Aussies serious mull functional separation of Telstra

crawler

http://www.australianit.news.com.au/story/0,25197,25307343-15306,00.html

THE federal Government has signalled its resolve to do everything necessary to curtail Telstra's dominance of the Australian telecommunications market.


Amid concern that Telstra would be able to use its market power to hinder the successful rollout of the Government's new National Broadband Network, Communications Minister Stephen Conroy yesterday called for submissions on a range of new regulations.

One of the most radical would be the "functional separation" of Telstra's network operations from its other divisions. This would involve ring-fencing Telstra's network operations and ensuring all companies seeking access to the new network, including Telstra's retail arm, were treated equally. This is known as "equivalence".

Telstra has strenuously resisted any further separation of its network operations after previous attempts to make its wholesale operations more independent.

"The overwhelming view of stakeholders and the (Australian Competition and Consumer Commission) is that the current arrangements in place to promote equivalence of access have failed," says a discussion paper on the proposed changes.

"Competition has suffered as a result. What needs to be considered is whether functional separation of Telstra would be more consistent with the type of wholesale-retail market structure the Government envisages for the NBN environment of the future."

The proposals, which carry Senator Conroy's seal of approval, also seek submissions on strengthening the power of the ACCC to grant and police access to networks, particularly Telstra's.
And they canvass whether Telstra should be forced to sell its hybrid fibre coaxial cable network and its 50 per cent stake in Foxtel. If it is allowed to keep Foxtel and the network, the paper asks whether it should be subject to "cross media ownership" laws that limit its ability to buy other media and content companies.

Telstra insiders said the company was concerned about the possibility of functional separation -- a process undertaken by former state-owned monopolies in Britain and New Zealand -- and the sale of its broadband cable network or interest in Foxtel. However, they said Telstra was optimistic that discussions with government would provide positive outcomes for both parties.

Telstra chairman Donald McGauchie said the company looked forward "to having constructive discussions with theGovernment at the earliest opportunity".

Shares in Telstra rose 14c, or 4 per cent, to $3.35 yesterday as investors bet it would be allowed to participate in the proposed fibre-to-the-home network.

But some analysts warned that the regulatory threat to Telstra had been overlooked.

Telstra's rivals were enthusiastic about the tone of the discussion paper and its implications for Telstra.

"This regulatory paper does everything we have asked for and more for the last decade," said Optus government and corporate affairs director Maha Krishnapillai. "It covers everything from functional separation and short-term pricing to tougher powers for the ACCC and divestiture of the HFC (hybrid fibre coaxial) network.

"It's an absolute game-changer for the telco sector and introduces for the first time a level playing field."

Lobby group the Competitive Carriers Coalition said it was now only a matter of time before Telstra would be forced to functional separation. "I give them six months," executive director David Forman said. "They can change their ways or they can have their ways changed for them.

"The regulatory paper says today's arrangements are not working and that we need drastic reform before this NBN is completed in the next eight years.

"We need a much stronger, more effective internal separation of Telstra."

JPMorgan analyst Laurent Horrut said: "The fact that the Government is raising separation as a big issue for the regulatory framework is a sign that they are very serious about it.

"There is a reasonably high chance that the Government will do it. But it is dependent on the potential discussion that Telstra has and whether it wants to be part of this FTTH network."