Australia announces shock Telstra break-up

SYDNEY: Australia on Tuesday announced shock plans to split up telecoms giant Telstra in a bid to break its market stranglehold before spending 37 billion US dollars on a national broadband network.
Communications Minister Stephen Conroy said Telstra, part-owned by the government and subject to strict regulation, would be barred from acquiring new wireless spectrum unless it voluntarily split its retail and network arms.
"The government will require the functional separation of Telstra, unless it decides to voluntarily structurally separate," he said.
Conroy said successive governments had let the former state-owned monopoly keep too much power, even after competitors were allowed into the market in the 1990s.
"After 10-15 years of competition, we've still got 90 percent of profits in the sector made by one company," he told Sky News, describing the situation as "market failure."
Under draft regulatory reforms introduced to parliament Tuesday, Telstra will not have access to further wireless spectrum unless it restructures and sells off its cable infrastructure network and stake in Foxtel pay TV.
But it may be allowed to keep the assets if it comes up with an alternative structural change acceptable to the government and competition regulators.
Conroy said Telstra could not be allowed to retain its market dominance when Australia moves into a new communications era with a 43 billion Australian dollar (37 billion US) high-speed Internet network spanning the vast country.
"At the moment they have copper (fixed line), they have mobile and they have Foxtel -- they're in every platform and they want to move into the new one," he said.
"We're saying we need to find a way to create more competition so Australians as a whole are better off," he added, saying customers were "screaming out" for fast, affordable broadband.
Telstra said it was disappointed at the move but still wanted to work with the government on the 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," chief executive David Thodey said.
Investors reacted by dumping Telstra's shares, whose price slumped 4.31 percent to 3.11 dollars at the stock exchange close.
Conroy said the reform, which will help end the historic advantage Telstra has enjoyed over rivals such as Singapore-owned Optus, was long overdue.
"For years industry has been calling for fundamental and historic micro-economic reform in telecommunications," Conroy said. "Today we are delivering this outcome in Australia's long-term national interest."
Conroy said he was expecting "hard-nosed negotiations" with Telstra, which has had a tumultuous relationship with the government since going mostly private in 2006.
Chief executive Thodey has been working to improve relations with Canberra since taking over in May from his controversial predecessor Sol Trujillo, who cut 10,000 jobs and oversaw a fall in the share price.
Analysts said the government, which retains a 12-percent shareholding in Telstra, had left the company with little choice but to restructure.
"It's so-called voluntary separation, but it's volunteering with a gun to the head," BBY analyst Mark McDonnell told Dow Jones Newswires.