Appearing on national TV, the Australian Competition and Consumer Commission (ACCC) chairman Graeme Samuel has again shown that the regulator and its paymaster the Federal Government are not serious about evening up the playing field of the Australian telecommunications industry.

On Channel 9’s Sunday program, Samuel called for an "internal separation" between Telstra's wholesale and retail divisions, indicating that the ACCC has in effect dropped the ball.

The ACCC is asking the Australian public to believe that so-called internal separation will be enough to force Telstra wholesale to deal with Telstra retail on the same basis as it deals with other retail telcos. According to ACCC logic, as espoused by Samuel, as long as the dealings between Telstra's wholesale and retail divisions are transparent, the ACCC can force Telstra wholesale to treat all retail telcos equally with Telstra retail. The problem is the logic is fatally flawed.

For a start, what exactly does internal separation mean? According to Samuel’s definition voiced on the Sunday program: “this is an internal accounting and management separation to make the dealings between Telstra's wholesale division and its retail division transparent and thus easier for us to be able to ascertain whether Telstra might be engaging in anti-competitive conduct in its dealings with other wholesale customers.”

In other words, Samuel wants the Government to legislate to construct artificial Chinese walls within Telstra so that the left hand and the right hand operate independently. What’s more, whenever the two divisions shake hands, the ACCC wants all of us to know about it. Thus, if Telstra ever again wants to start offering retail broadband services at below wholesale prices, the ACCC can throw the book at the carrier with confidence.

That’s all well and good. However, it misses the point. The fact is that under the internal separation model Telstra wholesale and Telstra retail will still report to the same board and CEO. They will still contribute to the same balance sheet. They will still carry the same logo and belong to the same team. Are we to believe that Telstra will somehow manage not to show favouritism to one of its own businesses? Will Telstra wholesale staff really treat Telstra retail clients no differently than other retail telcos? Would Telstra Bigpond have to get in the same queue with other ISPs to get some extra bandwidth?

Telstra makes money whenever its wholesale division makes a sale but it makes a killing when its retail division also makes a sale. Putting it another way, every time Telstra wholesale sells bandwidth to a Telstra competitor, the carrier knows that it is providing the competitor with the means to take retail business away. Is it really possible for a company operating as a commercial enterprise, reporting to demanding shareholders, to deliberately hold back its business by making sure there is no cooperation between two of its arms? What about the market intelligence that Telstra wholesale holds on Telstra retail’s competitors? What about staff movements between the two divisions?

Any suggestion that Telstra can somehow separate its businesses internally is bordering on self delusion. Samuel says that the Government is viewing the idea with some interest (ahead of full privatisation no doubt). However, if the ACCC was really serious about making Australia a truly competitive environment for local telecommunications players, then it would push for the only feasible solution: breaking Telstra wholesale and retail up into separate companies with separate ownership. Anything less than that sort of structural separation, to use the words of a question from Sunday program interviewer Ali Moore, would make a mockery of the ability of the ACCC to regulate Telstra.