Clock ticks on Telstra operational separation

The federal government has released proposed rules governing the structure of Telstra to minimise the impact of the telecommunications heavyweight's market power on its competitors. Communications Minister, Senator Helen Coonan, said public comment would be sought on the draft until Monday 19 December -- with finalisation of the rules due by the end of 2005.

The federal government has released proposed rules governing the structure of Telstra to minimise the impact of the telecommunications heavyweight's market power on its competitors.

Communications Minister, Senator Helen Coonan, said public comment would be sought on the draft until Monday 19 December -- with finalisation of the rules due by the end of 2005. The carrier must come up with a plan complying with the final version of the rules by April next year.

The separation is being mandated by the federal government due to long-standing complaints from customers of Telstra's wholesale division to the effect that the telco was giving special treatment to its retail arm, which the customers directly compete with.

Under the requirements, Telstra will be forced to maintain at least three separate businesses in the areas of wholesale, retail and key network services, with staff unable to work across business lines and management of the retail and wholesale units having equivalent levels of seniority.

In addition, wholesale staff are to be located in physically separate premises -- but not necessarily buildings -- to those working in retail, and security measures must be put in place to prevent physical access to the retail arm's offices.

The retail and key network services staff also are to be kept out of any negotiations involving selling wholesale services.

But Telstra's new obligations won't stop there.

The telco must also ensure wholesale services provided to third parties are equivalent to the services provided to its own retail arm, in terms of billing and access to premises like telephone exchanges.

In addition, Telstra must keep its wholesale customers informed of changes to its network in the same way as it does its retail arm.

Network services and wholesale staff will not be allowed to disclose information to the retail arm about a wholesale customer, unless there is a concrete need for staff to have information to do their job.

Making promises to yourself
In a move that will no doubt seem unusual to staff working within the same company, the three or more divisions within Telstra will be required to sign 'notional contracts' between each other for the supply of services and publish the documents on the telco's Web site.

Other mechanisms will aim to ensure that Telstra provides fair pricing and equivalent quality of technical and customer service to its retail arm and wholesale customers.

The telco will be forced to employ a senior staff member to monitor the operational separation plan. The executive will deal with competition regulator the Australian and Consumer Commission (ACCC) as well as the government and an independent auditor who will judge whether Telstra is complying with the new obligations.

The executive will not only report on Telstra's compliance but also increase internal staff awareness of the consequences of operational separation with an internal education program, and encourage compliance.

However the new requirements didn't find favour with Telstra.

Rod Bruem, a spokesperson for the company, called them "onerous" and accused Senator Coonan of "giving control of a large amount of Telstra's business to staff at the ACCC".

"It's almost at the point where I'll have to have someone from the ACCC hold my hand while I go to the toilet," he said. "Particularly if I'm on wholesale premises."

"It's very intrusive, and it's all bad news for Telstra's shareholders," he said, adding he didn't know of any precedent for this particular model of operational separation.

Empty threats?
Senator Coonan also took the opportunity this morning to respond to Telstra's statements it would not build its planned next-generation fibre-optic network unless it received a regulated "access holiday" from the government.

Were Telstra to achieve such a holiday, for a certain time it would not have to provide access to its planned fibre-optic network to competitors as it does its current copper network.

The minister said in a speech to Deutsche Bank in Sydney that such a holiday could be achieved under the current regulatory system by lodging a request with the Australian Competition and Consumer Commission and that access holiday or not, it was "inevitable" that Telstra would built new networks.

Although Bruem confirmed Telstra had not asked the ACCC for relief, he said Telstra had no confidence in the process.

The minister also said the government was unlikely to step in in a recent decision by the ACCC on the cost to rivals of accessing Telstra's copper network (known as the Unbundled Local Loop or ULL), although a decision would be made shortly.

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