The chief executives of Australia’s top two telcos Telstra and Optus today acknowledged the existence of the Coalition’s new telecommunications policy unveiled last week — but judging from their responses, it may take another election before they start to take it seriously.
The policy revealed by Shadow Communications Minister Malcolm Turnbull contains a number of new elements compared to the Coalition’s previous policy. It focuses on the retention and upgrade of the existing HFC cable networks operated by Telstra and Optus, as well as serving regional areas through satellite and wireless.
In addition, if implemented it would likely see Telstra separated into retail and wholesale arms, as much of the telecommunications industry has been calling for most of this decade.
Telstra chief executive David Thodey has driven a policy of conciliation with the Federal Government since taking on his role in mid-2009, reversing a relationship which at times appeared to verge on verbal warfare under the tenure of Telstra’s previous CEO Sol Trujillo and his public policy chief Phil Burgess. However, speaking at Telstra’s annual financial results briefint today, Thodey gave Turnbull’s new policy short shrift.
The policy contained “options not really relevant” until Turnbull was “in power” and had changed legislation regarding the telco sector, Thodey said, pointing out that Telstra was currently acting within the bounds of the regulatory environment which had been set, and adding that not only would the Coalition need to win Government to influence the sector, but it would need to change the law.
“In terms of Malcolm Turnbull’s policies, when he’s in power we’ll have a look at it,” he said.
Optus, for its own part, has worked with both sides of politics over the past decade, building a strong relationship with Coalition Government under John Howard that saw it awarded the so-called OPEL contract to build out regional wireless infrastructure. The contract was cancelled by Labor when it took power in late 2007, but the telco has recently successfully signed its own $800 million deal to shift customers onto the NBN as it’s rolled out.
Speaking at his own company’s financial results briefing today, Optus chief executive Paul O’Sullivan (pictured) said the telco wouldn’t take sides. “We take the view that we’ll work with whatever Government that is elected,” the executive said, noting that he didn’t think it was “appropriate” for a company to back any particular side of politics.
However, O’Sullivan noted it was good to see competitive debate about the future of the industry.
In addition, he added it was “pleasing” that both sides of politics had adopted the same approach in terms of the structural separation of Telstra, noting the step was important in fostering a properly competitive market. “There’s still some work to do to fully land it, but you can expect Optus to be a strong supporter of both parties in landing structural reforms,” O’Sullivan said.
Turnbull’s new policy appears to have attracted a muted response from the rest of the industry — with a number of fiery discussions flaring up after his speech on the matter last week, but few industry players coming out to discuss it in public.
Image credit: Delimiter
the most repugnant feature of Malcolm’s alternative plan for Telstra is “structural separation”.
the most attractive feature of Malcolm’s alternative plan for Optus is “structural separation”.
up until recently, neither political party really cared about “structural separation”.
the current “structural separation” of Telstra is only being implemented as a convenient by-product of shutting down Telstra’s copper network and shifting all of Telstra’s wholesale customers over to the new fibre monopoly.
I would personally like to see Telstra forcibly structurally separated into two distinct companies. Would be interesting to see what would happen to the industry after that point.
zero incentive to invest due to misalignment of incentives, viz. coal export rail infrastructure, etc.
Telstra is already operationally separated and that was by Howard and Coonan in 2005-2006.
http://www.minister.dbcde.gov.au/coonan/media/media_releases/telstras_operational_separation_plan_approved
I don’t know what everyone expects when Telstra is finally structurally separated, which if you look at the timeline of 2018 the NBN Co monopoly should be well entrenched anyway.
What is it going to do?
“structural separation” is much much harsher than “operational separation”. there’s no doubt that Telstra’s wholesale bitstream pricing is carefully calibrated to defend Bigpond retail pricing (i.e. not allowing competing ISPs to undercut Bigpond by too much). Malcolm is completely wrong when he says structural separation will increase Telstra’s franchise value. but obviously, he’s pushing it because it’s politically popular.
Well I don’t totally agree that ISP’s cannot undercut BigPond by too much, I think they they undercut BigPond by a hell of lot.
But of course this depends on to what extent ISP’s have rolled out their own exchange gear and offer it for wholesale as well, which has enabled the likes of the big DSL players like iiNet, Optus and TPG , the latter especially to undercut BigPond by substantial margins using relatively cheap ACCC priced TW LSS.
Naked DSL also undercuts BigPond thanks to cheap TW ULL pricing courtesy of the ACCC, there is nothing Telstra Wholesale can do to help BigPond out in this area even if they wanted to because after a brief trial run of Naked DSL at the retail level for whatever reason BigPond have decided not to go on and market it.
Post 2018 and Telstra structural separation you would hope the ISP industry dependance on TW LSS and ULL has long gone, hence my point what is it going to achieve exactly?
*Well I don’t totally agree that ISP’s cannot undercut BigPond by too much, I think they they undercut BigPond by a hell of lot.*
no, of course the other ISPs undercut Bigpond by heaps. but the products based on “unbundled pricing” undercuts more than products based on “bitstream pricing”. hence, “bitstream pricing” is clearly more “restrictive” or “expensive” than “unbundled pricing”. if Telstra wasn’t consciously trying to defend Bigpond’s retail position, they would make “bitstream pricing” equivalent or closer to “unbundled pricing”.
