A Slow, Expensive Route to Ending the Telstra Network Monopoly

JULIA Gillard told the parliament yesterday that her government had achieved the structural separation of Telstra. That is a deeply misleading statement. Far from separation being achieved, all that has happened is that the Australian Competition 8z.

Consumer Com-mission has approved a plan under which, in time, separation may or may not be achieved.

What's more, while there is a good policy case for structural sep-aration, this particular plan is a bad way to achieve it. It is too complicated, too costly, and too slow. The case for structural separation rests on the fact that Telstra's vertical integration has greatly im- peded competition in fixed-line telecommunications. The majority of households are supplied by only one network the Telstra copper network.

Telstra's competitors are largely resellers, using the telco's network for delivering fixed-line services to consumers. That gives Telstra enormous power to disrupt its competitors. It has repeatedly used this power to the detriment of consumers and competition.

A standard regulatory technique to deal with this problem is to require a vertically integrated incumbent to separate into a retail business and a network company.

If the two stay under the same ownership but are managed sep ar-ately, it is called functional separ-ation, and if they divide into two separately owned companies, it is called structural separation. Telecom New Zealand, for ex-ample, was split last year into two companies under separate owner-ship: a network company called Chorus and a retail operator called new Telecom.

Chorus will sell services to Telecom and a whole range of other retail operators. Labor's approach to structural separation in Australia, unfortu-nately, is less straightforward. A new government-owned company, NBN Co, has been es-tablished to build a new network, operating wholesale-only.

Telstra's Structural Separation Undertaking approved today by the ACCC is that it will shift its cus-tomers from its network across to the NBN, as the broadband net-work is built out nationally.

Labor is asking us to believe that separation will be delivered in the future because at some point, they say, the NBN will have been built out, it will be a national wholesale-only network, Telstra will use it (as will other retailers) and Telstra will no longer operate its own network to serve retail customers. What does this really mean?

It means that, unlike the straight-forward Kiwi version of structural separation, which took effect immediately, nationally from its introduction late last year, we may or may not ever see real structural separation in Australia.

All that happened yesterday is that a government agency has ap-proved a plan for Telstra, over a period that will last at least 10 years and probably considerably longer, to gradually shift its traffic from its network on to a new network.

Even if Labor manages to deliver on its NBN plan, and given this government's dismal track record on execution, there are real reasons to suspect the rollout of the NBN will not be completed until the end of 2021.

Hence it will take a decade before separation is in place nationally, and throughout this time Tel- stra will remain the vertically integrated dominant incumbent in much of the country.

NBN Co's track record to date suggests it will struggle mightily to get the rollout completed even in a decade. NBN Co recently dis-closed that the number of premises passed by fibre was a mere 18,200, woefully behind the 317,000 that the company's Corporate Plan said would be passed by June 30. There is one other problem with Labor's convoluted approach to separation.

It depends, necessarily, on the wildly extravagant plan to spend more than $50 billion of taxpayers money building a brand new network. Is there a good case for structural separation of Telstra to address its vertical integration? Yes. Is Labor's approach to structural separation a speedy, efficient and cost-effective way to achieve it? Emphatically not.

Paul Fletcher is a Liberal MP