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

I move:

That the following legislative instruments be disallowed:

(a)

the Telecommunications (Operational Separation—Designated Services) Determination (No. 1) 2005, made under subclause 50A(1) of Schedule 1 to the Telecommunications Act 1997; and

(b)

the Telecommunications (Requirements for Operational Separation Plan) Determination (No. 1) 2005, made under paragraph 51(1)(d) of Schedule 1 to the Telecommunications Act 1997.

Labor are moving to disallow the Telecommunications (Requirements for Operational Separation Plan) Determination (No. 1) 2005 because we believe it to be a public relations exercise that will achieve none of its stated goals. The determinations are conceptually flawed and have been introduced without sufficient consultation with an industry that violently opposes them.

Senator Coonan noted last year that she was very resigned to the fact that the Operational Separation Plan will not meet everyone’s expectations, and I am pleased to see that we have drawn Senator Ronaldson out into this debate, because I know from the strength of his public commentary that he could not possibly think that this goes anywhere near far enough to achieving genuine operational separation. So I will be looking for that dive with a half-pike backflip as you explain and justify to the Australian public how you are going to vote for this plan, Senator Ronaldson. Unfortunately, Senator Coonan has met no-one’s expectations. She certainly will not have met Senator Ronaldson’s expectations, if he is being truthful in the chamber.

The object of operational separation to constrain Telstra’s ability to anticompetitively take advantage of its vertically integrated ownership of both natural monopoly network elements and its retail business is a worthy ambition. There is clearly a need for a regulatory response to constrain Telstra’s ability and incentive to use its vertically integrated structure to discriminate against access seekers. Telstra has a long history of employing subtle actions to frustrate competitors’ efforts to exercise their legal right to obtain access to Telstra’s bottleneck infrastructure.

ACCC investigations have consistently found that the fault-handling and connection services offered by Telstra to wholesale residential customers are inferior to those that Telstra provides to itself. That was the ACCC, Senator Ronaldson. Telstra’s use of separate and less reliable computer systems for competitors, coupled with the underresourcing of the business groups providing services to competitors, have been identified as the cause of this discrimination. Obtaining access to Telstra’s exchanges for the installation of DSLAM equipment, as access seekers are entitled to do by law, currently takes a minimum of four months and, in some cases, up to a year—one year, Senator Ronaldson.

Appointments are missed, keys are lost and mystery technical problems are found—not to mention the famous fence built around the exchange here in the Australian Capital Territory to keep TransACT out. You were there, Senator Ronaldson, when the evidence was put before the parliament about it—anything to stymie competitor access to Telstra’s bottleneck infrastructure. Morgan Stanley has even suggested that Telstra’s vertically integrated structure will allow it to significantly delay the financial impact of the ACCC’s recent ULL decision by restricting access to backhaul and exchanges. That is what the market expects Telstra to do. It is the kind of behaviour that operational separation is designed to stamp out.

Operational separation need not impose a significant cost burden on Telstra. You only need to look at the United Kingdom to appreciate this. Since the implementation of operational separation on BT in the UK, BT has experienced eight per cent growth and a two per cent increase in profits. The CEO of BT has stated:

Broadband growth continues to be very strong with the number of BT Wholesale connections now standing at more than seven million. This is pushing the UK to the front of Europe in broadband take up.

The transformation of the business continues to deliver value to our customers and shareholders.

So a more robust operational separation can be a win-win situation for all involved.

However, the model that the government has adopted for its operational separation plan is fundamentally flawed and is doomed to fail—and you know it is doomed to fail, Senator Ronaldson. Labor believes that there are significant problems with the government’s operational separation model, stemming from the regime’s underlying legislation. Under the government’s model—the one that you are going to vote for, Senator Ronaldson—Telstra is separated into retail, wholesale and network businesses. Instead of remedying Telstra’s ability and incentive to discriminate against access seekers, this structure effectively institutionalises differential treatment of wholesale access seekers when compared with Telstra retail.

