Will Telstra drive separation, or the ACCC?

Summary:Poised to knock back Telstra's structural separation proposal, the ACCC is rearing its head and seems determined to ensure that the separation is done right. But with the ball now back in Telstra's court, can the company be trusted to negotiate in good faith — or will it simply wait until the NBN implodes under its own weight come next election?

You may recall the scene in Monty Python's Meaning of Life where a man, convicted of some crime or another, is given the chance to pick the means of his own death — and ends up being chased by several dozen topless, helmet-wearing women across a field and off a cliff, where he plummets to his death.

Judging by the reaction to its first structural separation undertaking (SSU) document, it appears that Telstra is attempting to write its own path to separation in a similar hedonistic style. Given a simple homework assignment — come up with its own proposal to structurally separate its operations — it can't really be surprising to anybody that the company came up with a process that proved to be so utterly light touch that its rivals were chomping at the bit to discredit it as "the bare minimum" within what seemed like minutes of its release.

Letting Telstra dictate the terms of its separation is bound to end in frustration, even if it's still being chased towards the cliff. (Screenshot from Monty Python's The Life of Brian by David Braue/ZDNet Australia)

Of course it's the bare minimum; Telstra doesn't want to hasten its separation any more than it has to, and has already dodged that bullet for many, many years longer than one might have initially expected. Whether you ascribe this to changes in management, the distractions posed by the NBN and all its regulatory splendour or an anaemic Australian Competition and Consumer Commission (ACCC), the signs are that Telstra may be nearing the edge of its own cliff.

The question, however, is whether it may sprout wings at the last moment and sail off into the sunset. The ACCC, appointed as an advocate of competition in the dog-eat-dog telecoms sector, has often been derided as a toothless tiger that was unable to do much more than issue menacing press releases listing all of the nasty things it was going to do if Telstra didn't learn how to behave. Long, uneventful investigations, and threats of fiscal punishments that amounted to rounding errors on Telstra's balance sheets, dragged on and on as Telstra kept on dragging out what should have been inevitable, but just wasn't.

ACCC approval of [Telstra's] separation plans hinges on how eager it is to restructure its document — but expecting it to move quickly on this front would be like asking our Monty Python protagonist to not even turn around for a perve while he's running towards the cliff.

As Telstra has shown time and again, Telstra moves on Telstra's own time. Its ability to keep the rest of the industry, and the government, waiting has been unparalleled, and can be linked to the delays that have plagued the NBN throughout the year. But with the ACCC seeming poised to boost its aggressiveness in regulating a sector that hasn't always been proactive about regulating itself — baring its teeth at Optus over its misleading broadband advertising, reconsidering Telstra exchange exemptions, wringing its hands about the NBN Co-Telstra wireless non-competition agreement and threatening the riot act if customer service doesn't improve — the question on everybody's lips is: how will all of this affect the NBN?

Observers were far from agreed on whether the ACCC's knockback of Telstra's proposal was worse news for Telstra, the NBN, the ACCC or Julia Gillard's trouble-ridden government. Goldman Sachs argued that the decision could force Telstra to incur extra costs from stricter transparency measures, while Bell Potter Securities analyst Daniel Blair told industry journal CommsDay that Telstra could ask shareholders to vote on a deal subject to ACCC approval. The Australian took the ruling as a sign that the NBN may be delayed, while ACCC head Rod Sims was less pessimistic: "There's no need for this to slow down the NBN; it depends on how quickly we can get an agreement with Telstra," he told the Australian Financial Review. "The ball is in their court."

This is not a new situation: despite all manner of pleading, cajoling, trickery, pressure and even heavy-handed tactics by industry and the government, the ball has basically always been in Telstra's court. Its shareholders could theoretically put the kibosh on the entire NBN by rejecting the NBN Co-Telstra deal next month, although this would seem mean spirited, counter-productive and utterly pointless for all involved. ACCC approval of its separation plans hinges on how eager it is to restructure its document — but expecting it to move quickly on this front would be like asking our Monty Python protagonist to not even turn around for a perve while he's running towards the cliff.

Adding another wrinkle, a review has concluded that the NBN deal is the best way forward for Telstra, and will leave it $4.7 billion better off than any other option in which it would be competing with the NBN. This should theoretically provide some encouragement for Telstra to stop leaving things up in the air — but inertia is a powerful thing and Telstra has plenty of it. I'd be surprised if Telstra's lawyers even took more than a cursory look at the SSU document between now and the shareholder vote on the NBN Co agreement; if it's rejected, the entire project could collapse in a heap, and terms of separation will be the last thing on anybody's minds.

It would be an unspeakable irony — and a thumb in the eye of both Labor and Liberal governments — if the ACCC, which was introduced contemporaneously to the deregulation of Australia's telecommunications sector, ended up being the force that rolled back the only agreement that could turn the sector into what it was envisioned to become back in 1997.

International experience shows that it doesn't always have to be like this: BT seems to be doing just fine in the wake of its separation, and across the Tasman, Telecom NZ has been merrily progressing towards its own separation: this week, the company announced that it would, by 30 November, execute a major demerger that will saddle infrastructure operation Chorus with around NZ$1.7 billion of debt and revenues of around NZ$1 billion. CEO Paul Reynolds will leave once the transition is complete — but it will, by all signs, be complete.

In Australia, things are far less certain. It would be an unspeakable irony — and a thumb in the eye of both Labor and Liberal governments — if the ACCC, which was introduced contemporaneously to the deregulation of Australia's telecommunications sector, ended up being the force that rolled back the only agreement that could turn the sector into what it was envisioned to become back in 1997.

The government, in other words, could become its own worst enemy — and Telstra relieved that many of the restrictions to which it had agreed in order to get the government off its back. Meanwhile, the company is continuing with its own structural reinvention and moving, one way or another, to the next phase of its business. The big test for the ACCC will be to see if it can succeed in delivering a pro-competitive outcome that doesn't empower Telstra and hinder an NBN-driven change in the process.

How do you see this ending? Will Telstra make a genuine effort to improve its SSU? Or will it just keep dragging the chain and delaying the NBN in hopes it will just fall over and go away?

Topics: NBN, Broadband, Government, Government : AU, Optus, Telcos, Telstra

About

As large as the US mainland but with a smaller population than Texas, Australia relies on ICT innovation to maintain its position as a first-world democracy and a role model for the developing Asia-Pacific region. Award-winning journalist David Braue has covered Australia’s IT and telecoms sectors since 1995 – and he’s as quick to draw le... Full Bio

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