Is Conroy backpedalling on separation mandate?

Is Conroy backpedalling on separation mandate?

Summary: Now that Minister Stephen Conroy has played his hand regarding Telstra's separation, the hard part begins.

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Now that Minister Stephen Conroy has played his hand regarding Telstra's separation, the hard part begins.

Brace yourself for the inevitable heated debate, Telstra foot-dragging, and possible legal challenges that may shape the eventual separation policy more than anything Conroy says at this point. But Conroy — and the rest of Labor — really could help things along by figuring out how to stay on-message.

In the week since the big announcement, Conroy has hit the media for intensive Q&A about the potential separation of Telstra, which he announced in no uncertain terms last week. But in the intervening time, the nature of his answers to one key question has changed significantly.

That question is a simple one: whether the government is forcing Telstra to separate or not.

Carrot or stick? Stephen Conroy needs to decide how much leeway he'll give Telstra in choosing the manner of its own dismemberment.
(Seppuku image used with permission of Waiapo, public domain)

It seemed to have been answered in Conroy's initial press release, which said the legislation "will allow Telstra to voluntarily submit an enforceable undertaking to the ACCC to structurally separate... If Telstra chooses not to structurally separate, the legislation provides for the government to impose a strong functional separation framework on Telstra."

The terms of mandatory functional separation include the requirement that Telstra "conduct its network operations and wholesale functions at arm's length from the rest of Telstra; Telstra provides equivalent price and non-price terms to its retail business and non-Telstra wholesale customers; and this equivalence of treatment is made transparent to the regulator and competitors via strong internal governance structures".

In other words, the first release leaves no doubt that if Telstra doesn't voluntarily introduce structural separation, the government will pursue the same endgame via a mandatory functional separation. Doesn't sound too voluntary to me.

If you look at the online version, it's right there in black and white: "The government will require the functional separation of Telstra, unless it decides to voluntarily structurally separate."

Fast-forward to Conroy's interview with the ABC's Inside Business over the weekend (or any of a half-dozen other interviews over the last week), when Conroy was asked "what made you remove that choice [that Telstra could remain integrated if it passed on the NBN opportunity]?"

"We haven't removed the choice," Conroy answered. "We've given Telstra a choice... They can stay exactly as they are or they can choose to go down the path of the fibre future and into the exciting new mobile spectrum which will [be] becoming available in the next few years."

Conroy's original position was that Telstra had to separate or it would be separated ... now he's telling the media that Telstra has every right to stay the way it is right now.

By my reading, that's not at all what the original release said. Conroy's original position was that Telstra had to separate or it would be effectively separated by legislation. Now he's telling the media that Telstra has every right to stay the monolithic, non-competitive way it is right now.

So what has changed?
One could speculate about the reasons for Conroy's policy change 'til the cows come home, but one of the most immediate possibilities is that the tone and mandatory nature of his initial pronouncement has been flagged by The Lawyers.

Whose lawyers? Well, one assumes his own department's lawyers went over this policy with a fine-toothed comb before it was issued, so it presumably wouldn't be them suddenly warning him.

Could it be Telstra's lawyers, offering the minister the same gentle reminders about the complexity of government interference in private assets? Or, perhaps, lawyers representing Telstra's shareholders, who were none too happy about the announcement and may be fearing the short-term effects of Conroy's new policy?

Labor has certainly backed down from ambitious reforms before: by some accounts, after all, the entire FTTP NBN as now architected only came about after warnings that mandatory resumption of Telstra's end-mile network would carry a potentially massive punitive price tag. If similar questions were being raised about the policy as initially envisioned, it could certainly have motivated Conroy to repaint the proposed legislative changes in the current more-unctuous language.

Whereas Conroy was initially saying "split or be split", the message is now "please split if you know what's good for you". And what's good for Telstra, apparently, is this "exciting" new wireless spectrum — presumably the 700MHz digital dividend that will be freed when analog TV is shut off in 2013.

Conroy's threat to withhold wireless rights [is] about as effective as telling a 14-year-old that you will take away his car keys as punishment for trashing the living room.

