THE Rudd Government's decision to separate Telstra will increase competition and lead to better services, the telecommunications industry says.

Australia's second and third largest telcos, Optus and iiNet, said the Government's decision to divide the company was a "landmark change".



"It changes the entire landscape," said Optus director of government and corporate affairs Maha Krishnapillai.



"The sector has been dysfunctional and that has been largely driven by Telstra's behaviour."



Communications Minister Stephen Conroy today announced major changes to the Telecommunications Act to force Telstra to separate its infrastructure and retail arms, or face tough new rules on the way it operates.



Join Malcolm Farr's blog: What the Telstra break-up will mean

The changes will allow Telstra to voluntarily separate itself, or be "functionally separated" by the Government.

Gartner mobile and wireless research director Robin Simpson said the move was aimed at creating a "level playing field" for telcos.

"Telstra dominate all of the fixed infrastructure and if you are fixed telco or a mobile telco you need access to Telstra’s infrastructure to run your business," he said.

"The thinking behind the Government strategy is if we could introduce a level playing field in terms of the cost, availability and speed with which you can get connected... it would enhance competition.

"It lowers the costs of the competing carriers and makes it faster for them to gain access to connectivity they need.”

iiNet managing director Michael Malone said the move would directly benefit consumers.

"The big winner from these reforms is the Australian consumer who will be able to gain access to fast, affordable and competitive broadband services," he said.

"It should provide greater certainty for the telecommunications industry and encourage investment, innovation and jobs."

Consumer group CHOICE also welcomed the move to end Telstra's monopoly on infrastructure.

"Consumers will only gain benefits from improved productivity where there is fair competition among telco retailers," said director of policy and campaigns Gordon Renouf.

"Where one controls the underlying infrastructure we can have no confidence in competition delivering those benefits for consumers."

Meanwhile Telstra has criticised the new legislation, saying the changes are unnecessary.

"We are disappointed the Government has felt it necessary to introduce this legislation," said chief executive David Thodey.

"(However) Telstra remains committed to working with the Government to find a solution that is in the best interests of the industry, the nation, Telstra and our shareholders."

Telstra break-up - Special section at The Australian