KEY POINTS:
Ever since the Government announced its intention to break up Telecom and give other internet retailers access to its network, the company has been disputing how it should be done. Hopefully the issue has been settled with Telecommunications Minister David Cunliffe's confirmation yesterday that the company will contain three separate operational units, wholesaling, retailing and network services.
Telecom had wanted to keep its wholesale and retail interests together and set up a separate network company. Unless it could do so, its board warned, it would not achieve the earnings needed to invest in the next-generation internet. Chairman Wayne Boyd said, "We're quite staunch about this. Their proposal won't work." And chief executive Theresa Gattung predicted "a train wreck".
Ms Gattung has gone and her replacement, recruited from British Telecom, will be well accustomed to the operational separation the minister has confirmed. The three-way internal separation has been largely copied from the United Kingdom and BT has described the New Zealand proposal as nearer to true competition than exists in any of the 170 countries the company operates in.
BT baldly doubted Telecom's claim that its alternative would lead to quicker local loop unbundling and bitstream or that it was necessary for investment in next-generation technology. The operational separation of wholesale and retail arms of BT had improved competition and investment in Britain's network.
The key to investment will be the price set for network services rather than the profits Telecom insisted it could make only by keeping its wholesale and retail arms together. Rival retail providers were understandably fearful of an arrangement that would let the wholesaler favour its own. Telecom's proposal was roundly opposed by the industry in submissions on the Government's intention and the company now sounds reconciled to the inevitable, though it reserves the option to sell off the network serving operation eventually.
Inevitable the internal separation may be, but it will be a while yet before Telecom takes the desired shape. The procedure laid down by the Telecommunications Act 2001 stipulates that after the minister's determination yesterday Telecom has 20 working days to prepare a "draft separation plan" which must be open for public consultation for another 20 days.
Then Telecom must issue an amended separation plan within 15 days taking account of the views it receives. If the minister does not approve the amended plan, the company has another 15 days to correct it. Only then can he make his own desired improvements to the plan and put it into force.
All going to this schedule, "separation day" will be March 31 next year. But then Telecom will have until June 30 to complete its reorganisation and it may take until the end of 2009 to put all services to retailers on an equal basis. For an industry that moves data at the speed of light and advances its technology at a dizzying rate, its regulatory development seems ridiculously slow.
The arrival of the new chief executive, Paul Reynolds, should bring a new culture to Telecom. It might acquire the outlook of its British counterpart where success seems to be sought not in the advantages of network ownership but in quality and agility in fair competition with all who want access to the network. So long as regulators price the network properly, Telecom's competitors will not get a cheap ride and the country will get the investment it needs to stay on the pace of today's vital connections.
