Telstra-NBN Co deal: Telstra functional separation still on the table

USO and copper network responsibilities while fade if Financial Heads of Agreement deal is finalised next year

The oft-delayed legislation that would result in the separation of Telstra in some form will be amended by the Federal Government, but functional separation is yet to be ruled out.

As part of the $11 billion Financial Heads of Agreement announced this week between Telstra, NBN Co and the Federal Government, the government will amend the [[Artnid:346256| Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009]] to ensure the agreement has “legislative certainty”.

While the exact details of the amendments have not been made clear at this stage, a shareholder letter from chairman, Catherine Lingstone, said the telco had received written confirmation from Prime Minister Kevin Rudd that it would be able to bid for wireless spectrum; a threat the Government has used against the telco should it refuse to separate either structurally or functionally.

“The Government remains committed to implementing the reforms set out in the Bill,” communications minister, Stephen Conroy, said in announcing the agreement. “The Government will be making a number of amendments to the Bill to provide Telstra with the legislative certainty it needs to proceed with structural separation, while still protecting the long-term interests of end-users.

“These amendments will improve the current equivalency and transparency measures while the NBN is rolled out. They will also permit Telstra to set out how it will migrate customers to the NBN and for this to be subject to industry consultation and consideration by the ACCC.”

Conroy, said the deal - which is subject to approval by Telstra shareholders and the Australian Competition and Consumer Commission (ACCC) - would result in the structural separation of a national telecommunications network that isn’t controlled by a single retail company.

Fixed line broadband customers on Telstra’s copper and cable networks would be moved to NBN Co and be allowed the opportunity to choose any retail service provider available at the time. While Telstra retains its existing infrastructure under a lease agreement with NBN Co, its wholesale and retail arms are effectively separated.

However, chief executive officer, David Thodey, revealed in a media and analyst briefing that functional separation was also still a possibility.

“It’s not entirely off the table,” Thodey said. “It may be a condition necessary later on, but in these current Financial Heads of Agreement it is not one of the principal points.”

Though separation of any form has been a perennial fear of Thodey’s predecessors, the Telstra chief said he was simply facing up to reality.

“I can only look at the business in light of the current environment with which I am faced,” he said. “I think that this is a fair outcome that allows us to go forward to look at all the details now before we can take something in to shareholders. That’s my responsibility and that’s what I’m doing.”

In stressing that the agreement was non-binding and that either side could pull out at any time before a final agreement is reached, Thodey said the telco remained confident that “we will not be constrained in the future”.

The agreement came after a year of negotiations between Telstra, NBN Co and the Federal Government, and numerous delays and amendments made to the Telstra separation bill, which would also see the ACCC and the Australian Communications and Media Authority (ACMA) provided greater powers.

Telstra has progressively moved attention from traditional revenue streams like its copper network to wireless broadband, which it hopes to build with the implementation of a Long Term Evolution (LTE) 4G network by the end of 2012. The Financial Heads of Agreement would remove potential constraints on the telco’s ability to bid for more wireless spectrum required to properly build the network.

"Spectrum is the one [area] we’re very concerned about, and we have got some strong level of comfort on that one as well," Thodey said.

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Tags Telstra-NBN Co deal

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