Under the government model, which Senator Ronaldson will defend shortly, wholesale access seekers will be forced to acquire services from the wholesale business unit, while Telstra retail will be able to acquire services from Telstra network. The fact that wholesale customers acquire different products from a different unit of Telstra to Telstra retail is an open invitation for Telstra to ‘game’ the regime and frustrate the effectiveness of the regime. You and I have both experienced Telstra’s gaming recently, Senator Ronaldson. You were at Senate estimates with me. You sat there and questioned Telstra and listened to the gaming in their answers. You know what I am saying is correct, so do not sit over there and interject: ‘Leave me something to say.’

Eric Abetz (Tasmania, Liberal Party, Minister for Fisheries, Forestry and Conservation) Share this | Link to this | Hansard source

Through the chair!

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

Through the chair, Mr Acting Deputy President. Thank you, Senator Abetz. I accept your admonishment. Senator Ronaldson, you have experienced this, so do not sit there and interject: ‘Leave me something to say.’ What you need to be saying is: ‘You’re right, Senator Conroy. I’m coming to vote with you, because this isn’t good enough.’ Do not sit over there, waving a piece of paper, knowing that every word that I am saying here is right—and you really do know that it is right.

The fact that wholesale customers acquire products from a different unit of Telstra from Telstra retail is an open invitation, as I have said, to game the regime. You know that that is absolutely right. The effect of this mistake has been made clear. This has happened since the decision that it would be forced to have operational separation, Senator Ronaldson. I hope you are listening and not just scribbling away over there. Telstra has systematically gutted its wholesale division in the lead-up to the introduction of operational separation. The company has moved its pricing and marketing, business strategy and business and product development decision-making power from the wholesale division to a central body. It has gutted it; it is just an empty shell now. Telstra had already got around operational separation before you introduced your regulation. There have been suggestions that provisioning, customer care and fault rectification may also be centralised in this way. That is right, Senator Ronaldson. I know you actually care about this. I know you care about how long it takes to get things fixed out there in the bush. Telstra has already taken fault rectification out of the wholesale arm and has moved it into another area. This is a sham.

Julian McGauran (Victoria, National Party) Share this | Link to this | Hansard source

Ever heard of the universal service obligation? The law’s the law.

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

But the laws are open to having a truck driven through them. Senator McGauran, I accept your interjection. Whether you are a Liberal or a National, you sit back and vote for this knowing that they have already driven a truck through it.

Julian McGauran (Victoria, National Party) Share this | Link to this | Hansard source

I’ll be listening to Senator Ronaldson’s speech.

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

He will be agreeing with me and voting for it. As such, today Telstra Wholesale does not control the prices. This is the key for Senator McGauran, who pretends he represents rural Victoria. Even though he has ratted on the Nats and joined the Libs, he still pretends he represents rural Australians, just like Senator Ronaldson says he does.

Julian McGauran (Victoria, National Party) Share this | Link to this | Hansard source

He does!

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

Oh, he does pretend! Whoops, sorry, Senator McGauran! I am sure Senator Ronaldson will accept that interjection.

Gavin Marshall (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

Order! Senator Conroy, please direct your remarks through the chair.

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

I would definitely like that one on the record, Hansard: Senator McGauran saying Senator Ronaldson does pretend he represents rural Victorians. He lives in Ballarat; you live in the city. I think that is a bit rich, coming from Senator McGauran. I will get back to the central issue.

Julian McGauran (Victoria, National Party) Share this | Link to this | Hansard source

Mr Acting Deputy President, I rise on a point of order. Senator Conroy called upon Hansard to pick up that interjection.

The Acting Deputy President:

What is your point of order?

Julian McGauran (Victoria, National Party) Share this | Link to this | Hansard source

The point of order is relevance. What Hansard ought to pick up is the humour and the jovialness in it—and, of course, Senator Conroy misleading the chamber and taking advantage of my interjection. That also ought to be picked up by Hansard. Senator Ronaldson, as we all know, is country born and bred and is one of the most rural representatives in this chamber.

The Acting Deputy President:

Senator McGauran, please resume your seat. There is no point of order.

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

I hope my time was held over while that little rant took place to try to cover his embarrassment. This is the nub, joking aside—although I do accept Senator McGauran’s point about humour. There is a lot of humour in this debate at the moment. I accept that.

