Peter Nowak: TelstraClear practises art of double-speak

There's a lot of hot air coming out of TelstraClear these days.

Ever since the nation's No 2 telco proclaimed in September that it was no longer going to compete against Telecom in all markets, it has been talking out of both sides of its mouth - especially last week.

TelstraClear was quick to take a shot at Telecom when that company announced its broadband numbers on Thursday. Telecom trumpeted its 279,000 residential customers in 2005 as evidence that New Zealand has "a strong and growing broadband story".

But the company also played down the fact that only 22 per cent of those customers came through wholesale, whereas the Government was expecting 33 per cent.

Telecom's competitors, including ihug, Slingshot and Orcon, jumped on the news and once again urged the Government to regulate the company.

TelstraClear wasn't far behind, saying in a press release the results were "a disaster for New Zealand".

It was an interesting choice of words, because if anything was disastrous for the country, it was the broadband deal TelstraClear signed with Telecom just last month.

The story goes back to December 2003, when the Government decided against opening up Telecom's network to competitors in a process known as local loop unbundling. Instead, Telecom's proposed "unbundled bitstream service" was instituted, wherein the company was allowed to dictate speeds and prices to wholesalers.

TelstraClear took issue with the arrangement and, in November 2004, applied to the Commerce Commission for better UBS terms. Over the next year, the company sat out of the broadband market for the most part and watched Telecom, ihug and others snap up customers.

It finally got its terms last December, but promptly squandered them for a lesser commercial agreement with Telecom a month later.

The regulated terms would have provided superior speeds and pricing, but Telecom was going to fight them with a judicial challenge. TelstraClear didn't want to risk being left out for even longer, arguing that doing the deal was the pragmatic solution.

The company also argued that just because it signed a deal, that didn't mean it was going to go quiet in the fight for regulation. It would still fight the good fight but at least it'd be selling something in the meantime.

The only problem is, that deal is going to muddy the situation by giving Telecom ammunition. The deal could "vent steam from the industry", as one analyst put it, and potentially water down any regulation.

Before its selective memory took effect in November, Telecom argued that its original 33 per cent wholesale customer number was based on TelstraClear participating. With TelstraClear not playing ball, it's not surprising Telecom failed to meet the goal. (Telecom now denies agreeing to that one-third goal.)

It's fair to say that Telecom can now project an extra 100,000 customers just from TelstraClear, probably over the next year. With the Government looking to boost broadband uptake, a chunk of potential customers this big might look appealing.

Secondly, although the speed and price details of the deal are not as good as those supplied by the commission's regulation, they are better than those that exist. Speeds will go up and prices will come down, if only incrementally, alleviating somewhat the main complaints with broadband.

Lastly, Telecom says it will offer similar terms to other internet service providers, which will have no choice but to accept them. It would have been easy for the others to piggyback on the commission's TelstraClear ruling had it actually gone into effect but, now, there's no way. Without a precedent, the other ISPs are going to have to go back to square one and fight for those terms if they want them, which could take years.

The end result of TelstraClear's deal is that Telecom, by throwing it and the rest of the industry a bone, is back in the driver's seat - whereas in December, it was firmly on the back foot.

TelstraClear chief Allan Freeth's words in September are now ringing exceptionally hollow. "We're not here simply to be some type of competitive stalking horse or for anyone to suggest that competition is alive and well," he said. By signing the UBS agreement, Freeth has not helped his own cause and has potentially set back the industry as a whole.

No one is blaming TelstraClear for wanting to get into the game. After all, it has a responsibility to shareholders to make money wherever it can.

But by signing such deals, the company has lost the right to say any of Telecom's results are a "disaster for New Zealand".