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Broadband services

Telstra Faces Breakup

The Australian government has proposed the breakup of the country's national carrier, Telstra Corp. Ltd. (ASX: TLS; NZK: TLS), as part of a major overhaul of telecom regulation and policy.

The controversial proposals require the formerly state-owned operator to separate its retail business from its network operations and wholesale activities.

In a statement, Stephen Conroy, Minister for Broadband, Communications and the Digital Economy, says: "It is the Government's clear desire for Telstra to structurally separate, on a voluntary and co-operative basis."

The catalyst behind the government's proposal is Australia's National Broadband Network (NBN), an "open network" initiative that's in the early stages of development. Separating Telstra's retail operations would enable it to participate in the NBN initiative on an even footing with other service providers. (See Australia Unveils $31B FTTP Plan and Quigley Named NBN Chief.)

It should also put an end to the long-running claims from Telstra's competitors that the incumbent has not been as cooperative as it might have been in allowing them access to its local access network.

To that end, Telstra must provide the same prices and terms to non-Telstra wholesale customers as it does to its own retail business, and ensure that this is done in a way that is transparent to the regulator.

The government is further targeting the integration of Telstra's businesses, most notably demanding that it should not own a hybrid fiber and coaxial cable network, or maintain its 50 percent share in cable TV company, Foxtel.

However, these requirements could be rescinded at a later date if the government sees fit, reinforcing the feeling that this regulation is designed to ensure the desired structure for the NBN above anything else.

Despite the promise of a cooperative approach, the government is wielding a pretty big stick, as Telstra won't be allowed any more mobile spectrum until the separation is completed.

Telstra has one of the world's most advanced 3G networks, supporting HPSA+ speeds of 21 Mbit/s and in the process of developing 42 Mbit/s capabilities. It's not fast-tracking LTE in the same way some other operators are, but, given that Telstra has previously stated such extensive separation would take five years or more to implement, it would have no choice but to wait for LTE, for which it would need new spectrum.

Telstra's CEO David Thodey articulated the carrier's disappointment at the government's proposals. "It is Telstra's view that many aspects of this package are unnecessary and need never be implemented if a mutually acceptable outcome can be reached on the National Broadband Network."

Thodey also says that Telstra is "willing to discuss options around separation," reinforcing his statement made at the company's annual results announcement last month that "nothing was off the table," including structural separation.

However, at that time he did warn it would come at a price, and for the type of separation now required the cost would be about A$1 billion (US$843 million). (See Telstra Puts AU$1B Price on Separation.)

— Catherine Haslam, Asia Editor, Light Reading

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