumption lies at the heart of the current problem.

Telstra Retail is not a customer of Telstra Wholesale: Instead, it has parallel, unrestricted direct access to the Telstra network, which gives it a completely different cost structure and greater access and flexibility than the rest of the industry enjoys.

Structural separation of Telstra's wholesale and retail operations has the potential to turn that situation on its head.

If an independent Telstra Wholesale was the access path for all customers, including Telstra Retail, then Telstra Wholesale would have an incentive to offer access at commercially competitive prices and to develop new service offerings.

This would strengthen the industry massively overnight - nationally.

It would evict the Gorilla in the Room that exploits its privileged access to monopoly bottleneck resources - and forces the channel and consumers to pay top dollar for its largesse.

Through the structural separation of Telstra, the industry could compete on the basis of service, innovation and product pricing.

Through greater choice, customers are the ultimate winners.