But Telstra already seems more than happy to keep developing its Next-G wireless service; that makes Conroy's threat to withhold wireless rights about as effective as telling a 14-year-old that you will take away his car keys as punishment for trashing the living room.

One wonders whether the language will change even more as debate over the proposal reveals philosophical fractures amongst Conroy's own party. For example, Finance Minister Lindsay Tanner's statement that Telstra's government-OKed investment in Foxtel has been "dreadful" for competition got broad coverage, but Conroy's separation edict allows the minister the discretion to allow that investment to continue should Telstra voluntarily separate.

In other words, Telstra's continued vertical integration is seen as a much bigger threat to competition than its half-interest in Foxtel or its ownership of the fibre-coax network that carries Foxtel into around 1.5 million homes. The government can live with Telstra dominating pay TV if it just splits up its copper local loop monopoly.

Linking these issues to separation may be a bold attempt to force Telstra to choose the manner of its dismemberment. However, Telstra's long-established ability to capitalise upon inertia may well be a problem. If Telstra calls Conroy's bluff and cashes out of Foxtel — or passes on the opportunity for a "exciting new mobile spectrum" — the minister will be forced to act despite his attempts to reshape the new policy as a voluntary choice for Telstra.

And that, if the lawyers have indeed been warning of consequences for government-imposed separation — and if they prove right — could be very interesting indeed. Until then, Conroy needs to decide just how much flexibility Telstra has here, and stick to it.

What do you think? Is Conroy staying on message, or will he have to soften his stance to accomplish Labor's endgame?

Topics: Government, Government AU, Telcos, Telstra

About

Australia’s first-world economy relies on first-rate IT and telecommunications innovation. David Braue, an award-winning IT journalist and former Macworld editor, covers its challenges, successes and lessons learned as it uses ICT to assert its leadership in the developing Asia-Pacific region – and strengthen its reputation on the world stage.

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34 comments
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  • Our Rule of Law is alive and well

    Kieran Kelly, Managing director Sirius Fund Management makes valid points of law in his letter to the editor, The Australian Financial Review today on page 57.

    "This action makes the first two prospectuses issued to sell off the government's shareholding in Telstra misleading. Neither of those prospectuses gave any sense that the government wanted to continue to control Telstra, which it is now trying to do."

    And importantly, " Allowing the Future Fund to sell out of Telstra three weeks before the break-up announcement"

    The Government and its regulators failed us miserably and, moreover,
    this gung-ho treatment of 1.4 million direct investors and millions more in managed funds, superannuation funds and self retirees funds leaves a lot to be desired and has no place in our civilised society.
    anonymous
  • AFR - NWAT

    Vasso, the Financial Review, lol.

    Now that NWAT has bitten the dust, oh... the AFR is your only source of "greed solace"!

    Don't ever let any comms facts get in the way of those $, eh?
    anonymous
  • ROFL

    hahahahhahah.....Vasso....this is not NWAT...Telstra must be split, it's good for competition, it's good for consumers and Australia as a whole. Investing in shares is a form of gambling, and you lost. 1.4Million shareholders compare to 10 million plus consumers being ripped off directly or indirectly. If i was the ACCC, i would look after the 10 million plus consumers.
    anonymous
  • If that is the best you can

    contribute. God save Australia.

    PS
    The temp site is still well and truly functional and the new look site will be deployed in November!!!!!!!
    anonymous
  • Addendum

    Telstra share holding is more than 1.4 million.

    Here's some educational material

    Courtesy:

    http://www.australianit.news.com.au/story/0,24897,26113863-15306,00.html

    Major shareholders rebel over Telstra
    Jennifer Hewett | September 23, 2009

    A GROUP of Telstra's biggest institutional shareholders has called on the board to explain the "draconian nature" of the federal government's proposed Telstra legislation and reminded directors of their fiduciary responsibility to investors.

    The hostility from large fund managers will deeply embarrass the government, which is trying to sell its plans as a "win-win" for Telstra shareholders, consumers and taxpayers.....continued
    anonymous
  • shareholders?

