Australia plans to break up Telstra

Australia’s incumbent telco, Telstra, butted up against the national government again on Tuesday morning as the minister for communications, Stephen Conroy, called for the carrier to be broken up.

Conroy announced fundamental reforms to existing telecommunications regulations that would prevent Telstra from acquiring additional spectrum for advanced wireless broadband, unless it agrees to a functional separation plan.

The proposed break up, which is similar to that undergone by BT in the UK, would seek to end Telstra’s dominance in the sector and would see the firm conduct its network operations and wholesale functions at arm’s length from the company; provide equivalent price terms to its own retail business and non-Telstra wholesale customers; address the company’s vertical integration; address its ownership of a hybrid fibre coaxial cable network; and assess its interest in the Foxtel pay TV network.

The reforms leave scope for Telstra to keep these assets if it can come up with a plan of its own that satisfies the government.

“It is the Government’s clear desire for Telstra to structurally separate, on a voluntary and cooperative basis,” said Conroy. “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,” he said, adding that the reforms provide Telstra with “the flexibility to choose its future path.”

Telstra chief executive David Thodey responded, saying, “While we are disappointed the government has felt it necessary to introduce this legislation, Telstra remains committed to working with the government to find a solution.

“It is Telstra’s view that many aspects of this package are unnecessary and need never be implemented if a mutually acceptable outcome can be reached on the National Broadband Network,” Thodey said.

In April 2009, the Australian government resolved its differences with the country’s operators, which were vying to build out a national broadband network, by proposing to undertake the A$43bn task itself.

The Rudd government announced plans to establish a new company, in which it would be the majority shareholder, to build and operate the next generation broadband network. Naturally, significant private sector investment is expected.

The proposed network, which will cost A$43bn and take eight years to build, promises to connect 90 per cent of all Australian homes, schools and workplaces with fibre, delivering speeds up to 100Mbps, and to connect the remaining ten per cent of premises with wireless and satellite technologies.

The announcement came just as the government was expected to announce the winner of a long running tender to build the next generation network.

Late last year, Telstra and its biggest rival Optus lodged bids for the rollout of the nationwide network. The bids marked the next stage of a multi-billion dollar investment in the country’s infrastructure that has been continually delayed by political wrangling. But more delays lay ahead, with Telstra putting the ball back in the government’s court by submitting a non-compliant proposal for the build out.

A controversial aspect of Telstra’s proposal was that the company’s bid was tied to assurances that the government will seek no further separation of the operator. Telstra’s rivals, including Optus, have been calling for the government to split Telstra’s network business from its retail and wholesale arms in a bid to promote competition.