Telstra has branded functional separation of its wholesale and retail businesses as “wasteful” and claims it could cost customers up to $1 billion.
In September, the Federal Government proposed telecommunication industry reforms legislation which would require Australia’s biggest telco to either voluntarily enter into a structural separation of its wholesale and retail arms, or have some form of functional separation be forced upon it. Telstra has since rejected the bill in its current form and is engaged in discussions with the Government to come to an alternative conclusion.
Speaking at Ovum’s Telecommunications Regulatory Reforms Forum 2009 conference in Sydney, Telstra public policy and communications managing director, David Quilty, painted a grim picture should the Government resort to the default option. As an example, he highlighted the shortcomings of the functional separation imposed on the UK’s incumbent telco, British Telecom (BT).
BT was required to overhaul its IT systems which, according to Quilty, incurred significant cost and caused major disruptions to retail and wholesale services. Telstra estimates separation would cost the company between $500 million- $1 billion to revamp its existing IT systems, which will have to be absorbed by its customer base.
“There is no indication [by the Government] that no IT system change is needed... functional separation would require new systems to be [broken apart] and effectively rebuilt,” he said. “In the UK, retail customer levels fell after functional separation with BT was implemented because it had to rebuild system from ground up.”
With the National Broadband Network (NBN) set to be systematically rolled out within the next eight years, Quilty saw separation as an unnecessary disturbance to the industry and telco customers.
“My question overall is why should we do this at this point of time? The industry is actually moving out of the legacy environment. The NBN will provide a structurally separated, wholesale-only access network beginning as early as next year to be rolled out over the next eight years,” he claimed.
“But why at the same time, when the NBN is being built, would one burden an entire industry with a hugely disruptive functional separation that will be rendered obsolete by the time it is finished? It is a wasteful and backwards-looking process.”
Quilty said Telstra was in negotiations with the Government and the NBNco to settle on a mode of structural separation that would satisfy the company’s requirements. These include fair financial consideration should Telstra’s assets be transferred to the NBNco, a locked-in agreement that cannot be altered or appended at ministerial or ACCC description, and the right to continue access to wireless spectrums to develop next-generation products.
The telecommunications reforms legislation is expected to be debated in Parliament in February 2010.