Structural separation. This is the grim reality confronting the few remaining Telstra true believers this morning after the tough-talking Stephen Conroy rammed home his vision for competition in the telecommunications market.
Despite the Howard government’s 1997 reforms to the Telecommunication Act, which introduced “competition” into the market (Optus), the landscape for consumers has been grim with Telstra exploiting its monopoly as the buyer and seller of wholesale services to gouge the public and its struggling rivals.
Conroy’s command finally unwinds Kim Beazley’s 1991 insistence on bundling the Overseas Telecommunications Commission in with Telstra, despite Paul Keating’s scepticism.
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The reforms are necessary, Conroy says, because dealing with Telstra’s rip-offs is an unavoidable reality. In many cases, Telstra has been nabbed charging its flailing wholesale customers (think Dodo, Freshtel and One.Tel) more than it charges everyday punters for phone and internet services advertised in the paper. In competition terms, it’s like if Woolworths owned all the farms and factories in the country.
While the change has been a long time coming, according to the non-Telstra Comprehensive Carriers Coalition, yesterday’s crackdown has been on the table for months and should come as no surprise for those “following the debate”. Jerome Fahrer, from Allen Consulting, produced two voluminous reports in the issue of structural separation in 2006 and 2007. He explained the current state of play to Crikey this morning.
“What’s stopping competition is that in many instances Telstra’s wholesale customers have to buy access to the network. The obvious problem is that Telstra sells services to itself on much more favourable terms than other retailers,” Fahrer says.
“There’s a lot of regulatory rigmarole involved but the retailers are basically still beholden to Telstra, especially for things like maintenance.”
In the past, the idea was that different retailers could access to Telstra’s network at a fair price, Fahrer says. In theory, if Telstra was uncooperative, the retailers could force Telstra’s hand, resulting in costly legal fights, but little in the way of reform.
Conroy’s plans would create one network company, regulated to ensure competition, as opposed to the current farce where the network is controlled exclusively by Telstra. The network, perhaps partially owned by the government, would then sell wholesale services to any number of competing retail companies. Households would be able to choose Telstra, among several other carriers, but without the conflicts of the current arrangments.
The remade landscape should facilitate competition, Fahrer says. “If you’ve got a standalone wholesaler, all the retailers will negotiate similar terms.”
So how does the government’s $42 billion National Broadband Network fit in? Telstra, in the last throes of the Trujillo regime, famously failed to submit a conforming bid. Conroy’s aim is to create one network to avoid digging new trenches up and down the nation’s suburban streets. In effect, the government is stopping Telstra competing with the NBN with its hundreds of thousands of kilometres of copper wires.
“Currently, Telstra maintains exchanges where copper and fibre runs from them. Instead of NBN running its own exchanges, the new entity can now use Telstra’s,” Fahrer says.
On Conroy’s threat to cut Telstra’s access to the government-owned digital spectrum if it doesn’t comply his demand, Fahrer says Telstra would be foolish to ignore the threat. The government’s proposal to force Telstra to divest its stake in Foxtel also makes sense — Telstra is currently the world’s only telecommunications company that also owns a dominant share in pay-TV — in other jurisdictions, pay-TV competes with the Telcos for cable services.
Still, despite yesterday’s bombshell, it seems the ghosts of the Trujillo regime are still lurking, with Concept Economics chief Henry Ergas making an appearance this morning on Business Spectator claiming that no other country has successfully implemented structural separation.
However, Fahrer disputes this. “It is true that there has been some vertical re-integration in the US, but it is misleading to say that there is one company in the US that is as dominant as Telstra. There is much more competition in the US than there is here, including, very importantly, between pay-TV companies and telco companies (as well as between telco companies).”
Fahrer also cites the case of British Telecom structurally separating itself by creating a separate company, Openreach, in 2006.
“While it didn’t constitute full structural separation, it came pretty close. Importantly, BT decided that the game was up.
“Whether Telstra also now realises that will largely determine what happens next.”
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