Telstra's case against separation dealt a double blow

Stuart Corner
Monday, 07 July 2008 05:20

IT Policy - Government Tech Policy

"Initially, all the emphasis was placed on creating competition between BT and the cable operators, inducing those cable operators to spend billions of pounds on deploying networks capable of competing with BT. Then, just as those cable operators were getting into place, the regulator did a complete U-turn and put all of the emphasis on promoting resale competition, based on low cost access by competitors to BT's network. Predictably, the cable operators effectively went to the wall, so all of that investment was wasted. But having done that, the regulator then decided that the lack of competition was not the predictable consequence of its own failed policy, but rather was all the fault of BT.

"Obviously, being the UK, the 'good chaps' who designed and implemented the policies, and their advisers, could not be said to be at fault, nor bear the shame of failure; rather, it was BT that paid the price, with costly requirements being imposed upon it to separate parts of its wholesale operations from its retail side."

However his disdain for Ofcom has not deterred Telstra from  co-oping one of its former senior executives, Kip Meek, to support its argument against separation.

Under Livingston's predecessor, Ben Verwaayen, BT voluntarily agreed to a functional separation regime rather than face imposed separation, which Ofcom was threatening. And Livingston's and Richards' views are in stark contrast to those expressed by Meek.

Meek is a former Ofcom commissioner who had the job of negotiating the undertakings that form the basis of the separation of British Telecom. On Telstra's behalf he has made a submission to the Australian Government's review of regulation in preparation for the NBN, which was "commissioned by Telstra," but in which "the views expressed in this report are the author's alone."

In it he says: "The UK form of separation was designed to address severe problems of non-price discrimination which, on the basis of evidence I have seen, do not exist in Australia and I would not recommend that the UK form of separation be used as a starting point in the Australian context. I am also of the view... that more radical measures, such as structural separation, would involve substantially escalated risk and costs. The demand risks and uncertainties associated with building an NGN, especially where it is intended to replace the PSTN, seem to me to raise doubts about whether a non-vertically integrated approach would be able to achieve the necessary level of investment co-ordination."

However by Meek's own admission, his report was "written on the basis of a review of the relevant documentation, including ACCC reports on Telstra's non-price performance, and a week long trip to Australia during which I met Telstra executives; I did not interview executives or stakeholders outside Telstra."