With the passing in federal parliament on Monday of the Telecommunications Legislation Amendment Competition and Consumer Safeguards Bill 2010, the structural separation of Telstra is finally in sight, laying the foundations for the full establishment of the National Broadband Network (NBN).
Up until now I have held off making any comment since the passing of the legislation – I’ve been trying to absorb the ramifications and get my thoughts in order. Regular readers will be well aware of my position in support of the NBN, however the final form that the network will take is still somewhat fluid.
The passing of the bill starts to draw a more definite line around how it will appear as it is rolled out over the next decade. However, this legislation is about so much more than just the NBN.
It provides for the structural separation of Telstra, and even if the NBN was to never eventuate, the effective breakup of Telstra is a significant result for the telecommunications sector in this country. So what does this “structural separation” really mean?
Firstly, a quick history lesson.
In 1992, the then Australian Telecommunications Commission/Corporation (ATC, trading as “Telecom Australia”), and the Overseas Telecommunications Commission (OTC) were merged into the Australian and Overseas Telecommunications Corporation (AOTC, trading as “Telecom Australia”), and finally changed its name to “Telstra” in 1995 – (although the “Telstra Corporation” name had already been in use for their overall corporate activities, and offshore operations since April 1993).
The process to create the company we have today was started by former Prime Minister Paul Keating, while he was still Federal Treasurer in the Bob Hawke-leb Labor government. Keating was in favour of privatising the new company, but Hawke refused to allow it.
After Keating ousted Hawke and took over the Prime Ministership in 1991, the privatisation agenda was back on. However, it wasn’t until the era of the John Howard Liberal government that the company left government ownership, in three steps in 1997, 1999, and 2006.
The privatisation in and of itself was not a bad thing, but it was ill thought out. Suddenly, instead of having a government controlled monopoly telecommunications provider, we had a monopoly public company answerable to financial shareholders with a completely market dominant position, given that it owned upwards of 95% of all telecommunications infrastructure in Australia.
If you wanted to play in the telco space in Australia, you had to play ball with Telstra, who could effectively put any price on their wholesale offerings that they chose. To coin a phrase, they “had the market by the nuts”.
What should have happened was that the network arm of ATC and all of OTC be merged into a single entity, and the retail arm of ATC become another single entity. The retail arm should then absolutely have been sold, and the network operations either maintained as a government body, or sold separately to the retail operations.
In its current form, Telstra can – (and does) – put the pricing screws on competitors, to entrench their market position. Many telecommunications companies – (particularly smaller ones) – are charged wholesale prices higher than Telstra is charging its retail customers.
Hardly fair.
The ACCC, the competition watchdog in Australia, have brought many cases against Telstra in the intersuing years in regards to anti-competitive abuse of their market power. In most instances, the ACCC have either won, or Telstra have backed down.
Major ISP Internode through their managing director Simon Hackett, is in the midst of a very public spat with Telstra with respect to wholesale pricing.
So how does structural separation change things?
Well, with the NBN – a federal government enterprise – set to takeover as the owner and operator of the base network, Telstra will become a retail provider only. NBN Co will replace Telstra’s ancient 60-year-old copper network with optical fibre to 93% of Australia’s population, providing a quantum leap forward in capacity and technological possibilities.
For you and me the difference boils down to a simple equation.
Currently, Telstra has little or no incentive to improve/upgrade its copper network. Such an endeavour would be expensive – (the price tag for the NBN appears to be settling around the $36b mark) – and not in the interests of their shareholders. So it won’t happen, ever, while Telstra own the network. They’ll keep patching up what they’ve got, and they’ll always have customers, as they are the only provider available to most locations in Australia.
Fixed line is not their only source of revenue, so even if fixed line revenues drop by way of decreasing reliability, it doesn’t kill the company. Letting some parts of the network degrade is actually beneficial to them, because they aren’t spending as much money on running repairs.
Even as I write this article, my own Telstra supplied phone line at home has been out of action for almost five days due to water damage. Their workmen have only turned up this morning.
In a world where NBN Co own and run the network, their number one priority will be that network, as without it they don’t have revenue. Not only will it be their core business, it will be their only business.
Waiting five days for my phone line to be fixed is unacceptable, but typical. Ultimately, Telstra don’t care because there’s nowhere else I can go for a fixed copper line. NBN Co will have to care – yes they will still be a monopoly – but they still have to make money, and the legislation will compel them to maintain the network.
More than enough reason to support the NBN and the structural separation of Telstra, and celebrate what this piece of legislation means for Australia.