Australia's Telstra faces government break up

CANBERRA, AUSTRALIA: Australia moved on Tuesday to break up the country's dominant telecoms company, Telstra Corp,  vowing to boost competition and modernise telecoms in the biggest industry shake-up in more than a decade.

Telstra, Australia's biggest phone company and a former state monopoly, will have to split its wholesale and retail operations, or risk losing access to wireless broadband under draft legislation unveiled by the government.

"Today we are delivering historic reforms in Australia's long term national interest," said Communications Minister Stephen Conroy, who once described Telstra's structure as a "complete joke" which was holding back the rollout of Australian broadband.

Telstra dominates Australia's telecoms industry and has constantly been challenged by rivals for stalling on providing access and for charging unfair access fees.

Its break-up could spur an upgrade in services on a new fibre network and stir merger activity in the media industry.

Telstra shares fell 4.6 percent to a 3-1/2-month low.

Australia has slower and more expensive Internet than many developed countries, and the government has pledged to help build a broadband network to cover the country's vast distances and inhospitable terrain.

The centre-left government last year dumped Telstra from the running to build a $37 billion super-fast broadband network spanning the continent, prompting a change of top management at the telco to repair strained relations with lawmakers.

"The measures in this legislation will finally correct the mistakes of the past," Conroy told a news conference.

"The government will require the functional separation of Telstra unless it decides to voluntarily structurally separate," he said, adding the legislative package would be debated in November after introduction to parliament on Tuesday.

"These reforms will address Telstra's high level of integration, to promote greater competition and consumer benefits, streamline and simplify the competition regime to provide more certain and quicker outcomes for telecommunications companies."

The split may force Telstra to drop the price it charges wholesale customers for access to its network. Its customers include Singtel's Optus and Telecom Corp of New Zealand's.

The move follows the path taken in Britain and New Zealand, where BT Group and Telecom Corp were forced to separate their network and retail businesses.

Conroy said he saw no compensation issues as a result of the legislation, adding Telstra was already in "hard-nosed" but cooperative negotiations with the government.

The laws would prevent Telstra from acquiring additional wireless broadband spectrum while it remained vertically integrated, owned a hybrid fibre network and held on to its 50 percent interest in subscriber television network Foxtel.

The competition watchdog would be able to address breaches of competition law and would no longer have to consult before issuing a breach notice.

Telstra will also be required to meet new minimum performance benchmarks and risk financial penalties or on-the-spot fines for withdrawal of services.

"We are trying to modernise the telco industry, moving from the dying days of copper to the new era of fibre," said Conroy.

Telstra's copper network is the backbone of most services in Australia.

"The copper access network is literally collapsing in the ground, every time there's a flood, every time there's heavy rain ... there's further degradation of some part of Telstra's copper network," Conroy said.

One analyst said the move was unlikely to hurt Telstra shareholders.

"I don't think there's any way Telstra shareholders will get shafted over this, because the government will run the risk of losing 1.5 million voters if they do," said Michael Heffernan, senior client adviser at Austock Group.

Firmly committed

In April, the government said it would lead a new private-public company to build the broadband network, with high-speed fibre delivering up to 100 megabits per second to around 90 percent of homes.

"What they're suggesting was inevitable. Having to split the company was always on the cards, and it looks like they're firmly committed to that stance," said Angus Gluskie, portfolio manager at White Funds Management.

"I think Telstra probably would take the voluntary option. I think they realise working against the tide here is not only hard work but not necessarily the most effective method of achieving the best financial outcome."