Telstra is set to be split up in a move that could have major ramifications in the consumer and home technology markets. It will also result in the carrier being forced to sell off its 50% stake in Foxtel and prevented from buying any new spectrum if it does not agree with Rudd Government proposals.
At a press conference today in Canberra the Federal Government said that Telstra is set for its biggest shake-up since privatisation. Communications Minister Senator Stephen Conroy said that Telstra can either structurally separate voluntarily or the Federal Government would force a split with the introduction of a new regulatory framework.
The changes are part of an attempt by the Government to pressure Telstra to be a part of the $43 billion national broadband network, but no promise of involvement has been extracted from Telstra as part of negotiations.
Telstra Chief Executive Officer David Thodey responded to the Federal Government’s proposed regulatory reform package claiming “While we are disappointed the government has felt it necessary to introduce this legislation, Telstra remains committed to working with the government to find a solution that is in the best interests of the industry, the nation, Telstra and our shareholders,” Mr Thodey said.”It is Telstra’s view that many aspects of this package are unnecessary and need never be implemented if a mutually acceptable outcome can be reached on the National Broadband Network. Telstra supports the Government’s NBN vision. We are willing to discuss options around separation.”
Telstra will carefully examine the package over the coming days, he said. “At all times, our approach to regulatory reform and the NBN will continue to be driven first and foremost by the need to protect the interests of our shareholders,” Mr Thodey said.
The NBN has been given the strongest possible board and management focus, including the establishment of a dedicated Board sub-committee, chaired by the Chairman of the Board, Ms Catherine Livingstone, and an NBN engagement team, led by Group Managing Director Mr Geoff Booth.
Telstra has done a large amount of work to ensure we have the best possible understanding of the complex and challenging issues around separation and NBN.
“We are actively and constructively engaged with Government.” Mr Thodey said. “Much remains uncertain, but we will continue to provide updates whenever it is appropriate to do so.”
Shares in Telstra fell as much as 4.9 per cent in early trading. By late morning, the shares were down 14 cents, or 4.3 per cent, at $3.09 in a firmer market overall. The benchmark S&P/ASX 200 was 0.7 per cent higher.
Conroy said that if no agreement is reached with Telstra and they ignore the demands of the Federal Government the Federal Government will have to power to force it to:
– conduct its network operations and wholesale functions at arm’s length from the rest of the company;
– provide the same price for its retail business as it does for other carriers in accessing its wholesale network;
–implement governance structures to make the separation transparent.
The draft laws will require Telstra to lose its cable network and divest its interests in the pay television arm Foxtel. Telstra will be prevented from acquiring additional spectrum for advanced mobile services. It will be prevented from gaining new spectrum while it remains vertically integrated, owns a hybrid fibre coaxial cable network and holds onto its interest in Foxtel.
But as an incentive to Telstra to co-operate, the legislation gives the minister the right to ditch the last two requirements if the structural separation wins the approval of the Australian Consumer and Competition Commission.
“Telstra will be required to meet new minimum performance benchmarks. Failure by Telstra to meet the requirements will expose Telstra to a civil penalty of up to $10 million,” said a statement issued by the minister’s office.
”The legislation also includes more stringent rules on the removal of payphones … Failure to comply with the new rules will expose Telstra to civil penalties or on-the-spot fines.
“For years industry has been calling for fundamental and historic micro-economic reform in telecommunications.
“Today we are delivering this outcome in Australia’s long-term national interest.” Conroy concluded.