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Sunday, 24 May 2009 10:40

Samuels silently shouts "structural split" for Telstra

Australian Competition and Consumer Commission Chairman, Graeme Samuel, seemingly stopped short of calling for the structural separation of Telstra in his speech to the ATUG 2009 Regional Conference in Canberra last week. However, Samuel's thinly veiled address left little doubt that the physical break up of Telstra is what the regulator unequivocally wants.

{loadpositionstan}Commenting on the Australian government’s regulatory reform discussion paper options to improve telecommunications competition in the transition period before the NBN is operational, Samuels provided his own take on proposals to enforce functional separation on Telstra.

"The key feature of functional separation models is that the network provider operates at arms length from the downstream service providers.

"This usually requires operations and management separation and carries the potential for decisions to be made independently by the separated division and the rest of the company.
"When successfully implemented, functional separation may go some way to addressing concerns regarding the promotion of equivalence in the treatment of access seekers.

"However, vertical integration of any form into downstream markets,even when subject to functional separation, will not necessarily ensure equivalence."

The last sentence leaves little doubt that the ACCC believes that Telecom New Zealand style functional separation is simply not going to do the trick for a truly competitive telecommunications market in Australia.


For Samuels and the ACCC, vertical integration of Telstra businesses in any form is anathema and functional separation is not strong enough to prevent its market abuse.

{loadpositionstan}That includes the delivery of entertainment content over the Telstra HFC network via its part ownership of Foxtel.

"The government’s discussion paper raises a number of concerns regarding Telstra’s ownership of the ubiquitous fixed line copper network and thelargest HFC network in Australia, along with a 50 per cent stake in Australia’s principle pay TV provider, Foxtel.

"In its discussion paper, the government also raises the option of forcing Telstra to divest the HFC network. Indeed, doing this would introduce a new infrastructure-based competitor into the telecommunications sector.

"It could also address some of the concerns arising from Telstra’s stake in Foxtel as well as its control of the principal pay TV network."

Once again, the last sentence leaves little doubt about what the ACCC would like to see. In fact, it positively reeks of a call for structural separation of Telstra's ownership of the content delivery pipes (HFC) and the content provider (Foxtel).

Predictably, Samuels' speech has many of the more than one and half million Telstra mum and dad shareholders pervading the blogosphere up in arms. The general tenor of their outrage is that when they bought into Telstra via the government's share offers they believed they were buying a monopoly.

However, few have commented on the fact that the share price of their much vaunted monopoly has been plumbing the depths for quite some time and earnings are flat.


One could argue that the monopoly Telstra has enjoyed for decades has little room left to move in a market the size of Australia.

{loadpositionstan}Analysts harp on about the danger to Telstra’s margins if regulatory reforms impose functional or even structural separation.

However, it could also legitimately be argued that there is just as great a —perhaps greater— danger for Telstra in trying to maintain the status quo.

Many believe that Telstra’s special position in the Australian telecommunications market space has made the company lazy and lacking in vision and innovation.

Instead of looking ahead and transitioning to new technologies and services, Telstra has been focused on protecting existing legacy businesses at all costs.

As a result, the widespread perception is that Telstra has held back development of the Australian (and its own) broadband infrastructure.

Telstra has hurt itself with government confrontations under Trujillo’s reign. Under Thodey, many would like to see a fresh approach.

The author holds Telstra shares

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Stan Beer


Stan Beer co-founded iTWire in 2005. With 30 plus years of experience working in IT and Australian technology media, Beer has published articles in most of the IT publications that have mattered, including the AFR, The Australian, SMH, The Age, as well as a multitude of trade publications.



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