Australia - Telstra opposes separation of its network infrastructure

[The Australian] TELSTRA has firmly opposed the government's plan to revolutionise the telecommunications industry, claiming a forced separation of its business divisions could cost it more than $1.2 billion.

The proposed changes, the subject of a Senate inquiry, also threatened to undermine the government's ambitious high-speed broadband strategy, reduce industry competition, and disadvantage regional and rural customers, the telco warned yesterday.

Issuing its official submission on the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill, Telstra called for significant amendments to be made and for the Senate to delay debate on the proposal until the company's negotiations with the government over the ambitious $43bn National Broadband Network were completed.

Public hearings on the new bill are to be held next week in Canberra and Melbourne.

"The current problems with the telecommunications market in Australia stem from a lack of investment in infrastructure caused by the current regulatory regime, not from a flaw in market structure," the company argued in its 27-page submission to the Senate.

"This bill will exacerbate those problems, not fix them. It is unworkable, damaging to both Telstra shareholders and the interests of consumers."

Telstra was one of about 90 interested parties to respond to the proposed changes that, if passed, will lead to the structural separation of its business divisions, either voluntarily or by force.

Unless it complies, the former government-owned monopoly faces missing out on access to spectrum for next-generation wireless services, deemed crucial for its growth, as well as the forced sale of its interest in pay-TV network Foxtel, which it co-owns with Consolidated Media Holdings and News Limited, publisher of The Weekend Australian.

The proposal, widely interpreted as an ultimatum, is aimed at increasing competition in the sector.
Not surprisingly, it has been panned by many Telstra investors, including the Australian Foundation & Investment Company, which lodged its own submission earlier this week.

Telstra's shares fell when the proposed reforms were announced in September, but have since partially recovered. The stock closed down 7c yesterday to $3.16.

Emphasising the company's continued support for the federal government's broadband vision, Telstra chief David Thodey described the bill as unnecessary and destructive for "approximately 1.4 million Australian shareholders who purchased Telstra shares from the government over the past 12 years".

Telstra's calculations, which have taken into account similar experiences overseas, estimate the cost of functional separation to be in the range of $500 million to more than $1.2bn.

"The Telstra board and management have consistently stated that we can only agree to proposals that represent fair value to shareholders, and which protect the interests of our employees and customers," Mr Thodey said.

He also raised concerns that the bill would divert attention and resources away from the planned NBN migration, making it harder for the government to achieve its objective of bringing high-speed broadband to Australian consumers.

It was, however, Telstra's suggestion that competition in the market was adequate, a recurring feature of its submission, that riled its rivals.

"Notwithstanding the multiple inquiries, and commissions and findings, Telstra still thinks there's no problem with competition," Macquarie Telecom government affairs manager Matt Healy said.

He accused Telstra of using the NBN as a smokescreen.

"This bill is not about NBN, it's about improving competition," Mr Healy said.

"We would urge the Senate inquiry to dispense with this submission."

The reforms' emphasis on increasing competition was reiterated last night by the office of Communications Minister Stephen Conroy.

"They will drive lower prices, better quality and more innovative services," a spokesman for Senator Conroy said.

"Telstra has a duty to act in the interests of its shareholders and the leadership team has given every indication that it intends to do so. However, the Government must act in the national interest. We are in positive discussions with Telstra and are confident that we can achieve a win-win outcome for shareholders and the Australian public."

The Senate committee is expected to submit its recommendations to the government by October 26.

Telstra opposes separation