“It is the government’s clear desire for Telstra to structurally separate, on a voluntary and cooperative basis.” - Communications Minister Stephen Conroy.
Let’s cut to the chase. There is nothing “cooperative” about what the government wants to do to Telstra. This morning’s announcement from Stephen Conroy, fulfilling his veiled threats to the giant company pretty much since winning government, is the end of Telstra as we know it. The 600-pound gorilla of the telecommunications industry will never be the same again.
The government’s new laws, flagged late last year when it spectacularly locked Telstra out of the national broadband network project, are designed to break up the company and prevent it from undermining the NBN. In short, Telstra can’t continue to be the dominant force in all corners of the market.
Telstra must divest its cable network and its 50 per cent interest in the pay TV group Foxtel (James Packer’s Consolidated Media and News Corporation, owner of The Punch, each control 25 per cent).
Critically, Telstra must also undergo “structural separation”, which effectively means breaking the company into a “wholesale” business that owns its copper and other networks and a “retail” company that rents access on them to deliver services to customers. Every other retail company – Optus, AAPT and so on – will pay the same terms as Telstra to surf on the wholesale network.
Structural separation, which will mean the creation to two entirely separate companies, may go further than the “functional separation” that has taken place in Britain and New Zealand. Functional separation involves the creation of a separate entity that still remains wholly owned by the telco.
If Telstra plays ball, and breaks itself up, it may be able to avoid the Armageddon outcome outlined by Conroy this morning. It may just be able to keep the cable network and Foxtel but be forced to live in a much tougher regulatory environment. But if it fights, Telstra risks being smashed, broken up and blocked from buying any more mobile spectrum. This, importantly, will prevent it from building up its wireless internet service in direct competition to the NBN. Conroy says Telstra has been given the ability to choose its own future; Neither is particularly appetising for existing shareholders. (The government, you may recall, just dumped a huge parcel of shares through the Future Fund.)
Telstra, with Sol Trujillo packed back to the US, is in a more conciliatory mood after its long brawl with government. But the damage is done. As this morning’s announcement shows, the company has no friends left in Canberra.
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