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September 16, 2009

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Aussie telco may have to split

THE Australian government raised pressure yesterday on the country's largest telecommunications company to surrender its market domination by splitting its wholesale and retail businesses.

The Telstra Corp overhaul is part of government plans to build a A$43 billion (US$37 billion) state-of-the-art national broadband network.

Telstra was once a government-owned monopoly. While it is now privatized, it remains heavily regulated to promote competition from smaller phone companies that rent access to the nation's aging copper telephone line network from Telstra.

The government introduced legislation into parliament yesterday to encourage Telstra to separate its wholesale business, which serves rival telecommunications companies, from its retail business with general customers. The bill will be debated later this year.

If Telstra does not split its wholesale and retail businesses, the proposed legislation would prevent the telco from gaining additional wireless capacity for advanced mobile services plus reduce its cable network and pay television interests.

Communications Minister Stephen Conroy said the government's preferred option is the so-called functional separation of the wholesale and retail businesses.

"It is designed to promote competition by addressing the underlying incentives for the incumbent to favor its own retail businesses over its wholesale customers," Conroy said. The government's clear preference is for Telstra to submit an undertaking to voluntarily separate the businesses structurally, he said.

The main opposition party said the legislation was a "radical change of policy" that would affect Telstra's 9 million customers, 1.4 million shareholders and 30,000 employees.

Nick Minchin, opposition communications spokesman, said his party would examine the 137 pages of legislation before deciding whether they it support it.

Telstra shares slipped more than 4 percent to A$3.09 within hours of the government announcement.

Telstra Chief Executive Officer David Thodey said he was disappointed by the legislation but was willing to talk to the government about business separation.

Telstra's rivals welcomed the government intervention as good for competition, while shareholders condemned it as "a giant kick in the teeth."



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