    Who cares about tesltra shareholders? Not me and not the other 21 million Australians who don't have shares. T1 & T2 both had govt interfernce warnings, buyer beware!

    Bye bye stupid monlithic utility, welcome to the land of fair competition and telco innovation!
    anonymous
  • ....shareholders?

    What a moronic comment.
    anonymous
  • To one of the 21 million.

    What do you mean by " govt. interfernce". You sound like a really smart operator !
    anonymous
  • Absolutely not

    Suggesting Conroy is backpeddling is like reading cats entrails. When Conroy says they have a choice - he means a structural choice.

    As for the idiotic suggestion that lawyers have threatened Conroy over imposing functional separation, every Telstra prospectus advised that the Government acting as vendor did not limit their rights to future regulation. The High Court challenge Telstra brought demonstrated that Telstra's wholesasle and retail prices have at all times been subject to regulation.
    anonymous
  • Sick of the bleating

    Wake up people. Optus kicked off in 1992 with a carrier licence and for a while actually tried to compete (HFC etc) but then after C&W pulled out decided it was much easier to join the bleating rest and sponge off the incumbent network, that involved much less capital outlay.
    And for those who say they have no interest in Telstra shares, think again, if you have Super, you have Telstra. And If Conroy's NBN is so bloody wonderful why does he need to dismember Telstra?
    anonymous
  • Be very afraid, Australia.

    Stand over tactics and blackmail will never work in Australia. Conroy wants a monopoly (without competition) for his NBN. Surely the ACCC must ensure that Telstra be allowed to compete for the customer dollar.
    anonymous
  • Stand over tactics and blackmail?

    Isn't that Sols operating procedures in a nutshell?
    anonymous
  • private vs Monopoly

    Not sure which is beter lots of competition using poor quality cheap sloutions which we are seeing more and more along with significant reductions in customer service - OR - a fully intergrated solution end to end with no hand offs between carriers (what a mess) working for quality for all working as a monopoly
    anonymous
  • lol

    let telstra burn in hell after ripping us all of for so many years
    yes and for all the share holders you had the chose to buy shares or not you know the risks when buying shares in any company
    anonymous
  • Standover tactics?

    @Sydlala "Stand over tactics and blackmail will never work in Australia."

    Is that why the Yankee Doodles have now high-tailed it back home with their bags of gold?
    anonymous
  • ....shareholders?

    What a moronic reply
    anonymous
  • get the facts right

    hmm, could this have been due to the fact that Telstra decided to build competing infrastructure in exactly the same spots at Optus, resulting in both companies making a loss (but with it being worth the price to Telstra to eliminate the competition).
    anonymous
  • @get the facts right

    That may be true in some areas but where I live we only have access to Telstra cable.
    anonymous
  • Backpedaling with one L

    David, I don't think Conroy is too worried about Telstra making a decision of staying as is and not taking the NBN route. This would be a very unlikely scenario.

    Telstra are sure to walk down the fibre path with the Government or they'll be left behind with their obsolete copper network and be left out of the future wireless expansion.

    This "exciting" new wireless technology is 4G, it's the future of wireless broadband.. Once again, if Telstra don't choose to jump on board the NBN they'll be left behind with outdated technology. Don't forget, Telstra now make more money from their wireless products than their fixed lines.

    It's true that there isn't a lot of competition in the pay TV market. But Foxtel doesn't seem like such a big deal once the NBN is finished simply due to IPTV. IPTV is going to blow Foxtel out of the water with competition.

    Conroy's not backpedaling, he just knows Telstra can't say no to the NBN and in turn structural separation.
    anonymous
  • Compensation for confiscation.

    Sammy your comments contain logical thinking.

    But do you not agree that it is a fact that Conroy needs Telstra plant, equipment and customers for his NBN proposal to be other than a white elephant.

    If the Senator makes an offer to Telstra that fully compensates Telstra and allows for adequate Telstra ownership of the NBN, an agreement may be possible.
    anonymous