Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Hansard source

Thank you. I accept your admonishment. As I said, the legislative flaws are compounded in the ministerial determinations, because the legislative framework for the government’s operational separation regime does not deliver adequate structural reforms. The regime requires a high level of government involvement in Telstra’s day-to-day activities. This is the Liberal Party. These are the free market gurus. They have the minister interfering in the day-to-day business operations of a company that will soon be 100 per cent privatised—that is, if they can ever find anyone to buy it, given the shambles that they are involved in in trying to flog it off to the poor unsuspecting small shareholders of Australia as the price plummets towards $3.50 next week.

The model is forced to attempt to deliver equivalence through rules of conduct rather than by addressing incentives. As such, an examination of the ministerial determinations reveals a series of plans, compliance auditing and reporting obligations—mountains of pointless paperwork and bureaucracy for a company that is already drowning in it. The government has estimated that this complex, rules based approach to operational separation will cost the ACCC $4 million to $5 million per year just to monitor. The poor ACCC will have to spend $4 million to $5 million to monitor this farce. That is the government’s own calculation. In contrast, an effective two-way structural split has been estimated to involve monitoring costs of only $1 million to $2 million per year. That is right: the logical, sensible alternative would mean half the cost to the ACCC. So much for abolishing red tape Liberal Party style.

Even worse, somewhere amongst the jungle of customer service plans and compliance programs, the core principle of the operational separation regime—equivalence of service for competitors—has been lost. The extent to which the principle of genuine equivalent service has disappeared from these determinations is clear from the comparison of this regime with the operational separation model advocated by the ACCC. Last year, the ACCC argued that robust operational separation was ‘critical to ensure the effectiveness of the telecommunications access regime’.

Graeme Samuel described effective operational separation as requiring Telstra to reorganise its internal affairs and operate as if it were running two or more discrete businesses. He advocated ‘a clear internal separation between a retail business supplying services to end users and a network business supplying wholesale services to both the Telstra retail business and its competitors’.

To this end—and this is where government senators should pay very close attention—the ACCC said:

Internal separation between a ‘retail business’ supplying services to end users and a ‘network business’ that would supply wholesale services to all third party access seekers, would enable third parties to obtain prices and service levels that are effectively equivalent to those that are provided to the Telstra retail business.

That is what it is supposed to be about. Ed Willett, Deputy Commissioner of the ACCC, stated that this internal separation was critical and that operational separation could not be delivered merely through theoretical commitments to provide equivalence.

The ACCC focused on the incentive structure that the operational separation regime should create. To this end, the ACCC wanted an operational separation regime that required the separated units to: deal with each other on a commercial arms-length basis, including explicit pricing, invoicing and billing; maintain fully separate accounts and reporting systems capable of capturing all transactions between the businesses; and maintain separate management and staff.

Graeme Samuel stated that the only difference between operational separation and structural separation should be the issue of ownership. However, when we look at the operational separation model created by these determinations, it is clear that none of the ACCC’s requirements have been satisfied. The regime does not require Telstra to reorganise its operations as though it were operating two distinct business units. There are not even any internal transfer prices, let alone arms-length internal contracts between business units. Instead, the regime requires Telstra to maintain a pricing schedule of what it charges itself for bottleneck services. Telstra would still enjoy the freedom to charge differential prices to its wholesale customers. The only restriction would be that it would be required to rebenchmark its internal prices to actual prices periodically.

In the same vein, there is no requirement to establish separate profit-and-loss accounts and balance sheets for the separated business units. In fact, the current regime has more in common with a discredited accounting separation regime than with the ACCC’s proposed model for operational separation.

The list of designated services that would be subject to operational separation is just as bad. The list of designated services does not include wholesale line rental, the service for which the ACCC currently has a competition notice on foot, and the definition of ADSL services can be easily circumvented by Telstra. All of these failures were compounded when the government arrogantly rammed through these determinations with next to no opportunity for industry consultation.

This whole process for the development of operational separation has been rushed from day one. We had a one-day inquiry into legislation made available to the committee only two days earlier, and a committee stage for the bill that was filibustered by government senators—and you were one of the worst offenders, Senator Ronaldson—and then guillotined by the government. Drafts of these determinations were published late on Wednesday, 14 December, in the afternoon, with responses from industry required just two business days later, on the following Monday, 19 December. This is consultation arrogant Howard government style. Mr Howard’s government gave two days. There was Thursday and Friday, and then it had to be in on Monday. The determinations were then finalised by the minister three days later, on December 22. I seek leave to incorporate the rest of my speech.

