THE federal government imposed its full regulatory weight on Telstra yesterday and made real its threats to split the telecommunications industry giant.
The proposed legislation, delivered yesterday by Communications Minister Stephen Conroy, has to survive the Senate. In order to pass into law the Government will need the support of the Greens and both independents if not the Coalition.
The new legislation seeks to address the issue of Telstra's market dominance as well as its vertical and horizontal integration by giving Telstra the option to structurally separate.
In an interview with Allens Arthur Robinson partner Ian McGill, Boardroom Radio reported on the "very complex piece of legislation".
"This is the legislation that, I guess, sets the groundwork for the national broadband network and the national broadband network is all about a change to industry structure, McGill said.
This legislation sets that groundwork, he said, by giving Telstra an option as to whether or not it is going to play ball in relation to the national broadband network by giving a structural separation undertaking.
McGill said the effect of that structural separation undertaking "may be that its wholesale network assets and its wholesale revenue will go to the national broadband network company".
McGill, whose expertise is in telecommunications, television, radio and media, told reporter David Bushby in an audio interview published in The New Lawyer, that Telstra now has the option to choose functional or structural separation.
"That is the most controversial and interesting provision in the legislation," McGill said.
Telstra will have the option to structurally separate, or "accept the liability of not being able to use some very valuable spectrum", he said.
The distinction between structural versus functional separation needs to be clearly undertook, the legal expert said.
"Structural separation is really the transfer of assets and business into separate ownership and into a separate company – that's structural separation - and functional separation means the separation of wholesale and retail operations but within the same ownership structure," McGill said.
The change will have "absolutely profound" effects on the industry and other carriers, McGill said.
"The impact on other players will be profound, as I've said, because other players will be buying wholesale services from the national broadband network company and not from Telstra."
The legislation will not deal with the national broadband network or its operating arrangements, but that legislation will follow later, he said.
Telstra chief financial officer John Stanhope says structural separation could take up to five years and cost the company up to $1.5bn.