Between the lines: Telecom shows signs of change

By RICHARD BRADDELL

As an opener, Telecom's submission to the telecommunications inquiry isn't a bad start.

Far from stonewalling the idea that new industry structures are needed, some of its suggestions could just as easily have been produced by competitors wanting to enhance their own positions.

The idea of putting the unprofitable rural local services required by the Kiwi Share up to competitive tender is one such proposal.

It is not a new idea, but it may be the first time Telecom has made such a suggestion, and it does imply that it is prepared to see the erosion of some of its ubiquity as the price for cleaning up a problem that has caused more than its share of industry bickering.

Then again, some parts of the submission appear to hark back to good old self-interest. Telecom's blanket rejection of local loop unbundling could be construed as such. Unbundling has been mandated in the United States, Britain, and now Australia, as a way of attracting a diversity of competitors and lower prices.

Since not much unbundling has actually happened, it may be premature to credit it for the sharp fall in Australian residential prices. But the mere existence of the threat can be as good as the reality.

Take the sharp change in Telecom's attitude to wholesaling to its competitors. A year ago, it became embroiled in court action with Telstra which derived from its wholesale rates being higher than discounted retail rates it offered to its own corporate customers.

But the threat of competition from Telstra Saturn has forced a change. "We are very susceptible to wholesaling at very sharp rates now that we know that Telstra Saturn are committed to spending $2 billion building a network," Telecom executive Richard Dammery said yesterday.

Nevertheless, Telecom has a point about unbundling. Getting it wrong could discourage the construction of alternative, feature-rich facilities, while demanding much more reliance on regulation.

A better approach might be to accept Telecom's argument, but ensure that its wholesale services are reasonably priced.

In the end, getting regulation right owes as much to the credible threat as to the fact. From Telecom and Clear's warm endorsements of their truce last weekend, there can be little doubt that both sides were delighted to come out of the trenches and talk sensibly about disputes that had gone too far beyond commercial imperatives.

But there can be just as little doubt that the inquiry and the potential for an adverse regulatory response hastened the resolution.

An ongoing threat is needed, perhaps that of widening the scope of Telecom's proposed two-yearly benchmarking of interconnection rates. After all, the threat of some busybody in the background intent on intervention is what makes light- handed regulation work.