Govt: Telstra to break up voluntarily or be forced to divest

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STORY HAS BEEN UPDATED.

The Communications Minister Stephen Conroy has given Telstra an ultimatum, structurally separate its retail and wholesale arms voluntarily within about 13 weeks or it will be forced to do so in one of the biggest shake ups to the telecommunication industry since 1997.

The proposed changes brings it in line with its Britain and New Zealand counterparts, BT Group and Telecom Corp respectively, after both companies were forced to separate their network and retail businesses in order to bring more competition.

“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,” Senator Conroy has said in a media statement.

The news has brought down Telstra’s share price to close on $3.11, a 4.3 percent drop from its closing price from yesterday.

If Telstra refuses to do so, it will not be able to acquire new spectrum for a possible 4G wireless service unless its separates, and a possible stake in the new $43 billion National Broadband Network company, which is set to bring fibre-to-the-home internet connection to most of the country.

The company would be forced to divest its fifty percent stake in cable provider Foxtel and will be imposed strict reporting requirements and compliance measures under new amendments to the Telecommunications Act if it wants to acquire the new spectrum, which would be freed up when analogue television is switched off.

A potential sale of its stake in Foxtel could see a major bidding war between James Packer, News Limited and Kerry Stokes, the owner of Seven. James Packer’s Consolidated Media Holdings (which Kerry Stokes owns under 20 percent of) and News Limited own a 25 percent stake each and could extend their current stake even more; while Stokes has an interest in Pay TV and could give him another platform to expand his media empire, which includes Seven and West Australia Newspapers.

Even if it is voluntary or enforced by the Rudd Government, it will be structurally separated, as the amendments would keep both its retail and wholesale functions “at arms length” of each other. The new changes would also give lower pricing to its internet and phone rivals who rely on Telstra’s network to connect new customers. Other changes would also include providing equivalent pricing and non-pricing terms to its retail operations and wholesale customers and new powers to the ACCC and the Communications Minister to regulate and protect consumers.

“The Government believes it is possible to achieve a win-win outcome in the interests of Telstra, its shareholders and, more broadly, all Australians,” Senator Conroy said.

Telstra was previously a state-owned enterprise before being slowly privatised, the final which saw the Government reduce its stake from 51 percent to 17 percent in 2006 under its T3 plan.

Telstra has responded to the reform, saying that it is unnecessary if both the Government and Telstra would come up with an agreement with the National Broadband Network. “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,” CEO David Thodey said in a statement.

“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.”

They have also said that they will work with the Government.

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