As such, today Telstra Wholesale does not control the prices it sells at, does not have sales staff who manage customer relationships and does not have the ability to negotiate new contracts. This is the nub of the issue. All of these critical business functions are now performed from head office, not from Telstra Wholesale. Of course, as a result of the government’s flawed structure for its operational separation regime, Telstra has an incentive to do this. Gutting Telstra Wholesale does not hurt the company, because under the government’s model Telstra’s retail arm acquires its services from the network arm, not from the wholesale arm, which all of the other competitors have to access.

Even worse, this structural flaw is compounded by virtue of the sidelining of the ACCC from the process. This is what you are voting for. Lib or ‘Rat Nat’, it does not matter. You are voting to take the ACCC out of the equation. When Telstra does abuse its vertically integrated structure anticompetitively, the ACCC will not be able to do anything about it. The ACCC has no powers to investigate breaches of the operational separation regime and would be precluded from taking enforcement action with respect to breaches until the minister approved a rectification plan. This is taking the role of the Minister for Communications, Information Technology and the Arts a long, long way. The way in which this legislation sidelines the ACCC in favour of direct ministerial involvement poses a real risk that the operation of the regime will become unacceptably politicised. I know that when you are in government, whether you are a member of the National Party, a Rat Nat or a Lib, there is no such thing as—

Eric Abetz (Tasmania, Liberal Party, Minister for Fisheries, Forestry and Conservation) Share this | Link to this | Hansard source

At least he’s loyal to his leader.

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

Oh, please, Senator Abetz—as the man who single-handedly destroyed the Tasmanian branch of the Liberal Party! How many opposition leaders in Tasmania have you knocked over in the last three years?

Eric Abetz (Tasmania, Liberal Party, Minister for Fisheries, Forestry and Conservation) Share this | Link to this | Hansard source

None.

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

Oh, please! Said with a straight face. All I can say is that the comedy continues.

The Acting Deputy President:

Senator Conroy, I remind you of the question before the chair. I ask other senators to cease interjecting.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to 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.

Lyn Allison (Victoria, Australian Democrats) Share this | Link to this | Hansard source

The Democrats support Senator Conroy’s motion to disallow the Telecommunications (Operational Separation—Designated Services) Determination (No. 1) 2005 and the Telecommunications (Requirements for Operational Separation Plan) Determination (No. 1) 2005. We were very critical of the government’s legislation establishing the operational separation plan of Telstra—one of Australia’s biggest companies and one of the world’s most vertically and horizontally integrated telecommunications companies—arguing that it was flawed, very weak and had enormous potential to be exploited by Telstra.

Our view has not changed from that time. If anything, it is reinforced by the news last week that Telstra pulled out of negotiations with the ACCC on fibre to the node, ending yet another round of game playing by Telstra. The editorial in the Australian on 9 August said:

Telstra’s withdrawal from talks on a fibre network has less to do with arguments over when, and at what level, to set a rate for third-party access, and everything to do with maintaining investment uncertainty for its competitors and keeping them off existing distribution lines for as long as possible.

Telstra’s recent behaviour follows a long line of competition failures, like dragging its feet on ADSL 2 Plus access and installation, stalling the ACCC negotiations on the unbundled local loop, putting up barriers to competition access to the ULL and undercutting the retail broadband price. The situation might not be so serious if it were not for the fact that telecommunications is absolutely vital to the national security and economic and social development of Australia.

High-speed internet is essential for successful engagement with the modern economy and society and should pave the way for productivity gains right across global economies. Yet Australia is still behind the OECD average in broadband penetration, ranking 17th amongst 30 OECD countries. We believe the major problem, and the reason Australia is so far behind on broadband, is the government’s failure to deal with structural issues in the telecommunications market and within Telstra while simultaneously pushing the privatisation of Telstra in a light-touch regulatory environment.

The government’s failure has resulted in one of Australia’s largest companies being allowed to put up barriers to competition on a continuous basis and to reduce its investment in infrastructure. The simple fact is that, while competition has improved in telecommunications markets over the years, especially in mobile phones, Telstra with its ownership of the copper network and the HFC cable is still the dominant player in most other telecommunications markets. There are features of telecommunications markets that, in the absence of effective regulation or competition, give an incumbent provider the ability and incentive to hinder competition. The cost of duplicating infrastructure, particularly the access network, is a significant barrier to entry in most markets and therefore a significant impediment to facilities based competition.

