Telstra to fight separation Bill

update Telstra said today it will oppose the passage of the government's Bill which would allow it to force separation on the big telecommunications company.

David Thodey, not so toothless, it seems (Credit: Telstra)

In its submission to the Senate Standing Committee looking into the proposed legislation amendments, Telstra said the new legislation would stop Australia achieving the National Broadband Network (NBN), reduce competition, harm consumers, not necessarily result in industry reform and potentially destroy value for the 1.4 million Australian shareholders who purchased Telstra shares from the government.

"Therefore, Telstra has no choice but to oppose the passage of the Bill in its current form," the telco said. "It is unworkable."

Why Telstra didn't want the Bill
It was not only unworkable, but unnecessary, according to the telco, which denied the market wasn't working, and vehemently denied that, if it were so, it was at the heart of the trouble.

Telstra said it didn't like either of the alternatives offered to it in the central part of the Bill; to voluntarily structurally separate or be forced to a functional separation.

Functional separation disrupted network and product innovation for years, the telco said, pointing experiences from the UK and New Zealand, and said structural separation implemented in the US had largely been rolled back. Both would divert resources from the NBN, it believed.

Instead, it suggested remodelling its operational support systems to operate in a customer-agnostic fashion, with the wholesale and retail business unit "plugging in" at the same level and functionality, ostensibly giving wholesale customers the ability to compete with its own retail facing units.

The telco was not better pleased with other components of the Bill, such as those that could deny Telstra access to spectrum. It would gain nothing for the NBN while damaging the market, consumers and Telstra employees, it said.

"Given that the NBN delivers the government's preferred industry structure and that wireless is not a regulated service, there is simply no policy rationale for such an exclusion," Telstra said.

Forcing Telstra to divest Foxtel and its hybrid fibre-coaxial cable would also serve no public interest, the telco believed. There was a competitor's network in the case of the HFC cable, and as for Foxtel, media heavies such as News Corporation and Consolidated Media Holdings would likely snap it up to the detriment of Australian consumers.

The changes to the access regime didn't confine the way the Regulator, the Australian Competition and Consumer Commission, could use its powers enough and enabled it to ditch procedural fairness, Telstra said — creating regulatory uncertainty as opposed to ending it.

The Bill was wrong
Telstra then pointed out what it considered to be factual errors in the Bill. It said its level of integration wasn't unusual, claiming that "virtually every major incumbent telecommunications carrier in the world is vertically integrated". Even its horizontal integration wasn't strange, it said, naming examples such as Deutsche Telekom and AT&T.

Neither was the level of competition insufficient or ineffective, it claimed, talking about the number of its competitors, listing those involved in backhaul. It also implied that separation had been more global flop than global trend, saying that only a handful of OECD countries had implemented functional separation and a number of European regulators had spoken out on it.

The Bill had also said that Telstra's retail market share was on the rise. Au contraire, the telco said, flourishing statistics for 2008/2009 which showed it had lost retail market share.

Last of all, Telstra denied it was the only one to benefit from regulatory arrangements, saying that competitors had benefited from the ACCC's decisions over the years.

At least change it
For the case that the government did decide to continue with its plans, Telstra put forward a number of changes to the Bill to make it more palatable for its board, management and shareholders.

The telco wanted the parts of the Bill dealing with its voluntary structural separation and loss of Foxtel deleted completely.

The telco said the Bill should also be changed to say that functional separation must not:

• Be unduly burdensome and degrade Telstra's retail or wholesale service quality
• Impede Telstra's ability to compete fairly
• Force Telstra to physically separate information systems or networks
• Stop network and wholesale using common information and network operations systems directly through equivalent interfaces
• Stop Telstra from creating internal network units to provide in-sourcing of services at arm's length to the retail business unit and network/wholesale business unit
• Stop Telstra from using common HR, legal, technology and network planning services

Telstra also wanted Minister Conroy's discretion curtailed on certain matters and said that the spectrum section of the Bill had to be deleted entirely. It wanted the legislation to include rules governing the ACCC's conduct and allowing the review of the ACCC's decisions, as well as asking for changes to the parts touching the universal service obligation.

Customer service guarantees had to add a requirement of reasonableness, the telco said, and wholesale providers shouldn't be measured by performance standards or benchmarks because they didn't have control of external systems to interface with.

Telstra also asked that if the bill were to go ahead, that the Senate delay debate on it until after Telstra had finished its discussions with the government over the NBN and the NBN implementation study had been completed.