Australia’s competition watchdog said imposing a tough structural separation regime on Telstra Corp. (TLS.AU) is the only way to guarantee an equal playing field during the transition to a planned multibillion dollar national broadband network but the company argues there’s no need for such a move.

In a submission made public Friday, the Australian Competition and Consumer Commission said the transition to the NBN creates a “unique opportunity” to put in place structural arrangements that will increase transparency and foster competition.

“The ACCC is of the view that structural separation of Telstra is the only framework that will ensure equivalence in access during the transition to the NBN and is the only form of separation consistent with the type of wholesale-retail market structure the Government envisages for the NBN environment of the future,” the watchdog said in a submission to a government review of current telecommunications regulations.

In recommending a structural separation of Telstra, ACCC appears to go a step further than other jurisdictions that have imposed functional separation on their dominant telcos in recent times.

In New Zealand, the government in 2007 required former state-owned monopoly Telecom Corp. of New Zealand Ltd. (TEL.AU) to undergo a three-way functional split into wholesale, retail and network divisions.

This followed a model adopted by U.K. telecoms regulator Ofcom in the case of BT Group PLC (BT) several years earlier.

However, under the ACCC’s structural separation model, the split of Telstra would go even further, requiring a legal separation of Telstra’s assets and activities into separate corporate entities with entirely separate owners and shareholders.

Communications Minister Stephen Conroy said Friday that regulatory reform is “urgently required” to deliver better outcomes for consumers.

The center-left Labor government doesn’t yet have a “predetermined view or a preference” on the degree of regulatory reform required, a government spokesman said.

However, it is worth noting that in opposition Labor opposed the current accounting separation arrangements imposed on Telstra by the previous administration as too soft. That suggests it may be willing to consider tougher regulatory measures.

Labor in April announced ambitious plans to help build a A$43 billion open access fiber-to-the-home national broadband network. It called for comments from a variety of parties on its planned NBN, and the law changes that will need to be made to accommodate the new network.

The network could make large parts of Telstra’s existing fixed line infrastructure redundant and, while the door is open for Telstra to participate in building the new network, this could cost the group its title as the nation’s dominant phone company, along with billions of dollars in lost revenue over time.

The ACCC’s stance will prove a test for Telstra’s new Chief Executive David Thodey, who took over from his controversial predecessor Solomon Trujillo last month.

Analysts believe that while Thodey is likely to adopt a less combative stance against lawmakers and regulators than Trujillo, he won’t be a pushover, and is likely to argue hard against a structural split of Telstra’s businesses.

In its submission to the government’s regulatory review, Telstra argued that, given the new network will be a separate, government-backed entity, there is no need to split its existing businesses. It also said that there should be no need for an operational split of the company once the new network is built.

And Telstra said it should not be required to divest its hybrid fiber coaxial network, which is used by the Foxtel cable television network.

Some analysts have said they believe that the government is likely to want to take over some of Telstra’s infrastructure to build the network.

Telstra said its “overarching objective” is to help find an NBN solution that is in the interests of Australia while promoting a sustainable industry structure.

“We are committed to working constructively with the Government to enable the timely and successful implementation of the NBN,” Telstra said.

Telstra’s main rival, Singapore Telecommunications Ltd.-owned (Z74.SG) Optus, also called for the structural separation of Telstra ahead of the network build.

The chief executive of Singapore Telecommunications Ltd. (Z74.SG) Australian unit Optus, Paul O’Sullivan, said he expects major competitor Telstra Corp. (TLS) will try to block the government’s planned national broadband network.

In an interview with SkyNews aired Sunday, O’Sullivan said Telstra has a strong incentive to maintain its dominant industry position and thus will stand in the way of the government’s A$43 billion network.

“The fundamental drivers of most companies’ behavior lie in their underlying economics and in their competitive position. And In Telstra’s case, that drives them to some very notable characteristics.

“First of all, they have a very strong incentive to delay the rollout of any competitive infrastructure which levels the playing field in services to the home,” he said.

With Telstra reaping 60% margins in the home services market, “it is totally rational for them to look to delay and block any competition in that space,” he said

It won’t be as dramatic a week this week as last week was with four leading central banks meeting; our bank’s signalling a rate cut as soon as next month, and then the Europeans ruling out a rate rise sparking a major rise in the value of the US dollar, which was already on the turn.

Our dollar was pummelled, which will be a major theme here this week, along with June 30 companies reporting season hitting full speed. 

Oil prices should be watched closely to see if the fighting in Georgia and South Ossetia involving Russian troops, stops the recent fall in world prices (it had no impact Friday).

And, as usual, there will be some important statistics to worry about, including US consumer price inflation, European economic growth and here the third Statement on Monetary Policy from the RBA, which is out later today.

