[Chapter-delegates] Structural separation in Australia

Fri Jun 3 05:08:02 PDT 2011

HI Joly (and Paul and Everyone)

I realise I am being a bit of a pedant, but structural separation is NOT what is happening if you stick to what structural separation means in other contexts.  Specifically, structural separation means the breaking up of a corporate entity into two or more corporate entities - each with their own Board, executive etc.  That is NOT what is happening here.

In the most recent spate of legislative instruments released by the Government (about which the news stories were written) the Explanatory Statement for the relevant instrument reads as follows;

Consistent with the market structure that will be delivered through the NBN, the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Act 2010 inserted a new Part 33 in the Telecommunications Act 1997. The new Part creates a framework for Telstra to implement functional separation or to voluntarily structurally separate by submitting a structural separation undertaking (SSU) which will be subject to review by the Australian Competition and Consumer Commission (ACCC).

Under Part 33, structural separation is defined to mean that after the designated day, which is 1 July 2018 or a later day specified by the Minister, Telstra will not supply fixed-line services to retail customers in Australia using a telecommunications network over which Telstra is in a position to exercise control unless that network or those services have been exempted in an instrument made under Part 33.

In other words, on NBN Co's completion of the NBN (estimated to be by 2018), Telstra will no longer be able to both own or control a local access network AND supply fixed line services over that local access network.  The local access network will have been build and local access services will be supplied by NBN Co on an open access wholesale only basis to others, who then supply a retail product to customers.  Indeed Telstra will, under other legislative instruments and arrangements, decommission the existing copper. However, Telstra  will still be a vertically integrated company that both owns infrastructure over which it supplies services (mobile services) AND a supplier of those services. 

So what is being called 'structural separation' is, in reality a form of functional separation.  Paul cites the NZ model.  Also have a look at the BT model (and the 21 pages of Undertaking to the regulator) that looks like a genuine form of at least functional separation.  

Clearly, the fixed line local access network has been the 'bottleneck facility" in competition terms which Telstra has used to deny (or at least delay)  other service providers access to  fixed line customers. That is a very significant change in competition terms.   BUT mobile services are a  huge growth area and Telstra will still own significant infrastructure from which it can supply services - hopefully with the infrastructure part of Telstra at genuine arms length from the wholesale and retail parts of Telstra. (as I said in an earlier email, Telstra is supposed to have functionally separated six years ago - but there was not the significant structural change that one should expect from real functional separation and, as a consequence, little change in the anti-competitive behaviour)

As I keep saying, watch this space

Holly

On 03/06/2011, at 6:29 PM, Paul Brooks wrote:

> I'll jump in here as well as Holly, since its Friday....
> 
> On 3/06/2011 12:45 PM, Joly MacFie wrote:
>> 
>> 
>> So, am I correct that Telstra will still own the pure real-estate and structure
>> assets, and still be in the mobile business?
> 
> yes...
> 
>> Rent ducts etc at regulated rates to NBNco who will own its own fiber and sell
>> access to RSPs
> 
> yes...
> 
>> - including backhaiul so that hey don't even have to have kit at the hed-ends?
> 
> unknown. Telstra will become an RSP in its own right, so will likely have its own kit
> at the head-ends (which NBN Co are calling PoIs, Points-of-Interconnect, which NBN Co
> will mostly be housing inside existing Telstra exchange buildings). Telstra will
> obviously be providing its own backhaul to itself, but Telstra has not announced
> anything about providing a backhaul service at the wholesale level for other RSPs to
> use. Neither has anyone else, however anecdotally I expect there will be at least a
> couple of organisations that will step up to this role in due course.
> 
> NBNCo itself is prevented from providing backhaul, so that a competitive backhaul
> market amongst multiple longhaul networks develops.
> 
>> And the separation we are talking here is thus between the Telstra real-estate and
>> the NBNCo service? Or what
> 
> the intended model seems to be similar to the New Zealand model - three entities,
> Telstra Retail, Telstra Wholesale and Telstra Networks. Telstra Networks sells at arms
> length to Retail and Wholesale. Still working through the documents released yesterday
> to understand the intentions properly.
> 
> Telstra Retail and Wholesale will also buy NBN services from NBNCo, a separate fourth
> entity in the mixing-pot.
> 
>> 
>> And these RSPs also be content providers a la cable companies? Triple play? and
>> other "managed services".
> 
> An RSP can provide any service - including content services, PayTV (the NBN is being
> built with IP-multicast functionality to assist with TV), telephony (The NBN terminal
> has twin SIP IP-telephone clients built in for RSPs to use), and more conventional
> data applications including Internet.
> 
> 
>> 
>> BTW what about incumbent non-telstra cable tv providers - are they being
>> disintermediated by all this, forced to become RSPs, or aren't there any to begin with?
> 
> Pretty much nonexistent in practice. Only Telstra/Foxtel is being forced to become an
> RSP (and be compensated for it).
> The largest cable TV provider is Foxtel, 50% owned by Telstra, and Telstra owns the
> HFC cable network assets outright.
> The Optus cable network distributes Foxtel programming for its PayTV service - and
> Internet and PSTN under its own brand.
> Telstra/Foxtel are being permitted to retain cable TV services on the cable network,
> but are being required to agree to move the broadband services off the cable on to the
> NBN fibre.
> 
> Other cable networks like Optus and smaller players aren't being required to move
> anything to the NBN, but would probably quite like to be paid to do so like Telstra
> is, since over time the customers/services are likely to move over through natural
> attrition in any case!
> 
>> 
>> As far as the level 2/level 3 thing goes one has to feel, whatever one's partiality
>> to Open Internet/IP it does give the wider potential for innovation. When I talked
>> of level 1 above I was thinking that maybe - like Allied Fiber here in the US - they
>> were going to rent out actual strands with no service at all. As long as there is
>> sufficient choice in providers surely Open Internet will always be in demand and
>> available - but you can't force it on people. Some people liked walled gardens.
> 
> Layer 1 dark fibre was deemed to be a non-starter, as it is impossible to do
> competitive open access with a shared PON infrastructure, and too expensive in
> transceivers to do anything direct. With the vast expanses that have to be covered,
> and the need for every possible service provider to install amplifiers, transceivers
> etc it would be a futile exercise in pointless infrastructure multiplication with a
> customer base too small to achieve scale economies.
>> 
>> As far as the US goes we see the phone companies -  having achieved back door
>> deregulation as the cable companies got in to the "information service" business -
>> spinning off their last mile copper, which is rotting in the ground, to binge on
>> spectrum and towers. They are now happily contemplating "segregating" the wireless
>> market with caps and tiered pricing so as to manage demand, not to mention charging
>> content and service providers - hence the pact between Google & Verizon. The
>> wireline business is in the process of being ceded to the cable companies, who are
>> doing there best to get leverage with content plays.  Could be argued that if we
>> hadn't forced divestiture down their throats 30 years ago, the telcos might have
>> done a better job of building out the promised fiber, rather than spending their
>> effort on recombining and the bait and switch to DSL. With one company we'd be in a
>> better position to push for structural separation here. As it is it's a total
>> non-starter.  The only hope is, that we'll be in a leapfrog position after everyone
>> else gets ahead :)
> 
> Sounds like another example of "Be careful what you wish for - it might just come true" !
> 
> P.
> 
> 
> -- 
> Paul Brooks
> Treasurer
> Internet Society of Australia
> www.isoc-au.org.au
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Kind regards

Holly Raiche
Executive Director,
Internet Society of Australia (ISOC-AU)
ed at isoc-au.org.au
Mob: 0412 688 544
Ph: (02) 9436 2149

The Internet is For Everyone

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