Rudd govt moves to break up Telstra

The Rudd government is set to smash Telstra's powerful hold on Australia's
telecommunications sector by effectively forcing the break-up of the telco giant.
Under sweeping reforms announced on Tuesday, Telstra has been asked to voluntarily
separate its retail and wholesale arms or face government moves to force changes on
the multi-billion dollar company.
Communications Minister Stephen Conroy says it is the most significant reform of the
sector in more than a decade, but the federal opposition says the government is
holding a gun to the head of Telstra.
Telstra has described the draft laws, introduced to parliament on Tuesday, as
disappointing but says it will work with the government.
The reform package also calls for Telstra to divest itself of its cable television
interests and a 50 per cent stake in Foxtel before it is able to expand its advanced
wireless broadband services.
The telco would be permitted to retain its interests in Foxtel if it submits to the
Australian Competition and Consumer Competition an acceptable undertaking to
structurally separate.
The measure could also open the door for other media players to grab a greater share
of Foxtel.
Senator Conroy said the reforms, which pave the way for the rollout of the $43
billion national broadband network, would drive competition in the telco sector and
result in lower prices for consumers.
"These fundamental reforms address the long-standing inadequacies of the existing
telecommunications regulatory regime."
The government is already in negotiations with Telstra in relation to the reforms.
It is hoped the talks can be completed by November, when the legislation is due to
be debated, or by early December.
"We believe it is possible to achieve a win-win outcome in the interests of Telstra,
its shareholders and, more broadly, all Australians," Senator Conroy said.
Telstra chief executive David Thodey described many aspects of the legislation as
unnecessary, but said the company would work with the government to achieve a
positive outcome.
"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 that is in the best interests of the industry, the nation, Telstra and our
shareholders," he said.
But the Australian Shareholders Association (ASA), which represents "mum and dad"
small investors, reacted angrily to the announcement, saying shareholders would be
disadvantaged.
"I think it's a giant kick in the teeth for Telstra shareholders," ASA chief
executive Stuart Wilson said.
Telstra shares ended the day down 14 cents, or 4.31 per cent, at $3.11 - its lowest
close in three and a half months.
The government's announcement prompted allegations that the board of its Future
Fund, which holds a large stake in Telstra, was given a heads-up about the plan.
The fund, which operates independently of government, sold off a third of its stake
in Telstra three weeks ago netting almost $2.4 billion.
Finance Minister Lindsay Tanner said the sell-down was in line with the board's
previously stated plan to reduce the portfolio's holding.
The opposition said the government's plan amounted to holding a gun at the head of
Telstra, but would not say whether the coalition would use its numbers in the Senate
to try and block the reforms.
"It has never been Labor policy until apparently today to force the break-up of
Telstra and the government has not given any adequate explanation as to why that is
necessary," opposition communications spokesman Nick Minchin said.
Senator Minchin said the changes could also raise questions about compensation for
Telstra.
However, Senator Conroy said the direction the government had taken had removed that
option.
"We don't believe, on our legal advice, that there's any legal issues around
compensation," he said.
The government wants the legislation debated in November but Senator Minchin said a
full schedule in the Senate would make it difficult to deal with the draft laws
before the end of the year.
"There are only three sitting weeks left this year and we've still got the ETS to
deal with. I'm not sure whether the Senate will be in any position to deal with this
legislation this year."
Mr Albanese said Telstra was one of the world's most highly integrated
telecommunications companies, owning the only fixed line network connecting every
home, the largest cable and mobile phone networks and half the largest pay-TV
provider.
Despite more than a decade of open competition, it had maintained a dominant
position in virtually all aspects of the market.
"It is the government's view that Telstra's high level of integration has hindered
the development of effective competition in the sector and has contributed to
Australia continually lagging behind other developed economies on the availability,
price and quality of telecommunications services," he said.
Mr Albanese said this legislation was designed to address Telstra's underlying
incentives to favour its own retail businesses by requiring it to separate its key
functions.
He said the changes will require Telstra to:
* conduct network operations and wholesale functions at arm's length from the rest
of Telstra.
* provide equivalent price and non-price terms to its retail business and
non-Telstra wholesale customers.
* ensure equivalence of treatment is visible to the regulator and competitors by way
of strong internal governance structures.
Mr Albanese said the government would far prefer Telstra to address these structural
issues voluntarily and it retained an open mind on the best model for structural
separation.
"It may but does not need to involve the creation of a new company by Telstra and
the transfer of its fixed line assets to that new company," he said.
Mr Albanese said the government also proposed to address Telstra's horizontal
integration though its ownership of copper, cable and mobile networks.
He said many other countries restricted companies from owning both cable and fixed
line networks, let alone a mobile network.
Under the proposed changes, Telstra will be barred from acquiring specified bands of
spectrum which could be used for advanced broadband services unless it divests its
cable network and share in Foxtel.
Mr Albanese said the bill also aimed to reform the telecommunications access regime
and how the regulator dealt with anti-competitive conduct.
That will amend the Trade Practices Act and require the Australian Competition and
Consumer Commission (ACCC) to set upfront pricing terms and conditions for declared
services for 3-5 years and make binding rules of conduct.
Mr Albanese said consumers were now protected by a number of safeguards such as the
universal service obligation (USO) which aims to ensure standard telephone services
are available to all on an equitable basis.
However new technologies are challenging the relevance of these safeguards.
"The USO will be improved to include a legislated requirement for Telstra to supply
on request a basic service at specified standards," he said.
"This will include connection and repair periods, reliability requirements and
performance benchmarks."
Debate was adjourned on Tuesday.