Will Telstra drive separation, or the ACCC?

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?

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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, Telcos, Optus, 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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Talkback

9 comments
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  • David,
    Nothing has changed in the past 40+ years of the Telstra fiasco we have been forced to endure by successive foolish, dumb & dare I say moronic politicians and a toothless ACCC.

    As far as I m concerned it exemplifies the "Yes Minister" nonsense portrayed so well on our TV's.

    Telstra has successfully side stepped, stalled, obfuscated and manipulated the telecommunications industry in this country, ever since the Post Master Generals Department gave up control, & Sen. Conroy is helpless to do anything to end the ridiculous state of affairs that now exists, simply because he doesn't have the b*alls to tackle what is so obviously needed to end the nonsense we have to endure at the hands of the monopoly Telstra was handed, so ineptly by a dumb government, who didn't have a clue what it was doing except of course for what is saw as a huge budget windfall from the sale of the network.

    Will it ever end...I doubt it!

    We are creating a 2nd Telstra...the NBN which will have a monopoly & it will continue to play into the sorry state of affairs that exists now, simply because Conroy isn't prepared to read the riot act to Telstra management. Diplomacy has failed!

    It would be a pleasant surprise & welcome relief to everyone if he gave the ACCC the necessary power to end what will become a weeping cancerous growth, who's only interest is Telstra shareholders & the bottom line of Telstra's profit.

    Will Australians benefit...I doubt it! because most of the corporate shareholders don't even live in Australia, as much as Telstra management & the greedy shareholders would like us to believe. If it doesn't suit Telstra & their shareholders profits it won't get done.

    The problem is so painfully obvious to everyone, but no one is prepared to tackle it head on!
    .
    Huntsman.ks
    • Keith whilst I'm no fan of Telstra's, surely shareholder's interests and the bottom line is the primary concern of every public companies management team.
      mwil19-a34f7
  • Keith that would have the greatest pile of lunacy ever presented. Gee Telstra must have really upset you to develope such hate.
    sydneyla
  • I wonder what bank Keith uses, and which (if any) supermarket he shops at. Whoever they are, lets hope they do not have shareholders.
    Wallingford-314a6
    • Keith's bank and supermarket would have shareholders, I'm sure.

      Just that those shareholders are articulate, wise and haven't got big whinging mouths like those moronic Telstra shareholders.
      Beta-9f71a
  • Yes I have a hatred of Telstra.
    I personally battled TELSTRA & OTC for years attempting to engineer & implement the 1st National commercial & international time sharing network in Australia & South East Asia.. (No names no pack drill!)
    The engineering & commercial problems & the hurdles one had to jump, trying to implement new technology, which were put in place by the bureaucracy that ran our telecommunications, Nationally, were a pain in the butt, to put it bluntly. If it were only engineering problems, it would have been a walk in the park. It was the commercial problems inherent in any attempt to deploy technology, which directly competed with Telecom's management, that created the impossibly hurdles to jump & prevented competition.
    What gets up my nose is the fact that nothing basically has changed for 40 years. The end user has paid the price of a greedy monopoly & successive governments have allowed it to happen.
    I don't have a problem with shareholders getting a fair return on their investment, PROVIDING they are competing fairly.

    @Sydneyla... your only interest is the profit Telstra returns to you! You don't give a fig for the extra cost we all pay due to the monopoly Telstra has had for so long!
    My argument & discussion is no lunacy it's a fact!

    Although our supermarket chains & large business organisation bleat about the competition from overseas imports, etc, they at least have to compete and do it with a fair degree of public scrutiny.

    TELSTRA has NEVER competed, FAIRLY and as I said before, neither the ACCC or our dumb politicians have been able to understand or deal with the chancre imposed on us by morons charged with the responsibility of ensure we had a competing telecomm's environment.

    You guys criticise, but it doesn't help us achieve a level playing field, which is what we need right now. The internal funny money fiddling that goes on, & it does, between TELSTRA W & R is a joke!

    I can't wait to see TELSTRA retail separated & removed from their business model...totally! When the day comes that ISP's & RSP's can deal with TELSTRA wholesale on a competitive basis, will see a dramatic change in the cost to the end user.

    I can't wait!
    Huntsman.ks
  • Keith many thanks for your detailed reply and your understandable explanation of your history of frustration of an industry that I had long suspected you had extensive and professional knowledge of.

    Hopefully we can all look forward to the time, not so distant, when Telstra will relinquish their Wholesale Division to the NBN Co and concentrate on giving intense competition to opponents to the advantage of the Australian consumer.
    sydneyla
  • "We are creating a 2nd Telstra...the NBN which will have a monopoly & it will continue to play into the sorry state of affairs that exists now"

    A genuine question - will the NBN have a retail arm? because I believe that's the real issue here - Telstra retail doesn't pay Telstra wholesale for access to the Copper Access Network, so there's an unfair pricing advantage from the get-go. As I understand it, NBN Co will not have a retail arm that competes unfairly with everyone else buying wholesale access to it's network. Can someone shed some light?
    AdamCB
  • Yes Adam, NBNCo are wholesalers only and will not have the same undeniable conflict of interest Telstra has/had.
    Beta-9f71a