Leave granted.

The incorporated speech read as follows—

Even the Department of Communications conceded at Senate estimates that the consultations over these determinations were held over ‘a very truncated timeframe.’

One could have been forgiven for thinking that there must have been a desperate need for the government to ram these determinations through in order to have the regime up and functioning as soon as possible.

Unfortunately, the need to finalise these determinations turned out to be so desperate that the Minister proceeded to wait six months to approve Telstra’s operational separation plan, prepared under this determination.

And of course we’re still waiting to see the pricing equivalence regime.

As a result of these flaws it seems likely to that the government’s proposed model for Operational Separation is destined to fail to achieve its goals.

I note that at least one member of the Government has come to the same conclusion.

That person is Paul Neville, the chair of the Government’s back bench communications committee.

Michelle Grattan, reports in today’s Age that Mr Neville believes there must be a stronger transparency in Telstra’s wholesale costing—that is, the price at which it sells its services to competitors.

Mr Neville is quoted as saying:

“You can’t have a competitive regime where one party can cross-subsidise its services, ostensibly to the advantage of rural and regional interests, but in reality to the death of competition. This situation in the end will harm country areas”.

Mr Neville is fully aware of Senator Coonan’s operational separation regime.

His comments today are nothing less than a vote of no confidence in it.

National Party senators should take note.

The most experienced and knowledgeable person on communications matters in the National Party believes that the Government’s regulations will harm country areas.

Back in June 2005, the then leader of the National Party, Mr Anderson stated that ‘the genuine and robust operational separation of Telstra’s wholesale and retail arms’ was part of ‘the price of the National’s agreement for the sale of Telstra’.

Well not for the first time, the Nationals have been dudded by the Liberal Party.

It is not too late however for the National Party to show some spine and try and hold Senator Coonan to at least part of the deal.

Senator Boswell, Senator Joyce and Senator Nash can vote with Labor today and send the Minister back to the drawing board and start again.

The government needs to start from scratch and ask itself, is the rationale for this legislation genuine?

If so it should introduce legislation that adequately addresses the problem.

If not, it should withdraw the regime altogether.

It should not however, introduce half-baked legislation that will achieve nothing more than creating an additional cost burden on Telstra.

If the government is not going to do operational separation properly the country would be better off if it didn’t do it at all.

Because the burdens of the government’s operational separation regime on Telstra are real.

These determinations will impose a significant compliance burden on Telstra.

They will impose layers of bureaucratic controls and reporting requirements on the company.

All for a regime that will achieve nothing.

As it stands the government’s operational separation plan is nothing more than a marketing document.

Its real purpose is to create the impression that the government is interested in improving the competitive process in the Australian telecommunications sector without actually making any changes that will substantively benefit the sector and the country.

Alan Kohler got it right when he predicted in July of this year that the government’s operational separation regime would be “No more than a renaming of “accounting separation”.

He was spot on when he predicted that the government would wimp it and its operational separation regime would not include separate “balance sheets or any internal accountability for a return on the assets”.

And he was on the money when he said that “Investment analysts would quickly see through this and not discount the share price.”

This is of course exactly what has happened.

I can understand Telstra’s frustration with regulation like this.

Regulation that treats the company as little more than a plaything to be pushed and twisted in order to keep up the Minister’s appearances.

Regulation that doesn’t learn from past mistakes.

Regulation that is destined to be revisited in the not to distant future when it becomes painfully obvious that it is not addressing the real policy problems it is designed to remedy.

Unfortunately, the government’s model for operational separation has proven Telstra Chairman Don Mcgauchie right when he said that “Operational Separation really is a theoretical piece of nonsense, and it is whatever you want it to be, it is whatever you make it. “

In the form created by these determinations, operational separation is a nonsense.

Labor believes that these determinations are so flawed that they ought to be disallowed by the Senate and re-drafted by the Minister so as to at a minimum satisfy her own objectives for operational separation.

Labor believes that there is a need for genuine and robust operational separation.

These determinations are however nothing more than an expensive sham, a product of an arrogant and lazy government that couldn’t be bothered to get it right.

This regime won’t work and it should be fixed or scrapped all together.

These determinations should be disallowed and the Minister should start from scratch on the regime.