Telstra separation is the UK lesson

Mark Gregory

The communications regulator in the UK, Ofcom, has notified BT that it is to legally separate from OpenReach after BT failed to offer voluntary proposals that address Ofcom’s competition concerns.

Structural separation is surely something that should now finally be considered in relation to Australia’s chaotic telco sector.

Wind the clock back to 2005 and the Howard Government was attempting to force Telstra to upgrade the fixed access network to FTTN. But when Telstra said no, the Howard government wimped out and failed to take the logical next step which was to split Telstra into two companies, wholesale and retail.

In the years after the Howard Government, the Rudd/Gillard governments, when confronted by the ongoing intransigence being displayed by Telstra, also failed to make the logical decision to split Telstra into two companies.

So the National Broadband Network (NBN) was born and Telstra has profited royally by the inability of successive governments to make decisions in the national interest, rather than the next election.

It is arguable that the Australian telecommunications market has never been as chaotic as it is now, and that Telstra has not enjoyed a position of dominance like is has now since it was privatized during the deregulation process.

In 2012, the New Zealand Government split Telecom New Zealand into two companies, Spirit (retail) and Chorus (wholesale) and redirected their broadband network away from FTTN to FTTP.

Now Kiwi’s spend a great deal of time laughing at us from the other side of the pond.

I rather think that they are laughing at our government, but we’re all responsible in some way for the chaotic mess that the Australian telecommunications industry has become over the past decade.

Now, Ofcom has told BT that Openreach is to become a distinct company within the BT Group with its own board comprising “a majority of non-executive directors, including the Chair, who are not affiliated with BT.”

Ofcom said that “Openreach would be guaranteed greater independence to make decisions on strategic investments, with a duty to treat all of its customers equally.”

Whilst the Ofcom directive does not go as far as the New Zealand government’s formal split of Telecom New Zealand, it is the next best thing and could result in BT Group being forced to divest Openreach if it attempts to work around Ofcom’s goal of Openreach being an independent entity that treats all customers equally.

In 2012, Telstra undertook to structurally separate by 2018, but unlike in New Zealand and now in the UK, what is occurring here is quite different.

The Department of Communications and the Arts states that “structural separation refers to a company’s retail business, which deals directly with customers, being separated from its network business, which operates its infrastructure.”

“Telstra’s network and retail businesses are being separated to address concerns that their integrated operation was advantaging Telstra over its competitors and holding back competition.

“For example, there was scope for Telstra to favour its retail operations over those of other operators that also needed to use the Telstra network to compete.

“Telstra is structurally separating by progressively migrating its retail services from its fixed-line networks onto the nbn. This is Telstra’s commercial decision.”

“Once this migration is complete, Telstra will no longer control the fixed-line telecommunications network that competitors use to service most Australian premises.”

What this means is that Telstra is migrating its fixed line customers onto the NBN and appears to have sold and resold the copper network to NBN Co on two or more occasions to date.

Telstra has “Telstra retail” and “Telstra wholesale” but these are effectively both retail organisations sitting on top of a single operations division.

In 2018, Telstra will be nothing like BT and Openreach, nor anything like Chorus and Spark. All that will have happened is Telstra will have migrated most of its fixed line customers onto the NBN.

Telstra operations will still operate the transit and international networks, the mobile network, the exchanges, and so on.

Telstra appears to be actively working to make it extremely difficult for a future government to split the company into two similar to what has happened in New Zealand and now in the UK.

As we’ve seen with the hooha at the last Telstra AGM, Telstra management is quick to threaten the government with the wrath of shareholders if the government or one of its agencies takes an action that Telstra’s management team disapproves of.

In 2021, a future Coalition government would be looking to offload the NBN as quickly as possible, and with Telstra sitting on possibly the largest war chest imaginable from the largess of the Turnbull government, we should expect Telstra to buy most if not all of the NBN.

The Turnbull Government ordered NBN Co to prepare to be disaggregated making the company ready for a future sale along technology lines, but who is going to buy the fixed access network when there is an ongoing liability to Telstra for access to the exchanges, pits, ducts, traps, and other infrastructure?

Add to this NBN Co’s woeful business model, high debt, obsolete technology being rolled out to 6.5 million premises, the hugely expensive backhaul network, and only one buyer springs to mind unless the government is prepared to carry out some major surgery.

If events over the past decade are anything to go by, we should not expect government to have the fortitude to do what must be done in the national interest and in the interest of improved competition and consumer outcomes.

Dr Mark Gregory is a Senior Lecturer in the School of Engineering at RMIT University

Do you know more? Contact James Riley via Email.

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