*Post 2018 and Telstra structural separation you would hope the ISP industry dependance on TW LSS and ULL has long gone, hence my point what is it going to achieve exactly?*
i’m too lazy to look up the Bills… but, why does MT bother arguing that under his alternative plan, Telstra will willingly play along and “structurally separate” itself because “the value of the sum of parts is greater than the value of the whole”, if this is already mandated in the NBN legislation?
maybe Telstra’s structural separation and the NBN network preference deal are sufficiently intertwined together in terms of the legal mechanism… so if you dissolve NBNco and rescind the deal, you also absolve Telstra from having to follow through on structural separation….
“if Telstra wasn’t consciously trying to defend Bigpond’s retail position, they would make “bitstream pricing” equivalent or closer to “unbundled pricing”. ”
Not sure what you mean by ‘bitstream pricing’ in relation to what products competitors purchase off Telstra Wholesale, unless you mean bog standard ADSL1 and ADSL2+, but even those products depending on which ISP are competitive with BigPond.
“but, why does MT bother arguing that under his alternative plan, Telstra will willingly play along and “structurally separate” itself ‘
I am not sure Telstra see it that way especially in the light of what this lead article says, we will wait and see if you (MT) get elected first.
“maybe Telstra’s structural separation and the NBN network preference deal are sufficiently intertwined together in terms of the legal mechanism… ”
No doubt, I am sure the setting of lengthy deadline of 2018 had something to do it with it as well, play ball with us on the NBN and we will make the structural separation deadline so far out it doesn’t really matter, but politically it looks like we are the ‘Telstra buster’ tough guys. :)
“so if you dissolve NBNco and rescind the deal, you also absolve Telstra from having to follow through on structural separation….”
Depends on how tight the legislation is and once the Telstra shareholders tick the deal hopefully in October it will be hard to back out from, although it doesn’t seem the structural separation approval will in place by then, which is interesting.
“Telstra has flagged plans to hold a shareholder vote on its $11 billion agreement with NBN Co in October, even if it does not receive approval on a structural separation undertaking lodged with the competition watchdog.”
http://www.itnews.com.au/News/266552,telstra-forges-ahead-with-nbn-deal-approval.aspx
look at Internode plans: Easy Reach is more expensive/less (data) generous than non-Easy Reach plans which are delivered from unbundled access to copper tail. Internode is less able to undercut Bigpond on plans which are delivered via “bundled” bitstream access to copper tail.
*I am not sure Telstra see it that way especially in the light of what this lead article says, we will wait and see if you (MT) get elected first.*
under the Labor plan, they are forced to “structurally separate” by default because they are shutting down their copper business. but, at least, they are getting compensated for it. (this is still not strategically ideal because they lose out on longer term potential profitable opportunities to invest in the fixed network.) under MT’s plan, if they “voluntarily” structurally separate, the value of their franchise goes down but they are not getting direct compensation for that specific “loss of synergies” unlike the present deal.
MT is arguing they will voluntarily separate because this will increase total shareholder value. this is rubbish. the value of the whole is greater than the sum of the parts for a telco business where vertical integration facilitates more efficient market segmentation, investment co-ordination and price discrimination. this is why Telstra was sold as a vertically-integrated entity in the first place as it is value maximising.
of course, all this value destruction is partly mitigated by the fact that Bigpond has 50% of the market anyway. so, in the absence of specific legislative constraints, a structurally-separated Telstra Networks would in the natural course of business engage in close business planning and, possibly even, offer preferential access terms to its largest customer (Bigpond) to co-ordinate telco marketing. if, under MT’s plan, a straightjacket is placed on Telstra Network which artificially forces it to offer access equivalence to every access seeker big or small, then Bigpond’s 50% market share will not mitigate the value destruction.
bottomline, “access equivalence” is socialist utopian rubbish which has no basis in reality in terms of how the real world works. all businesses offer preferential terms to their biggest and most important customers for sound economic reasons to facilitate market co-ordination. even countries offer preferential trading terms with their closest trading partners.
*Depends on how tight the legislation is and once the Telstra shareholders tick the deal hopefully in October it will be hard to back out from, although it doesn’t seem the structural separation approval will in place by then, which is interesting.*
actually, what the package of legislation achieves presumably is 1/ mandate structural separation of Telstra and 2/ sets up access regime for NBN. the $11bln deal is a private contract between Telstra and NBNco. regardless of whether the private contract gets signed, Telstra has to structurally separate. i presume there’s nothing in the NBN legislation which makes the law taking effect conditional on the signing and full execution of the network preference/customer migration deal between Telstra and NBNco. however, it’s also clear that both events are closely intertwined because the deadline for structural separation in the legislation reflects the timing of the customer migration deal in the private contract.
