Coonan threatens to break Telstra in half

Communications Minister Helen Coonan has revealed the government is considering the structural separation of Telstra as part of a planned fibre-to-the-node rollout.

Coonan said the government's expert taskforce, which is in charge of monitoring the tender process for the proposed urban FTTN deployment, is also considering a split for Telstra.

"We are looking at whether or not some structural separation may eventuate in any event as a result of the expert taskforce," Coonan told Sky News.

Coonan's comments follow earlier suggestions by the Minister that, should one of Telstra's rivals win the FTTN network contract, structural separation may become a necessity in the government's eyes.

It's thought the government may also be considering such a change in light of international events. The British incumbent, BT, was structurally separated at the behest of the local regulator in early 2006, while earlier this month the New Zealand government mandated a similar split for Telecom New Zealand.

Telstra said it would welcome clarification from the Minister on whether there has been a change of government policy on the structural separation question.

"We're obviously interested in what seems to be a new position. It's not something she's raised with us -- it wasn't raised at the time of the Telstra sale," a spokesperson for the telco told ZDNet Australia. "We think the way the wholesale and retail [units] are currently operating works well."

David Kennedy, research director at industry analysts Ovum, said a structural separation of Telstra would bring both advantages and disadvantages to the telco.

"The disadvantage is that there are costs involved [in separation]. It's harder to run a vertically separated strategy and I think their business strategy is predicated on retaining integration," he said. "The benefit is a much more light-handed regulatory approach."

While Telstra may be unlikely to favour a move towards separation, some industry pundits and the telco's rivals believe such a change could benefit Australia's broadband environment.

A report released by the Allen Consulting Group at the end of last year, for the Competitive Carriers Coalition, suggested that the need for structural separation is greater than ever.

"The longer structural separation is put off, the less competitive telecommunications markets will become, particularly with Telstra fully privately owned ... [Lack of separation] has reduced, or at the very least, delayed many of the benefits that stem from a vibrantly competitive market. Behavioural approaches -- such as accounting and operational separation -- are inferior alternatives," the report said.