Vodafone Hutchison Australia (VHA) has joined the criticism of Telstra’s structural separation undertaking (SSU) with NBN Co, stating the proposed plan fails to prevent the telco from impeding competition.
In a submission to the Australian Competition and Consumer Commission’s (ACCC) discussion paper (PDF) on Telstra’s structural separation plan, VHA said the separation plan lacked the certain self-enforcing features it needed order to be credible and effective.
“The ACCC must assess the proposed SSU in terms of its ability to credibly and effectively deliver structural separation, transparency and equivalence and sufficient information and remedies for the ACCC to monitor Telstra’s compliance with the SSU,” the submission reads. “VHA’s view is that the proposed SSU does not meet these conditions.”
“Specifically, the proposed SSU does not address the ability and the incentive for Telstra to favour its retail business units and discriminate against its competitors,” the submission reads. “Nor does the proposed SSU provide Telstra’s wholesale customers with any assurance that equivalence and transparency will be achieved and maintained throughout its duration.”
The responsibility given to senior management within Telstra was also called in to question by VHA, which stated equality could not be achieved if senior executives continue to make operational decisions around each of the telco’s business units.
“Telstra must take proactive steps to remove arrangements that are contrary to achieving equivalence,” the submission reads. “In particular, strong and unequivocal ring fencing arrangements are required to remove or limit operational decision-making by senior managers whose responsibilities straddle different business areas.”
While the proposed SSU does address some “ring fencing” arrangements, they are not satisfactory, VHA said, with too many exceptions including the ability for Telstra’s senior management to approve pricing for both the retail and wholesale services.
"Such scenarios create a clear conflict of interest between the senior manager, whose incentives may be aligned to the performance of Telstra as a whole, and the proposed SSU, which can only be approved if it provides for equivalence between wholesale customers and retail business units," the submission states.
“The proposed continuation of existing pricing approval arrangements means that there will continue to be no separation between the retail and wholesale arms when it comes to pricing strategy and governance — a fundamental gap in Telstra’s proposal.
“It does not ensure equivalence between business units because it creates potential conflicts of interests in the decision making process and maintains the ability for the ability of Telstra to disadvantage one business unit over the other.”
According to VHA, the ACCC must not accept the plan unless it provides transparency and equality in the supply of Telstra services for both wholesale and retail business units. It must also be self-enforcing in order to avoid past behaviour problems which arose from the regulatory environment.
Specifically, there will still be a need for external transparency in relation to the treatment of regulated services to ensure equality, as well as public disclosure of information around the separation.
Telstra must publicly disclose internal retail and wholesale cost estimates for regulated services, non-cost related information and an annual independent audit of both cost and non-cost information provided to the watchdog.
VHA is in agreement with the ACCC’s initial response to the SSU, that it is inadequate.
“It offers few, if any, measures to suggest the future industry landscape would be any different from the past decade. More importantly, the SSU does not meet the conditions required for its acceptance and therefore, the ACCC must reject it.”
Wholesale telco Vocus Communications has also criticised the SSU, claiming Telstra could evict competing carriers from its ducts in order to hamper competition.
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