This feature alone gives Telstra considerable market power in many wholesale markets. Compounding the challenge posed by Telstra’s power over these important elements of the physical network is that it is vertically integrated. This vertical integration creates the ability and, critically, the incentive for it to favour its own interests over those of its competitors. For instance, Telstra might do this by providing services to its own retail division on better terms than those on which it provides the same services to competitors, providing the same service at a price which is notionally lower than its external wholesale price, providing the same services at a different standard or providing services to itself which it does not provide to its competitors. Telstra therefore has both the ability to favour itself through its ownership of the essential elements of the infrastructure and the incentive, because of its vertical integration, to favour its own interests.

The government tried to deal with this issue through accounting separation, which in our view has monumentally failed. Even the Minister for Communications, Information Technology and the Arts is on the record as saying that accounting separation has been inadequate. Rather than learn from their mistakes, rather than learn from what is happening around the world and rather than learn from and listen to the ACCC, the National Competition Council and the OECD, this government again took the soft option on operational separation. The Telecommunications Legislation Amendment (Competition and Consumer Issues) Bill 2005, passed last year, provided the framework for the operational separation regime. It had the express objective of operationally separating Telstra to promote the ‘principle of equivalence’ in the terms of supply by Telstra of a limited set of services to Telstra’s retail business and Telstra’s wholesale business customers—that is, its retail competitors.

Equivalence is intended to be achieved by allowing scrutiny of the terms, including price, on which Telstra supplies those wholesale services to itself. This was supposed to enable the ACCC to assess whether Telstra is engaging in anticompetitive conduct in relation to the supply of those wholesale services. However, the legislation and the accompanying regulations, in our view and in the view of many in the industry, will fail to achieve their objectives.

What amazed us at the time was that the government rejected the ACCC’s model in favour of a model that gave almost complete control of the process to Telstra without requiring Telstra to comply with the final separation plan. At the time, many in the industry tentatively supported the aims of operational separation. However, there was overwhelming criticism, including from the ACCC, of the government’s model. Mr Graeme Samuel, Chairman of the ACCC, during the hearings into the bill was at pains to say that if certain things were done then the model could meet the government’s aims. The ACCC was reluctant to say the model was good or that they were satisfied with the model. At the hearings, Senator Brandis asked Mr Samuel whether the committee could:

... take it that the ACCC’s position and advice to this committee is that it is satisfied with the government’s operational separation model?

Mr Samuel replied:

I have indicated that there are about five outstanding issues that need to be developed. It would depend on the satisfactory development of those issues, which are quite significant issues, including compliance, investigatory powers and the like, before I could give an opinion on that.

Other witnesses were able to be less circumspect and pointed out the following. Telstra is able to develop the plan themselves. The minister and not the ACCC will oversee the development and implementation of the plan. The operational separation plan is not a licence condition. Enforcement of a breach of operational separation by the ACCC is not available until after a rectification plan has been developed. There is no requirement for the ACCC to be involved in the development of the draft plan or a requirement that the minister take advice from the ACCC with respect to the draft plan. The legislation does not allow the minister to designate new services. There is an absence of a formal advisory role for the ACCC in the internal wholesale pricing and pricing equivalence regime. The possible length of time in setting prices and the interaction between XIA and XIB of the Trade Practices Act and the operation separation plan were also mentioned.

ATUG gave evidence to the sale inquiry that the operational model created the:

... possibility for delay, obfuscation or gaming, which is something that we have been quite concerned about in the past. Giving such a central role to the operational separation plan developed by Telstra alone is too broad and the implications still remain unclear and worrying.

The Democrats moved amendments to address many of these issues. We also moved amendments to strengthen the Trade Practices Act, including divestiture of power to the ACCC to step in and break up Telstra if their structure was an impediment to competition. If my memory serves me correctly, the Senate was not even given the time to debate the merit of these amendments, nor did the government accept any of them.

