Splitting Telstra's difference

Sometimes it is obvious that Telstra is operating in a parallel world to the one inhabited by just about everyone else in the telecommunications industry.

In Telstra's world, the division called Telstra Wholesale operates in a transparent manner and treats external customers on the same basis as its own retail units.

This view of Telstra Wholesale pervades the entire organisation from the chief executive down. It is a view that has not changed with the appointment of David Thodey as CEO to replace Sol Trujillo.

It is a view of the world that has shaped the company's interaction with government, regulators and competitors and continues to do so.

The idea that Telstra is actively helping customers connect to Telstra's network was reflected in comments made today by the new head of Telstra Wholesale Paul Geason.

He said he would be "working hard to ensure our wholesale customers continue to take advantage of the many opportunities that access to our reliable, world class networks offers them”.

The other view of Telstra Wholesale comes from a parallel world inhabited by Telstra's competitors and the Australian Competition and Consumer Commission.

In this world, the regulatory framework allows Telstra Wholesale to significantly constrain competition, frustrate access seekers, game the laws and not provide equivalence of access.

Proof that Telstra has acted in this way can be found in the affidavits, statements of claim, letters of complaint and regulatory rulings that have followed from the hundreds of access disputes over the past decade. The latest excuse for not providing timely provisioning of access to Telstra exchanges is a lack of resources in Telstra Wholesale.

It is almost as if there are two Telstra Wholesale businesses. They are as far apart from each other as black and white.

But judging from a speech today by ACCC commissioner Ed Willett, the two parallel worlds are about to come crashing together with significant consequences for Telstra.

The Willett speech to the Broadband Australia 2009 conference complements a speech by ACCC chairman Graeme Samuel on May 21.

Taken together, the two speeches spell out where the ACCC sees the industry heading and where the ACCC sees itself heading as the government rolls out a National Broadband Network.

The speeches provide some heavy hints as to what is in the paper the ACCC submitted to the federal government's review of telecoms regulation.

The ACCC paper that is likely to strongly influence Broadband Minister Stephen Conroy when he instructs legislators to prepare new laws for regulating telecoms. Those laws will need to be ready by August if they are to pass parliament this year.

It is clear from the Willett speech that the ACCC looks at the regulatory reform task from three angles.

The first is that the regulatory system put in place with deregulation in 1997 is a failure. At the centre of that failed system is Telstra Wholesale, which has the incentives and ability to discriminate against access seekers.

That leads to the ACCC's view of an appropriate regulatory regime. It believes it is essential to break apart the integrated retail and wholesale businesses in Telstra.

It thinks that accounting separation has been ineffective in promoting competition and has done nothing to stop Telstra limiting competitive forces and frustrating access seekers.

Reading between the lines of the speeches by Samuel and Willett, the ACCC will put forward strong arguments in favour of functional separation of Telstra's network.

There are several international examples of functional separation but the one that is regarded as the most successful is that undertaken by BT Group in 2005.

BT put its network into a separate business called Openreach, which is required to deal with all communication providers in a fair and even handed way. Its chief executive, Steve Robertson, operates independently of the BT Group CEO Ian Linvingstone.

Openreach has different employee incentives to those of BT Group employees. The reward structure is linked solely to the performance of Openreach. Its progress and performance is monitored by an independent Equality of Access Board.

Breaking apart Telstra's integrated business model is part of an ACCC plan to encourage more vigorous competition in the eight year transition period until the NBN starts operating.

It was the ACCC's concern about maintaining regulatory certainty during the transition period that prompted last week's release of a draft decision proposing to extend the declaration of access services for five years.

A third regulatory regime that the ACCC is concerned about is the one that will be put in place for the NBN.

Australia has not had to think about a regulatory system for a structurally separated network such as the NBN Co.

As Willett said today, the critical issue will be ensuring that the NBN Co offers an access service that is technologically neutral and flexible to support a wide range of existing and future applications and services.

The ACCC submission to the regulatory review will be released on the website of the department of broadband, communications and the digital economy on Friday along with more than 100 other submissions.

The submission from Telstra will be as closely scrutinised as the one from the ACCC.

Just don't be surprised if it comes from a parallel world.