Telstra, Australia's largest telecom services and broadband provider, has been told by the Australian government to split its retail and wholesale businesses voluntarily or face a law-enforced separation as the Kevin Rudd government prepares to roll out its $37-billion National Broadband Network (NBN).

Melbourne-based Telstra, a state monopoly, earlier known as Telecom Australia was privatised in 2006. It will now have to separate its infrastructure and retail arms or face the threat of the government bringing in new laws to force the break up, and sell off its cable network and the 50-per cent stake it holds in Foxtel - Australia's largest pay television company.

The previous Australian government, led by John Howard, failed to split Telstra's retail business from its network when the huge state-owned company was being privatised in 2006. It still has a 17-per cent stake in Telstra through Australia's public servants pension fund.
Telstra will also be blocked from buying new licenses for wireless services and expanding its wireless broadband spectrum, if does not comply with the government demand.

Rival telecom operators like Australia's second largest telecom provider Optus, owned by Singapore Telecommunications, Vodafone, the local arms of Telecom Corp of New Zealand and the country's competition regulator, have repeatedly campaigned for Telstra's break-up. (See: Split Telstra for a viable broadband network, says rival Optus / Regulator wants Telstra to be split)

Since Telstra owns nearly all the telecom infrastructure, other rivals are forced to deal with Telstra, which has long been accused of charging high access fees.

By separating Telstra's network and wholesale business from the retail business, Telstra's rivals will be able get the same financial terms and conditions as those enjoyed by Telstra's retail business.

In April, the Rudd government announced it would build its own fibre-to-the-Home network through a private/public partnership funding, after it scrapped the tender process, where it had barred Telstra from bidding in December 2008. (See: Australian government to set up $30-billion broadband network  / Telstra booted out of $15-billion Australian telecom project)

Telstra had been trying to bully the Rudd government, rwesorting to brinkmanship by demanding a guarantee that the government would not try to force structural separation of the company if it wins the tender, which the government refused.

The NBN project is expected to connect 90 per cent of all Australian homes, schools and workplaces with speeds up to 100 megabits per second - 100 times faster than those currently used by many households and businesses.

It will also connect all other premises in Australia with next generation wireless and satellite technologies that will deliver broadband speeds of 12 megabits per second.

Rudd had said in April that the network would be 100 times faster than the currently available broadband and it would play a big role in "turbo-charging Australia's economic future.

But Telstra's involvement in the NBN project is vital for Australia since it has the expertise to handle this massive project as well as it will save the government a huge amount of money by avoiding costly duplication of infrastructure.

Telstra said in a statement today that it was disappointed, but would work and discuss with the government on separation options in the best interest of the nation, the industry and investors.