The Australian federal government recently announced its decision to make sweeping reforms in the telecommunications sector, which will result in at least a partial break
-up of Telstra.

The media reports have suggested that soon a legislation, which will pave the way for Australia's largest telco to willingly divide its retail and wholesale arms, will be introduced by the government.

It should be noted though that via this legislation, if Telstra does not willingly separate its units, then government will get the right to force a strong functional separation on Telstra.

The Australian government announced, "Telstra Corp. must separate its fixed-line assets from its consumer business or face curbs on mobile-services expansion." The government basically aims to reorganize the industry and mulls an A$43 billion ($37 billion) nationwide Internet network.

In an emailed statement today, Communications Minister Stephen Conroy said: "Australia's biggest phone company will be barred from buying new licenses for wireless services unless it complies with the demands."

Furthermore, Telstra could also be required to separate itself from its interests in pay television broadcaster Foxtel, before it is able to swell its advanced wireless broadband services.

It should be mentioned here that if Telstra submits itself to the Australian Competition and Consumer Competition in an acceptable undertaking to structurally separate, then it would be allowed to keep its interest in Foxtel. It was forwarded by the telco that it was investigating the detail of the proposed reforms.

However, it seems that Telstra might not welcome the move. The company has been trying to avoid attempts to separate its retail and wholesale functions from quite long now. The company said via a statement: "Telstra is currently examining the detail of the reforms and will provide an update to the market as appropriate."

But it won't be wrong to say that the final goal of the government is to break Telstra's dominance of the telecommunications sector.

Senator Conroy said: "The government will require the functional separation of Telstra, unless it decides to voluntarily structurally separate. The legislation requires Telstra, as the universal service provider, to ensure all Australians have reasonable access on an equitable basis to standard telephone services, including payphones."

If Telstra fails to meet new minimum performance benchmarks, then it will be required to pay up to $US10 million in a civil penalty. It will be in November that the legislation will be debated in the parliament.