ACCC says structural separation of Telstra only way

By Stuart Corner
Friday, 12 June 2009 16:44

Strategy

The ACCC has come out unequivocally in support of structurally separating Telstra into wholesale and retail companies as the only solution to the problems that have bedevilled its attempts to provides regulated access to Telstra's monopoly services for the past decade.

In its submission to the government's discussion paper on regulatory reform needed for the National Broadband Network the ACCC says: "The ACCC considers that structural separation is the only regulatory arrangement that will in practical terms address Telstra's incentives and ability to discriminate against its competitors and thereby ensure equivalence... the ACCC's view is that ensuring equivalence in access can only be achieved by a non-integrated or a fully structurally separated network operator."

And in case anyone should doubt the extent of separation envisaged, the ACCC says: "Structural separation is the legal separation of Telstra's assets and activities into separate corporate entities with entirely separate owners/shareholders."

The ACCC has had long experience administering the current operational separation regime, and it dismisses this as "ineffective and does not address Telstra's incentive and ability to discriminate against its competitors, and therefore fails to achieve its fundamental objective of equivalence...Any measures to improve at the margins the operational separation regime would just be an attempt to develop upon a framework that is, at its core, unable to promote its fundamental objectives."

Failing full structural separation, the ACCC says that, "functional separation, when successfully implemented, may go some way to addressing concerns regarding equivalence...The ACCC considers that a robust functional separation regime is the minimum level of separation that should be adopted for Telstra in the transition to an NBN environment."

The ACCC's submission offers little advice on how structural separation might be achieved, other than to note "unless the board and management of an integrated firm is committed to the outcomes, structural separation may be a disruptive process. A pivotal issue in structurally separating an integrated entity is the question of where to separate. Given the information asymmetry that exists between the regulator and the firm, full structural separation is more likely to occur at the 'right point' and hence be more effective if the firm is co-operative or voluntarily offers to structurally separate. In the absence of full information and co-operation there is a greater risk that the point of separation will not occur at the optimal point."

While structural separation looms large in the ACCC submission, and is at the core of the Optus submission, it is debatable, as iTWire has commented, whether the government plans to give it serious consideration, and at least one submission, that from the Communications, Electrical and Plumbing Union (CEPU) contends that it is not. Its submission states: " As the discussion paper does not canvass the full structural separation of Telstra, the CEPU will not address that option in this submission."
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