Editorial: Telecom's plans not convincing

Opinion

Telecom says it will voluntarily "unbundle" its line business. If the general response to this week's announcement has been a chorus of "Yeah, right," Telecom's chief executive would understand. Theresa Gattung confessed not so long ago that the company's policy of public confusion ran the risk that everything it said sounded like a Tui billboard.

And the unbundling announcement was indeed about as voluntary as any gift made with a gun at the head.

The only surprise in the company's pre-emption of the inevitable was that Ms Gattung was still in a position to announce it. While she remains chief executive the company's commitment to network competition is simply not credible. There are good reasons for any big business to "unbundle" its various trading activities. When they operate on separate accounts it becomes easier for each to see whether it is earning a sufficient return on its resources, and for the company to see where it can best invest or cut back for a better performance overall.

Equally, there are good reasons not to separate business activities, especially if the business is a natural monopoly like a telephone line network and it wants to preserve that advantage. Unbundling, in public at least, would simply invite competitors to demand network access on the same terms as the company applies to its own retail divisions.

Telecom, under its recently departed chairman Roderick Deane and Ms Gattung, opted for the second course. Theirs was a perfectly rational response to the blessings of Telecom's position. But having shaped the company in accordance with one view of its best interest, Ms Gattung cannot credibly claim to believe in its new direction. She ought to have followed Dr Deane out just as she followed him in.

The pity of her perseverance is that Telecom's planned new shape could be presented as a positive business step. Telecom could be stronger for ceasing to shield its service-providing arms with the security of its wire monopoly. The network could be better for a fair competition among all service providers to make the best use of the wires. Should Telecom's provider subsidiaries lose business to the independents, the company would be better off without them.

Unbundling essentially makes the telephone network more like the electricity supply, whereby the national grid is a separate business from the providers and retailers of its traffic. That is not a comfortable comparison considering the deficiency of investment in Transpower's network but the Government knew when it ordered the unbundling of Telecom that the company would be left with less incentive to ensure the network kept pace with increasing use. The Government gave the order because it believed that, even in its integrated state, the company was not providing sufficient capacity to keep the country apace with broadband developments.

The company's lack of conviction in the virtues of unbundling the business could be heard in Ms Gattung's explanation for leaving mobile telephones out of this week's announcement.

"At the moment this is really focused on the broadband world, the fixed line services and the things that are already in the regulatory paradigm," she said. "Mobile might get there; there's a limit to how much we can do at any one time."

For all its faults it is better that Telecom decide the detail of its unbundling rather than a regulatory agency. The legislation in the House this week left room for the company to anticipate the regulators and Telecom is wise to have done so. But its reform would be more credible with a new face up front.