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Telstra forced to split -

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Telstra forced to split

Broadcast: 15/09/2009

Reporter: Michael Rowland

The Federal Government is forcing Telstra to split itself in two, to promote greater competition in
the telecommunications industry.

Transcript

TONY JONES, PRESENTER: Telstra's been asked to split itself in two to foster greater competition in
the telecommunications industry.

The demand for the carve-up comes from the Federal Government as it lays the groundwork for its $43
billion-dollar National Broadband Network.

With the details, our communications reporter Michael Rowland.

MICHAEL ROWLAND, REPORTER: The Communications Minister is ringing in big changes for the country's
phone and internet giants.

STEPHEN CONROY, COMMUNICATIONS MINISTER: Today, we are delivering historic reforms in Australia's
long-term national interest.

MICHAEL ROWLAND: They don't happen to be in Telstra's short-term corporate one. In the biggest
shake-up since it was privatised, Telstra has been told to split itself in two, to separate its
wholesale arm, the owner of Telstra's copper telephone lines and other networks from the company's
retail business. And if Telstra doesn't do it, the Government will.

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.

MICHAEL ROWLAND: And the news gets even worse for Telstra: it'll be forced to choose between
holding onto its lucrative 50 per cent stake in pay TV group Foxtel or gaining access to critical
wireless spectrum.

MARK MCDONNELL, TELECOMMUNICATIONS ANALYST: It would certainly lead to a more competitive outcome
and would start to break up some of the economies of scope that Telstra enjoys as an integrated
business.

MICHAEL ROWLAND: Telstra's share price sank on the announcement; so did the heart of its new chief
executive. In a statement, David Thodey says, "While we're disappointed the Government has felt it
necessary to introduce this legislation, Telstra remains committed to working with the Government."

NICK MINCHIN, OPPOSITION SPOKESMAN: It raises huge uncertainty for Telstra's nine million
customers, its 1.4 million shareholders, its 30,000 employees.

MICHAEL ROWLAND: Telstra's competitors are doing their best to hide their glee.

MAHA KRISHNAPILLAI, OPTUS: We've had 12 years of delays and frustration and litigation throughout
the telco sector. What the Government has done today is drawn a line in the sand.

MATT HEALY, MACQUARIE TELECOM: Well we see that in competitive markets there is greater choice of
service and also lower prices. So when some of the functional separation changes were brought into
the market in New Zealand and in England, we saw significant lowering of prices and more choice for
consumers.

MICHAEL ROWLAND: The legislation is the latest and most direct challenge to Telstra's market
position as it ponders how to deal with the proposed National Broadband Network. The
fibre-to-the-home blueprint threatens the abundant revenue stream provided by its Australian-wide
network of telephone wires.

STEPHEN CONROY: Well as we transition from the end of the copper era to the fibre era, we're
offering an opportunity to change the structure of the industry. And Telstra have a fabulous
opportunity to decide the future of the company, whether they want to be based in what is the end
of the copper era or they want to move into the fibre and wireless future. So that's the
opportunity that is on the table for Telstra and other telcos as part of the NBN arrangement.

MICHAEL ROWLAND: It may be reluctant to carve itself into two, but Telstra is also keen to improve
its battered relationship with the Federal Government.

MARK MCDONNELL: There's also, of course, the consideration from their point of view that some value
must be placed on putting an end to the ongoing disruption to their business from continuing
difficulties with governments.

NICK MINCHIN: I think the Government should accept the bona fides of the new management at Telstra.
David Thodey, to his great credit, has brought a tremendous new culture to Telstra. He wants to
cooperate with the Australian Government and the Australian people.

MICHAEL ROWLAND: "Don't be fooled," say Telstra's smaller competitors.

TESLSTRA COMPETITOR: The problem that we've had in the past, the problem that we still have today
is that the level - the playing field is so uneven, Telstra has so much market power, that other
people can't really compete on a sustainable basis. Telstra can, frankly, take people out of the
market by exercising their market power in a number of ways.

MICHAEL ROWLAND: Telstra's days as the industry's 600 pound gorilla are fast coming to an end.

Michael Rowland, Lateline.