The Federal Government has announced a package of reforms to telecommunications regulations that one way or another will pave the way for a break-up of Telstra.
It could be total if Telstra doesn’t play ball; it could be a smaller more manageable split if the Telco agrees with the thrust of the Government’s push.
Telstra has 10 weeks or so to develop a plan, but having been in talks already with the government, and from the plaudits handed out to the new board and management, there’s a feeling that a deal is already in progress.
Telstra shares fell yesterday in an expected response to the proposal.
They ended down 11 cents at $3.11, a fall of just over 4%.
Telstra’s weakness helped reverse a strong opening to the market and drag it down in afternoon trading.
Investors and analysts assembled a cast of other companies with an interest in the outcome: Singapore Telecom, News Corp, The Seven Network, Consolidated Media, Prime, Macquarie Media (and no doubt Macquarie Group) and Macquarie Telecoms (no link).
The looming National Broadband Network is part of the equation and will be a part of the eventual split up of the Telco and the restructuring of its business and the Australian telecoms sector.
Communications Minister Stephen Conroy said yesterday the reforms would address the Telco’s high level of integration with the aim of promoting greater competition and consumer benefits.
Draft legislation was submitted to Parliament yesterday and the Federal Government wants it to be looked at by a Senate Committee because it is one of the most far reaching ideas of its kind
The statement issued by Senator Conroy yesterday summed it said "if Telstra chooses not to structurally separate, the legislation provides for the Government to impose a strong functional separation framework on Telstra".
“It is the government’s clear desire for Telstra to structurally separate on a voluntary and cooperative basis,” Senator Conroy said.
"If Telstra chooses not to break up its businesses, proposed changes in the legislation will impose a “strong functional separation framework” on Telstra, Conroy said in the statement.
The legislation would prevent Telstra from acquiring more spectrum for wireless services while it “remains vertically integrated” controls a fixed-line network and maintains a half share of Foxtel, Conroy said. Foxtel is Australia’s largest pay television operator.
Some of the conditions may be dropped if Telstra cooperates with the government, according to the statement.
If the Australian Competition and Consumer Commission sign off on the structural separation, the minister can ditch the requirements to sell Foxtel and its HFC cable.
"For years industry has been calling for fundamental and historic micro-economic reform in telecommunications," he said.
"Today we are delivering this outcome in Australia’s long-term national interest."
The reforms would address the structure of the telecommunications market and provide Telstra with the flexibility to choose its future path.
"It is the Government’s clear desire for Telstra to structurally separate, on a voluntary and cooperative basis," Senator Conroy said.
"The Government believes it is possible to achieve a win-win outcome in the interests of Telstra, its shareholders and, more broadly, all Australians."
Telstra was one of the most highly integrated telecommunications companies in the world across the fixed-line copper, cable and mobile platforms, Senator Conroy said.
The government will strengthen consumer safeguards including the Universal Service Obligation, Customer Service Guarantee and the Priority Assistance arrangements to ensure consumers are protected and service standards are maintained at a high level.
Telstra will have to meet the extra costs of these, especially the USO and the communications regulator; ACMA will be given powers to block the closure of more payphones.
"These fundamental reforms address the long-standing inadequacies of the existing telecommunications regulatory regime. They will drive lower prices, better quality and more innovative services," Senator Conroy said.
The draft laws will require Telstra to lose its cable network and divest its interests in the pay television arm, Foxtel, but that might not happen; it all depends upon Telstra’s reaction and the completeness of its separation.
"The Government will require the functional separation of Telstra, unless it decides to voluntarily structurally separate," Senator Conroy said.
Senator Conroy said the Government’s clear preference is for Telstra to submit an undertaking to voluntarily structurally separate in a way that is acceptable to the Australian Competition and Consumer Commission (ACCC).
"The minister will provide guidance to the ACCC to assist its assessment of these matters," he said.
"The Government retains an open mind on how structurally separation may be achieved."
In a statement to the market, Telstra said it was "examining the detail of the reforms and will provide an update to the market as appropriate".
"Telstra Chief Executive Officer, David Thodey, today responded to the Federal Government’s proposed regulatory reform package.
"While we are disappointed the Government has felt it necessary to introduce this legislation, Telstra remains committed to working wi
