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Telstra facing forced separation -

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ELEANOR HALL: To the drama in Canberra, where the Federal Government this morning announced the
biggest changes to Australia's telecommunications sector in more than a decade and effectively put
a gun to Telstra's head.

The Communications Minister Stephen Conroy is forcing Telstra to separate its wholesale and retail

He says he wants Telstra to undertake the changes voluntarily but if it chooses not to the
Government will impose new rules on the way it operates.

The Federal Government is trying to dress this up as a win for Telstra, saying it will promote
competition and will be good for the telco and good for consumers.

But it is unlikely those in the boardroom of the telecommunications giant are seeing it that way
right now.

In Canberra Samantha Hawley reports.

SAMANTHA HAWLEY: The biggest proposed changes to the nation's telecommunications sector since 1997
were delivered by the Communications Minister Stephen Conroy this morning.

STEPHEN CONROY: The measures in this legislation will finally correct the mistakes of the past.

SAMANTHA HAWLEY: The minister is taking Telstra head on. He's warning the telecommunications giant
to voluntarily split its wholesale and retail arms.

STEPHEN CONROY: It is designed to promote competition by addressing the underlying incentives for
the incumbent to favour its own retail businesses over its wholesale customers.

SAMANTHA HAWLEY: If Telstra doesn't play ball this is the Government's threat: it will stop the
telecommunications giant from acquiring additional wireless broadband spectrum unless it
structurally separates.

The Government could also force Telstra to divest in half of its cable network and in its interests
in Foxtel.

But it's all good news for Telstra and its shareholders, according to the minister.

STEPHEN CONROY: Look, we believe that we can reach a win-win for Telstra shareholders and
management and the Telstra company and the Australian people.

There's always been an inherent conflict when the former government decided to sell a company into
the market that was a fully integrated company.

The Productivity Commission, most experts at the time said, "for goodness sake, you must make this

Well as we transition from the end of a copper era to the fibre era we're offering an opportunity
to change the structure of the industry, and Telstra have a fabulous opportunity.

SAMANTHA HAWLEY: It's actually a big threat from the Government but Senator Conroy is confident
he'll get Telstra on board.

STEPHEN CONROY: There'll be some hardnosed negotiations. I do not for a moment want to suggest
there isn't going to be some hardnosed negotiations.

We've got Mike Quigley, we've got Mckinsey's, we've got some seriously well-briefed and
understanding telco analysts who are working for NBN Co. and Telstra, well they speak for
themselves, they're as hardnosed as they come.

So this will not be an easy commercial negotiation but what we're seeing is a change in attitude
from Telstra.

They've just - they've taken the view that what the Government is trying to do is a good thing.
We're trying to modernise the telco industry.

SAMANTHA HAWLEY: The proposed changes will also give more power to the competition watchdog the
ACCC and the communications minister to protect consumers.

And the Government even wants more say over the location of payphones.

STEPHEN CONROY: Telstra will also be required to provide payphones in accordance with new criteria
and the Australian Communications Media Authority will be given the power to direct whether
payphones can be removed.

SAMANTHA HAWLEY: The changes are in an update to the Telecommunications Act which will be tabled in
Parliament today.

The Government hopes to have it passed by the end of the year

STEPHEN CONROY: And I believe that, as I said, that Telstra are very constructively engaged in
discussions with us already. We're not going to be talking about them publicly.

We're acknowledging they're happening so people understand they are actually happening but neither,
I believe, Telstra or myself will be commenting on them as they go along, despite many phone calls
from all of you to me and to Telstra.

I'm sure now, but we will not talking about them, we will be engaged in those discussions.

ELEANOR HALL: That's the Federal Communications Minister Stephen Conroy ending that report from
Samantha Hawley in Canberra.