Global Insight Perspective | |
Significance | The Australian government may consider imposing a more rigorous operational split on Telstra, as part of the tender process to build a national broadband network. |
Implications | A break-up would stop Telstra from having full control over access terms for its networks and would help to ensure fair competition in Australia's telecoms market in the long term. |
Outlook | It is too early to say whether the government will eventually push for a separation, but undoubtedly Telstra would fight strongly against any attempt to break it up. |
Communications Minister Stephen Conroy reiterated today that the federal Labour government may consider imposing a more rigorous operational split on Telstra, as part of a multi-billion-dollar tender process to build a national broadband network, Dow Jones reports. Conroy was commenting after Australia's federal, state, and territory communications ministers met in Canberra earlier today to discuss the federal government's national broadband plan that will see it invest up to A$4.7 billion (US$4.4 billion) in a national fibre-optic network, to be built in partnership with the private sector. State and territory ministers expressed a "strong preference" for the winning bidder to be a "genuine wholesale provider that is separate from any retail service provider".
"We can't interfere with the government process of who they select, but we can say quite clearly that we believe, given the present structures of some companies, there is a game of profiteering going on by having an integrated model," Tasmanian treasurer Michael Aird told reporters. The comments appear to refer to Telstra, a former telecoms monopoly that controls most of Australia's existing telecoms infrastructure. Telstra is also the country's largest retailer and wholesaler.
Outlook and Implications
- National Broadband Plans: An operational split of Telstra is seen as an option to break a deadlock over building a high-speed broadband network. Telstra is seen as a frontrunner to build the national broadband network. But the G9 consortium, a rival group of nine companies led by SingTel's Australian unit Optus, had wanted the government to impose operational separation on Telstra before any telecoms operator could enter the bidding process, to level the playing field with Telstra and give alternative operators commercial certainty. Telstra has a history of litigation against regulators and the government over network access prices for rivals. The company had also earlier shelved its own A$4-billion fibre-optic broadband roll-out after failing to agree on wholesale pricing terms with regulators. Other parties reportedly interested in bidding for the network tender include Deutsche Telekom and Macquarie Group (see Australia: 11 April 2008: Government Calls for Proposals on Australian National Fibre Broadband Network).
- Uncertainty Remains: The stance of the Australian authorities is clearly influenced by the examples of operational separation of incumbents in Europe and New Zealand. BT was the first European former incumbent to implement functional separation by creating its Openreach unit in September 2005. Sweden's TeliaSonera and Telecom Italia have also followed the suit. A similar split is also being imposed on Telecom Corp of New Zealand by the country's centre-left Labour government. It is still too early to say whether the Australian government will choose to go down the same road, but undoubtedly any attempt to break up Telstra would face strong opposition by the Australian incumbent, which has argued that such a move would destroy shareholder value and degrade services, particularly in rural areas. A more fundamental reason behind its objection is that the move would stop it from having full control over access terms for its networks and weaken its dominance in the telecoms markets. It remains to be seen how the government will respond (see Italy: 14 February 2008: Telecom Italia Caves In to Functional Separation and New Zealand: 26 September 2007: Telecom of New Zealand to Split into Three Operating Units).