Structural separation to become a reality for Telstra as government reveals legislative reforms

15 Sep 2009

The long-mooted structural separation of Australian incumbent Telstra has taken a step forward following the announcement by the government that the company must voluntarily cease to act as both owner and service provider on its PSTN or face legislation forcing such an outcome. According to iTWire, the revelation comes after Stephen Conroy, Minister for Broadband, Communications and the Digital Economy, unveiled a range of new telecoms legislation, known as the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009, which could also impact the incumbent in other areas, including the introduction of limitations on wireless broadband spectrum acquisition, as well as the forced divestiture of its hybrid fibre coaxial (HFC) network and pay-TV subsidiary Foxtel.

Under the government’s plans, should Telstra voluntarily undertake structural separation in a manner that it views as acceptable, it is understood that the state may waive proposed requirements for the incumbent to divest of either, or both, its HFC network and Foxtel. If the state, however, is forced to intervene, or deems the separation proposal inappropriate, then divestiture will be still be required. Irrespective of whether Telstra separates voluntarily or not, limitations on picking up new wireless spectrum will be enforced in either of these scenarios. A third possible route to separation has been detailed, however, which could see Telstra relinquish control of its HFC network and sell off its interest in Foxtel, allowing it to retain ownership of the PSTN and leaving it free to acquire further wireless spectrum.

It is expected that Telstra will have two options should it choose to act voluntarily on the proposals; create a new company and transfer its fixed line assets to it, or migrate fixed line traffic to the National Broadband Network over an agreed period of time in parallel to selling or scrapping its existing fixed line assets. Should Telstra opt not to agree to separate, it is understood that the proposed legislation would see the establishment of a single wholesale/network unit, separate from Telstra’s retail business units, as well as a committee to be known as the Oversight and Equivalence Board, which would report to the Australian Competition and Consumer Commission (ACCC) and Telstra board.

Away from the issue of structural separation, Universal Service Obligations (USO) will also face changes under the proposed legislation, allowing the communications minister to temporarily specify the standards, terms and conditions, connection periods and reliability requirements of phone services, including pay phones; failure to comply with the updated requirements could see Telstra face fines of up to AUD10 million (USD8.59 million). Further, it has been announced that in those areas where residents objected to the removal of payphones, intervention by the Australian Media and Communications Authority (ACMA) can be called for, with the authority given the power to issue Telstra on-the-spot fines if it does not comply with any given order.