I must say on behalf of my colleague Senator Murray that we are again disappointed that this government continues to reject our amendments to strengthen the Trade Practices Act, particularly ones that would strengthen the position of small players competing in markets where large companies like Telstra compete.

The government also just does not seem to understand that telecommunications and media are now absolutely intertwined and have to be considered together. Telstra already has a foothold in the media market through its shares in Foxtel and ownership of the HFC cable. More and more media is being delivered over traditional telecommunications lines, and there is huge potential to grow this area and to give consumers more options. However, Telstra’s current dominance of the telecommunications market and infrastructure is likely to stifle growth and competition in this area.

As a result of Telstra’s ownership of both the copper wire and the HFC network, plus the lack of competition and Telstra’s strategy to maximise shareholder value, there has been no incentive for Telstra to invest in its infrastructure, including high-speed broadband. Evidence shows that since privatisation began there has been a steady decrease in infrastructure spending as a percentage of Telstra’s sales revenue. The Environment, Communications, Information Technology and the Arts References Committee report The performance of the Australian telecommunications regulatory regime said:

... during the 1980s under full government ownership of Telstra, 70 to 80 per cent of the annual surplus was reinvested in the network.

Telstra’s capital expenditure as a percentage of revenue declined from 23.4 per cent in 1999 to just 14.1 per cent in 2004.

At the Senate inquiry into the final sale bill and accompanying competition bills, Telstra said it would be reluctant to increase its investment in infrastructure under the conditions imposed by the Telstra sale package. Telstra’s Managing Director, Regulatory, Ms McKenzie, told the committee,

The bill appears to require us to give away to our competitors, whenever they ask, value added services in which we have invested. Why would anyone invest in these circumstances?

                 …         …         …

The regulations we face here increase our costs and hamper our ability to expand revenues. In fact, our ability to deliver the next generation of products and services for Australia is severely constrained by regulations that prevent us from earning a commercial return for our 1.6 million shareholders.

                 …         …         …

Telstra is a commercial operation. We have to act in the best interests of our customers and our shareholders. If there is no money and we are not making any money, then it will not be there to invest.

There we have it—Telstra telling the committee that they are now overregulated so they will not invest in infrastructure. We have Telstra owning both the copper network and the HFC cable, so there is no competition in infrastructure; we have a part-privatised Telstra trying to maximise their shareholder value by reducing investment capital works; we have a vertically integrated Telstra putting up barriers to their infrastructure; and we have a government that has failed to adequately deal with these issues.

The Democrats have argued for the last five years that if the government insist on going down the privatisation path then at the very minimum Telstra should be required to divest its ownership in the HFC cable. This would open up more competition in the market. The ACCC have argued that, in protecting the revenue of both the copper wire and the HFC cable, investment will not be made or will be delayed in services that would cannibalise the revenue of the other network.

To have fair and transparent competition in Australian telecommunications the government must move down the path of structural separation—that is, separate the wholesale from the retail. We opposed each tranche of the sale of Telstra but, now it is done, this is the only sensible course of action. The government argues that the cost of structural separation may outweigh the benefits, but there has been absolutely no evidence to support those claims because no real investigation has been done. The OECD made strong recommendations that its members consider structural separation as a means of promoting competition in utilities as an alternative to regulation. This is also supported by the National Competition Council.

With its remaining shareholding, the government could still own the infrastructure to guarantee fair access and some sort of parity for regional users. The Democrats argue that telecommunications is as essential as decent roads and power, it should be treated as a critical part of our nation’s infrastructure, and the wires, the pipes and the exchanges should remain in public hands. We say it is time for the government to bite the bullet and structurally separate Telstra—keep the infrastructure in government hands, divest Foxtel and the HFC cable and use those funds to roll out fibre.

Michael Ronaldson (Victoria, Liberal Party) Share this | Link to this | Hansard source

They must be cracking open the champagne in Telstra at the moment because they cannot believe their luck in that the Australian Labor Party actually wants to remove operational separation. Senator Allison and Senator Conroy either do not understand or do not care what the outcome of this disallowance motion would be were it to be supported. I do not think it will be supported. I cannot believe that Senator Conroy, who preaches competition, who at Senate estimates talks about competition, could actually move a disallowance motion of which the only outcome would be to destroy competition in the telecommunications industry in this country. It is quite remarkable.