It will be be watched closely for more clues about how strong the Bank’s new found rate easing bias is.

The Bank will flesh out last Tuesday’s post rate decision statement from RBA Governor, Glenn Stevens.

The AMP’s chief economist, Dr Shane Oliver says “Our assessment is that the RBA is likely to indicate increasing downside risks to its growth forecasts and increased confidence that inflation will fall which will help reinforce expectations for interest rate cuts in the months ahead, albeit maybe not to the same degree as that already priced into the money markets”.

Of interest to the RBA will be this week’s wages price index and average weekly earnings figures for the June and May quarters respectively.

The consumer confidence figures from the Westpac-Melbourne Institute will be released and the latest monthly survey on business confidence from the National Australia Bank. Both should show a small gain perhaps in confidence on the back of the downturn in oil and petrol prices and last week’s talk about lowering interest rates.

The June half profit reporting season will also start to gather pace with stocks such as Cochlear, the Commonwealth Bank, Computershare, Telstra, Leighton and Stockland due to report.

The CBA, Telstra and Stockland will be the most watched: the CBA for banking and if it has missed most of the bad news, like Westpac revealed on Friday; Telstra because it has so far escaped most of the chat about poor results as it is not in finance, or resources; and Stockland which, of the major property investors, has so far been silent on what’s been happening to its business from the slump in financial engineering and geared property sectors.

The AMP expects profit growth for 2007-08 to have come in pretty weak at around +3%, down from +15% in the previous financial year.

According to Dr Oliver the economic backdrop to this reporting season is the toughest since 2000-01 as growth has slowed sharply and costs have picked up.

“All sectors, including resources which have been hit by rising costs, are likely to report soft results for 2007-08.

“However, while the results are unlikely to be the disaster the market is currently priced for after its 30% slump from last year’s high, the focus is likely to be on the outlook statements from companies and these are likely to be disappointing.

“While market expectations for 60% growth from resources in 2008-09 are reasonable given the latest surge in coal and iron ore prices, consensus expectations for 5 to 10% growth in the rest of the market are likely way too strong and will be revised down.

“The Commonwealth Bank’s result will likely be a key focus given the increase in debt provisioning at NAB and ANZ recently.”

In the US, data for the trade balance, retail sales, consumer prices, consumer sentiment, industrial production and a couple of business surveys are due for release.

The retail sales figures will be watched closely to see if the spate of disappointing reports last week from leading chains on July growth reflects the entire retailing sector’s performance for the month.

Wal-Mart’s latest quarterly earnings and more retailed commentary also leads off a string of financial reports from the sector, which will help reinforce the message from the retail sales numbers.

US consumer prices rose 5% (annual rate) in June. Any advance on that will get markets a bit anxious, even though the Fed ruled out a rate rise (while warning of the risks from higher inflation).

It also ruled out a rate cut to further soften the downside risks to growth, which in the minds of many analysts, remains the bigger of the two dangers to the US.

Reuters and Bloomberg polls top a US CPI headline rate of 0.4% for July, compared with June’s 1.1% for June alone.

The CPI is out Thursday night in the US, our time. Tuesday sees the US trade deficit for June, Wednesday retail sales and import prices and business inventories (for June) and on Friday consumer confidence and industrial production.

 
MONDAY:

The Reserve Bank releases its third Monetary Policy Statement of the year at 11.30 am; The Australian Bureau of Statistics (ABS) releases Lending Finance figures for June. Final profits from United Group, Crane Group, Bendigo Bank; Dexion interim; Housing Industry Association (HIA) June quarter national and state outlook

 
TUESDAY:

Final profits from Bradken, Cochlear and Worleyparsons; interims from APN News and Media and Australian Agricultural Co; National Australia Bank monthly business conditions survey; St George Bank briefing; Singapore Telecom/Optus first quarter results.

 
WEDNESDAY:

The ABS releases the Labour Price Index for the June quarter; final results from Telstra, the Commonwealth Bank, Fletcher Building, Computershare, Specialty Fashion group, Talent2, Boom Logistics and Pharmaxis; Westpac/Melbourne Institute consumer sentiment survey.

 
THURSDAY:

The ABS releases Average Weekly Earnings figures for the May quarter; final results from Leighton, ASX, Stockland, PMP, Futuris and Reverse Corp; David Jones full year sales figures.

 
FRIDAY:

Final results from Biota, IDT Australia and SAI Global; Babcock and Brown Japan Property Trust annual results; June quarter housing affordability report from the HIA and Commonwealth Bank.

The market is up 8. An unremarkable day. Financials down 0.7% after a dull performance overnight in the US. Resources up 0.2% after a strong lead from BHP, RIO and energy stocks in the US. Metal prices up. The SFE Futures were up 15 this morning.

