Government's approach to break up of Telstra: E-Alert September 2009

The Government has released its much anticipated legislative reform package implementing dramatic changes to the telecommunications sector. The new laws impose tougher than expected restrictions on Telstra's ability to continue to operate in a vertically integrated fashion. At the minimum, and as expected, Telstra will be required to comply with a functional separation regime. However, this regime appears to be at the more rigorous end of the contemplated spectrum.

In addition, the Government has adopted a "carrot and stick" approach in an attempt to force Telstra down a much more radical path towards structural separation. This would require complete separation of ownership and control of Telstra's network from its retail operations. Unless Telstra takes the dramatic steps of:

• divesting ownership of its network assets (i.e. structural separation);
• disposing of its interest in its HFC pay television network; and
• disposing of its interest in Foxtel,

Telstra will be precluded from acquiring any further spectrum which is likely to be required in order to provide wireless broadband services. However, if Telstra submits an acceptable structural separation plan, the Minister has the power to waive the latter two requirements.

Overall the package appears to go substantially further than most commentators had anticipated, both in terms of the rigour of the functional separation regime and the additional incentives to push Telstra towards structural and horizontal separation. No doubt the release of the legislative package will introduce a further round of frantic lobbying and debate over the coming weeks.

Please click here to read the story from ABC online.

For further information please contact Brendan Coady or Craig Ng.