Decision jolts investors

By PETER GRIFFIN, telecoms writer

Yesterday morning's surge in Telecom's share price hinted that the outcome of the biggest regulatory decision to greet the telecoms industry in New Zealand may have gone in the monopolist's favour.

By mid-afternoon, the market was under no such illusion.

The Commerce Commission recommended that Telecom's vast copper-line network be opened up to rivals, giving competition a foothold in the local access market for the first time.

New Zealand will follow most OECD countries in unbundling the "local loop" and the public data network.

"If nothing changed and we let this market evolve naturally, then we'd deprive ourselves as a nation of $200 million in gains over a five-year period," said telecommunications commissioner Douglas Webb.

The competition watchdog said unbundling could also cut the price of copper line-based high-speed internet services 62 per cent over five years in the business market and 51 per cent in homes, where broadband use is just 2 per cent.

Telecom's Jetstream products dominate the broadband market at present.

Much lobbying and debate will go on before the commission presents its final recommendation to Communications Minister Paul Swain in December.

Should unbundling proceed, Telecom rivals such as TelstraClear, CallPlus and ihug will gain access to many telephone exchanges from early 2005.

They will lease access to Telecom's lines and install equipment in the exchanges allowing them to provide broadband and voice calling.

Webb said competitors would face substantial set-up costs - providing a local calling alternative to Telecom would only be economic if rivals also offered a broadband service.

Regulation would cover network access from Telecom's exchanges to the 24 points of interconnection throughout the country, ensuring that competitors gain access on a national level.

Telecom labelled the decision "illogical" and said the commission had decided to go much further than Australia had, a claim Webb rejected.

TelstraClear stands to gain the most from unbundling. Chief executive Rosemary Howard said Australian experience showed it could be done cheaply and quickly.

Cecil Alexander, sales director at toll-call operator WorldxChange, said unbundling would allow operators to offer full services, as Telecom did now.

"Our customers tell us that given the chance, they'd prefer an alternative company to invoice them for tolls, voice and internet."

But he said access to Telecom's network would not be the ultimate solution to reaching all customers.

"You're still not going to get [high speeds] on a lot of Telecom's copper. You're just inheriting a legacy network.

"New investment will still be needed."

CallPlus founder Malcolm Dick, who has threatened to decrease investment in New Zealand unless Telecom's monopoly is dismantled, was concerned that the commission was "playing God" in deciding which exchanges competitors could access.

Despite concerns from wireless operators that unbundling will devalue their investments in alternative networks, Webb said the analysis performed by the commission showed investment would increase overall as competitors moved onto Telecom's network.