Dow up 40. Up 69 at best. Down 95 at worst. Main Point: Financials down 1% on Freddie Mac and AIG’s ugly results and Morgan Stanley freezing home-loans. Energy and resources outperformed on good results. 6 out of 10 sectors up – indexes at 6-week highs. Dow encouragingly turned around a 0.7% loss to make a 0.3% gain holding onto the 331 or 3% gain yesterday. Large cap techs offset bad news in the financials. Nasdaq up 1.2% on better-than-expected results from Cisco. Oil price down 5.4% for the week already. Resources up 1% with BHP and RIO up strongly – up 4.36% and 4.72%. Energy outperformed – up 1.9% on better-than-expected results from Devon Energy. Refiners up with Tesoro and Valero up 12% and 7%. Sunoco up 3.3%. Freeport-McMoRan up 11%. Morgan Stanley froze the home-equity lines of credit for thousands of clients while their homes dropped in value. Telecoms down 1.4% - underperformed – Sprint Nextel and Qwest both reported a lost subscribers. USD climbed to 8-week high against the euro and 7-month highs against the yen – the global slowdown and less fears of inflation are helping the USD to rise.

• Both BHP and RIO up in ADR form overnight, 4.36% and 4.72% respectively. BHP down 6c to 3716c. RIO up 110c to 11550c.
• Metals mostly up overnight – Nickel up 1.17%, Zinc up 1.1% and Lead 2.53%. Aluminium up 0.21%. Oz Minerals up 2c to 176c.
• Oil price down 14c to $118.57 after the U.S. Energy Department’s EIA said crude inventories increased by 1.7m barrels to 296.9m for the week ended Aug. 1, slightly more than the 1.2m-barrel increase expected. Woodside up 77c to 5149c.
• Gold down $3 to $878.80. Newcrest down 40c to 2500c.
• US Bonds down with the 10 year yield up to 4.05% from 4.02%.

Nickel and copper stocks mostly upon a small bounce in metal prices (although copper futures dropping intraday). KZL up 2%, JML up 4,4%, WSA up 0.4% and PAN up 3.5%. Banks down again, NAB down 2.1% and CBA down 0.8%. Big industrials up with a sentiment change towards the consumer discretionaries after the RBA flip flopped their bias towards rate cuts on Tuesday. WOW up 1.5%, WDC up 1.5% and WES up 1.2%.

Unemployment numbers are out at 4.3% - steady on last month – new jobs strong. A$ jumped on the numbers. The European Central Bank makes an interest rate decision tonight. Expected to remain hawkish on rates and leave them where they are. Dow Jones Futures down a worrying 47 at the moment. Enough to keep you out of an overnight trade.

Company news

• Tabcorp (TAH) up 6% early on results - booked a hefty loss but underlying results in-line and there was some relief they were not worse. Market happy with solid underlying earnings and dividend being kept.
• Connecteast (CEU) down 16% early on “disappointing” first week of tolling falling to half the rate of toll-free period - UBS also downgraded the stock.
• Minara Resources’ (MRE) weak 1H report shows net profit down 80% on-year with no interim dividend – below consensus. Our analyst thought they’d fall over…but only down 2.7%.
• Fortescue (FMG) signs a rail and port agreement with Atlas Iron to give AGO access to their rail and Herb Elliot Port – Atlas Iron (AGO) up 14% early on the announcement.
• West Australia Newspapers (WAN) downgraded by brokers on poor FY08 results yesterday and cautious FY09 outlook – seen as a warning to all media companies….but up 4.13%.
• News Corp (NWS) kept mostly at a BUY by brokers after they posted results and positive guidance yesterday. A falling A$ helps. Down 3.11% or 52c to 1621c.
• ResMed (RMD) had its target price boosted by Credit Suisse after results yesterday showing positive top-line revenue growth. Up another 3% today.
• UBS has downgraded the Infrastructure sector after reviewing their cost of equity assumptions.
• Merrills says CBA’s crucial results on the 13^th are unlikely to surprise due to fairly good transparency around solid volume growth, improved margins and bad & doubtful debts at 23bps of total loans. Says CBA is under-provisioned yet has limited exposure to single-names. Down 25c to 4360c.
• Merrills expecting Telstra’s August 18^th FY08 result to be “very strong” with net profit up 14.4% and management’s long-term guidance to be upgraded. TLS up 4c to 453c.
• St George Bank has a briefing next Tuesday. SGB up 13c to 2898c.
• Corporate Express (CXP) downgraded by brokers post yesterday’s results showing falling customer sales and deteriorating market. Down 2%.