however, if you assume that Telstra has to structurally separate no matter what, then why does MT feel the need to justify the workability of his plan on the basis that Telstra will “voluntarily structurally separate” (if they are already mandated to do so by law)?
the only logical explanation is that the dissolution of NBNco necessitates repealing of the NBN legislation and this somehow affects the legislative requirement for Telstra to structurally separate (because the specific means of separation as envisioned in the legislation is affected by the dissolution of NBNco).
in terms of the private contract, the termination of the NBN roll-out potentially triggers the $500mln penalty clause. in terms of the legislation, the dissolution of NBNco directly impacts on Telstra’s migration plan to achieve structural separation by 2018 and has financial and economic consequences for the entity. perhaps Telstra has some legal avenue to seek compensation or legal redress from the Government unless it is absolved from the structural separation requirement, given how closely the two issues are intertwined (i.e. Telstra structural separation and NBNco existence).
…”up until recently, neither political party really cared about “structural separation”…
I’ve seen you come up with some crap in your time on Delimiter, but this is one of the largest pieces of turd ever to spill forth from your keyboard…
The structural separation of Telstra was actually begun in the late 1990’s – with the commencement of the separation of the network arm of the business into an operation called “NDC” – “Network Design and Construction”, in preparation for its sale, separately from the rest of Telstra.
Somewhere along the line, it was decided to sell the entire company as a whole, and the process was stopped.
Keating tried to separate it. Howard tried to separate it. Many plans to do so have been hatched over the years, but nobody had the guts to see it through.
Until now.
*The structural separation of Telstra was actually begun in the late 1990′s – with the commencement of the separation of the network arm of the business into an operation called “NDC” – “Network Design and Construction”, in preparation for its sale, separately from the rest of Telstra.*
what does that have to do with the structural separation of “network ownership” from “retail operations” in order to the prevent the “wholesale arm” from favouring the “retail arm”?
*Somewhere along the line, it was decided to sell the entire company as a whole, and the process was stopped.*
i.e. no structural separation. if i recall correctly, the privatisation of Telstra was a bi-partisan affair – if either side of politics genuinely believed in structural separation, Telstra wouldn’t have been sold as a vertically-integrated entity.
*Keating tried to separate it. Howard tried to separate it*
……and Mick Jagger “tried” to give up sex, drugs and rock’n’roll.
*Many plans to do so have been hatched over the years, but nobody had the guts to see it through.Until now.*
a rather nebulous statement.
this is what Conroy said in Senate Estimates in June ’09:
“I have certainly never advocated structural separation, I do not believe. I think that is a true statement. What I have said, though, is that the existing regime is not satisfactory.”
*I’ve seen you come up with some crap in your time on Delimiter, but this is one of the largest pieces of turd ever to spill forth from your keyboard…*
that’s rather impolite ;)
what does that have to do with the structural separation of “network ownership” from “retail operations” in order to the prevent the “wholesale arm” from favouring the “retail arm”?
Umm, plenty. NDC was to be sold to another party, umm, making it, umm, separate. Hopefully I’m speaking slowly enough for you.
that’s rather impolite ;)
But true… :o)
the three “umm’s’ says it all….
and to the small minority who may be confused by MW’s “opinions”:
the spin-off of NDC, which is an internal, specialist “design & construction” division WITHIN the “networks business” (which actually went through), has NOTHING to do with the structural separation of “network ownership” from “retail operations”.
*:o)*
that’s an impressive Pinocchio’s nose you got there.
The fact that you believe your own crap is hilarious.
@Micheal Wyres
“Keating tried to separate it. Howard tried to separate it. Many plans to do so have been hatched over the years, but nobody had the guts to see it through.
Until now.”
Telstra separation dated for a deadline of July 2018 with at least two elections before then is now?
excellent point.
which just goes to show that there is no real political desire or impetus to have the incumbent separated. the current mechanism of “structural separation” as provided for in NBN legislation is just a convenient by-product of forcing Telstra to shutdown its copper wholesale operations to give NBNco any chance of survival.
@alian
The law as it stands now is for Telstra to separate. Spin it any which way you want – it doesn’t change the law.
Spin it? – so what do you think it it is going to achieve in the post July 2018 era of the Australian communications landscape?
Yes…”spin it”…you can read I can see…
…and no, I won’t be answering your pointless question – because the date is irrelevant.
The date is totally relevant seeing that by 2018 you would hope the new monopoly the NBN Co is out of the longest pilot stage in the history of all pilots, and there will be two elections in between.
If you want avoid commenting on what structural separation means to you by all means do so, my strong view is that what it means to the industry by 2018-2019 is 2/5 of sweet FA.
Well of course. The election is years away, why would they bother with trying to digest a plan when they have the NBN to deal with right now?
To clarify, that doesn’t mean Turnbull shouldn’t be trying to release or develop a policy, just that him getting into the gritty details with the relevant ISPs is a bit of a waste of resources.
But of course Optus had a plan in which it was the major partner with the Coalition and Howard and Coonan before the 2007 election called OPEL.
They backed the wrong political horse, so understandably waiting for a post election result is a understandable attitude born from a bad experience.
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