What is interesting is the question of who is actually running this portfolio. Is it the shadow minister or the shadow shadow minister? Is it the member for Melbourne in the other place, Mr Tanner, or is it Senator Conroy? Because when Senator Coonan—the fantastic communications minister that she is—announced operational separation guess who came out and said that we had stolen their policy? It was the shadow shadow minister, Mr Tanner. He said, ‘The government’s stolen our operational separation policy.’ And now we have the shadow minister—I think he is the shadow minister; I am not too sure whether he is the shadow shadow or the shadow, but he is certainly a shadow—saying that the Australian Labor Party does not support this.

As I said before, the only outcome of this motion being successful is that there will be no operational separation in Telstra, and that is a position that is grossly, grossly irresponsible. Effectively what Senator Conroy wants to do is to water down a critical regulation imposed on Telstra to ensure transparency and equivalence in the supply of services to Telstra’s wholesale customers and to further reinforce the development of vibrant competition in the Australian telecommunications market. If the Australian Labor Party support no regulation of Telstra at the expense of competition then so be it. But I can assure you that the government will be making it very, very clear to the Australian community, and particularly to Telstra’s competitors, that that is what the Australian Labor Party now stand for. It is so ludicrous that it is probably not unfair to suggest that the Labor Party now want to disallow the universal service obligation, which entitles everyone to a phone service, or the customer service guarantee. How far do they want to go with this outrageous policy position, one which they initially supported and now have turned against?

Let us have a look at what this motion will do. If this motion passes, Telstra will no longer have to establish and maintain within the company separate wholesale, retail and key network services business units. If it passes, Telstra will escape its obligations to implement strategies for service quality, information equivalence, information security and customer responsiveness which relate to Telstra’s wholesale services generally. If the motion passes Telstra will no longer have to produce internal contracts, key performance indicators or a price equivalence framework. If it is passed Telstra will no longer be required to have separate staff and separate premises for the wholesale and retail business units, or a requirement that anyone who works for a retail unit cannot work for the wholesale unit.

The government are committed to the operational separation which is being implemented as we speak. We believe it is the only and most effective way to increase the transparency of Telstra’s operations and to improve the equivalence of supply of eligible services to Telstra’s wholesale customers. The operational separation framework goes well beyond an accounting separation. Senator Allison, the Leader of the Democrats, should apologise for her implication that this was an accounting separation. It is not; it goes well beyond that. It provides for organisational separation strategies for the delivery of high-quality wholesale services, internal contracts for the delivery of designated services and a robust compliance framework. The operational separation arrangements were developed in consultation with the ACCC—not contrary to it, as the Leader of the Democrats alleged. They take into account feedback from industry stakeholders on the preliminary draft plan released by Telstra in February this year.

Operational separation guarantees the independence of Telstra’s wholesale business unit from its retail units. The wholesale business unit will now have control within Telstra for providing services to wholesale customers, and the retail business units must no longer have any influence, control or responsibility for providing services to wholesale customers. These measures complement the robust, industry specific and anticompetitive conduct and access regulations in parts XIB and XIC of the Trade Practices Act. The government will be monitoring the effectiveness of operational separation closely, and stands ready to enforce its provisions should it be deemed necessary.

There are people within the industry who, as we speak, are absolutely scratching their heads as to what has possessed Senator Conroy to go down this path. Every one of those competitors, at every Senate estimates hearing I have been at, has been calling for this type of regulation to reinforce the sort of competitiveness that we have seen in the telecommunications industry under this government. It beggars belief that the Australian Labor Party now no longer supports operational separation. It beggars belief that the Australian Labor Party no longer supports competition in the telecommunications industry, because that is exactly what this disallowance motion means today.

Finally, I invite Senator Allison to go back to the details I gave this chamber over the last week and a half about what the OECD said in relation to broadband penetration. She has absolutely misrepresented the position of the OECD and I invite her to go and read that speech which sets out the true situation.

Debate (on motion by Senator Colbeck) adjourned.