Separation: The UK experience

Separation: The UK experience

Summary: How can the UK experience of BT's separation inform our understanding of Telstra's future? In this week's Twisted Wire podcast, we talked to the key UK players to get the lay of the land.

TOPICS: Telcos, Telstra, EU

Just under five years ago Britain's BT was encouraged to functionally separate. We're told the split has resulted in more competition and better prices for customers. Some might also be surprised by the impact it has on BT. It seems to have grown from the experience.

The UK makes an interesting case study for Australia right now. There are parallels and some notable differences, including the preference for Telstra to be structurally separated.

I called up a few key players to get their take on how the experiment has worked over there, including:

  • David Stewart, competition policy director at Ofcom
  • Jon Furmston the director of the Equality of Access Office at BT
  • Carolyn Kimber, chair of the Communications Management Association

There were a few things I wanted to find out: in particular, is functional separation enough? Is the push for structural separation of Telstra a bit of overkill? I was also keen to see if the arrangements helped or hindered investment in future infrastructure. I'll leave you to judge the comments on that one. There's also the question of what it did for investors? Did BT shareholders lose out?

Have a listen and leave your thoughts in the Talkback section at the end of this post.

Topics: Telcos, Telstra, EU


Phil Dobbie has a wealth of radio and business experience. He started his career in commercial radio in the UK and, since coming to Australia in 1991, has held senior marketing and management roles with Telstra, OzEmail, the British Tourist Authority and other telecommunications, media, travel and advertising businesses.

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  • Breakup is socialist propaganda!

    Anyone that talks up the separation of Telstra is deluding themselves. Period.

    The breakup of Telecom NZ was a total disaster. It also cost the "mom & pop" shareholders countless losses. The following election, the Clark Labour gov was voted out on its backside.
  • more fud and spin

    more fud and spin. at least listen to the podcast before you show your own delusion.
  • Take your own advice

    BT has functionally separated because structural separation takes too long. Functional separation has slowed investment in infrastructure. BT didn't start the process operationally separated as Telstra is, so there was less transparency on pricing.

    I found it interesting how the fact that they couldn't prove BT was being anti-competitive was taken as proof that it was being extra sneaky. I can't prove you are a criminal, so you must be a really clever one.

    IT systems had to be 'split' which really means duplicated. Who do you think ends up paying for that? That's right, they will pass the hat around at the next AGM so it won't cost the customers a penny.

    Also, the interviewer comparing the full ULL cost from the exchange to the customer in Australia with the UK's last mile price was not exactly comparing apples with apples.

    Eliminating "uncertainty" is really up to the regulator. They create it - they can get rid of it whenever they want. If they continue to make up the rules as they go along after separation, there will be uncertainty after separation. If they lay down the rules and stick to them now, uncertainty disappears.

    There is no doubt BT's competitors got the 'warm and fuzzies' after separation, but it is less than certain how much reality is behind it.

    If Telstra is separated, the retail arm will do well. After all, they will have bucket loads os spare cash once they stop having to subsidise the maintenance of the network. The network part of will end up like the railways. Constantly in need of maintenance but without the money to do it. Separating the network maintenance from its money supply is the dopiest part of the whole idea.
  • yeah

    blah blah.

    in the end the consensus was separation was beneficial, all round but especially for the consumer.

    so whats the problem?
  • Telstra can just take the cash for the infrastructure

    You say "If Telstra is separated, the retail arm will do well. ... Separating the network maintenance from its money supply is the dopiest part of the whole idea."

    NBN Co plainly needs unfettered access to all the infrastructure including backhaul, DSLAMs, ducts and pillars, and has its chequebook out ready to buy them. Otherwiseit will have to build duplicate infrastructure at high cost and thereby commit political suicide.

    Australians get a best-of-breed fibre solution, and Telstra shareholders will not only get the benefit of its high-profit retail operations, but also the cash windfall from the infrastructure sale. So who loses, exactly?
  • Paying for the infrastructure

    Of course NBN Co can buy the network infrastructure, but that is not what the legislation is about. After separation, the shareholders still own the wholesale bit. The whole thing is a feeble attempt to force inefficiency, complexity, and cost on Telstra to give its competitors a leg up. I have never heard a sound explanation as to why Optus would rather use Telstra's ULL service when they have their own HFC access network where the capital costs are already spent. It is cheaper to buy access from Telstra than use something that is already sitting there.

    NBN Co has no use for the copper, DSLAMs, or pillars. The ducts would be useful, but as I recall, they want to nail the coax on the power poles rather than the more expensive option of running them underground, so they are not interested in those either. They don't want Telstra's infrastructure - they want its customers. The only way this NBN white elephant is going to fly is if they can force Telstra to shift its customer base onto the new infrastructure. The only way they can do that is to rob Telstra of its existing infrastructure, and especially that which Telstra could use to build competing services such as its HFC network.

    As for backhaul, compared to an optical access network, it is dirt cheap. That is a non-issue.

    Look at the legislation. Telstra can bend over backwards to assist the government, and still get screwed at the minister's discretion. Telstra can sign a deal and be bound to it. The minister can change the deal unilaterally on a whim, and Telstra can't back out or renegotiate. David Thoedy would have to be a totally irresponsible CEO not to fight such Machiavellian legislation to the bitter end.
  • "Take the Cash - Who's cash"

    I would like to point out to you and the rest of the publice that "NBN Co" is Mr and Mrs tax payers - and any cash they spend is not spent on health, education or any other essential service.
    And next time you see on the news that a car has collided with a power pole and there is electricity outages in an area - think how long it will take to replace or patch the bundles of fibre cables that have been snapped when the pole was taken down! If you think it will be as quick as the power restoration you are dreaming!!
  • IT systems split

    bit dubious on this. Can find many articles about the many many billing systems used in BT. Further you tend to find a converged wholesale and retail billing / CRM platform as an exception rather than the rule - they actually do quite different things once you come down even a little from the 10,000 foot view
  • Repairing optical fibre

    Good point. You can't just solder it together like you can with copper. Optical fibres must be accurately aligned and bonded. Any microscopic defect will attenuate the signal, cause bit errors, lead to retries or dropped packets, and slow the data rate significantly.

    Everyone from Sol Trujillo to Stephen Conroy have played up the unreliability of copper for their own political purposes, but the most common problem with copper wasn't age, but an idiot with a back hoe. Whether that same idiot digs up an optical fibre or crashes into a power pole with his car, the failure rate on optical fibre is not going to be drastically lower than it is with copper. The repair will be more expensive and the restoration time will be longer depending on where the fibre is cut.
  • IT Systems

    Actually, a split Telstra would need two retail billing systems. Wholesale billing is intercarrier. The billing from a carrier to a reseller has more in common with to retail billing even though it technically isn't. Every call must be individually charged and logged with all details. Really, the only difference between retail billing and reseller wholesale billing is the address on the top of the bill. All a reseller does is divide up the calls replacing his address with that of the end customer.

    If Telstra were separated, then the wholesale part would need a wholesale billing system for other billing carriers and reconciling their billing of Telstra, a retail billing system to 'wholesale' charge the resellers. The retail part of the separated Telstra would require another retail billing system of its own.

    Even if you could find a converged wholesale/retail billing system (you are probably right in that none exists) unless Telstra just happens to have bought it already, they would still have to buy a new billing system.

    The same issue arises with management systems. Where one system would service a single Telstra, they will need two for the separated companies.

    No matter how you look at it, separating one company into two removes the efficiencies of the single entity.