Communications Minister Stephen Conroy this morning announced that the government will force Telstra to structurally separate and overhaul the telecommunications access regime in the biggest overhaul of telecommunications regulation since the Hawke government’s reforms of the late 1980s.

Telstra will in effect be made an offer it can’t refuse, invited to develop a plan for full structural separation between now and the end of November via an enforceable undertaking to the Australian Competition and Consumer Commission. If it does not do so, the government will impose a “strong functional separation framework on Telstra” and ban it from acquiring additional wireless spectrum, where it developed a strong presence under Sol Trujillo.

Telstra can break itself up or be broken up. Conroy would prefer the former, but has committed to the latter if necessary.

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The government may also prevent Telstra from acquiring more wireless spectrum if it does not divest its hybrid fibre coaxial cable network and its interest in Foxtel. In short, Telstra has been told it will be locked out of the future of communications unless it co-operates with the new regulatory approach.

Conroy also announced a significant strengthening of the ACCC’s role in managing disputes over access to Telstra infrastructure, empowering it to impose access terms and conditions of up to five years, impose “principles” for access for even longer, and make immediate binding rules of conduct to address problems during disputes. The changes tip the regulatory balance in favour of the ACCC, which has repeatedly battled Telstra in courts across the country over the past 10 years on behalf of the company’s competitors, and will reduce although not eliminate opportunities for Telstra’s preferred approach of litigating and gaming the regulatory framework to prevent economic access by its competitors to its infrastructure.

As part of a set of reforms to consumer safeguards, Conroy has also beefed up the Universal Service Obligation, giving himself more power to specify standards and raising penalties to $10 million. The Australian Communications and Media Authority will also be able to prevent Telstra from removing payphones.

Conroy is hoping that his legislation — to be introduced today — will be considered by a Senate committee and debated before the end of the year, giving Telstra approximately 10 weeks to develop an undertaking on full separation of its infrastructure and retail operations. Conroy indicated that Telstra had already been in talks with the government on separation, and made a point of congratulating the new Telstra leadership of Catherine Livingstone and David Thodey. Conroy said the government had deliberately left the mechanism and structure of separation open, in order to facilitate co-operation between Telstra and the government’s National Broadband Network company.

The reforms in effect spell the end of an almost unique Australian experiment in an integrated telecommunications infrastructure owner/retailer set in train by Kim Beazley as Communications Minister two decades ago and continued by the Howard Government, which sold Telstra as an integrated company despite clear evidence from economists, commentators and privatisation experience around the world that it would undermine and prevent competition. The experiment has clearly failed. The access regime for Telstra’s network has never been strong enough, and as Conroy pointed out, it has been gamed and litigated remorselessly by Telstra, with more than 150 access disputes between Telstra and its competitors.

It also confirms just how badly the former Telstra leadership of Don McGauchie and Sol Trujillo — ably assisted by executives such as Howard government apparatchik David Quilty and on-tap consultant Henry Ergas — overplayed their hand in trashing the company’s relationship with both sides of politics and trying to destroy Telstra’s competitors. First with the NBN and now with structural separation, the government has smashed Telstra’s monopolistic agenda with a raw display of executive power.

However, the reforms open the door for the Coalition to claim the mantle of protecting Telstra shareholders — despite Conroy’s rhetoric that the reforms offer a “win-win” for Telstra — and ramp up its rhetoric about an interventionist Labor government. Expect the bill to take a lot longer than three months to work through the Senate — if it passes at all — with the Independents and the Greens using it to run all sorts of pet projects. Cannily, however, the government has loaded up the USO obligations on Telstra, something the Telstra-hating Nationals will instinctively support.

This is another bold telco move from a normally cautious government, and one that — despite the inevitable criticisms from commentators — will take Australia’s poorly regulated telecommunications system a lot closer to best practice (and economic orthodoxy). It should have happened 10, if not 20, years ago. Telstra’s days as the 800-pound gorilla are at last coming to an end.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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