Inquiry not dead as giants square off

Faced with the joint venture between Telstra and Wellington's Saturn Communications, Telecom will at last feel the full blast of competition. But will that make redundant the Government's telecommunications inquiry? The answer is absolutely not.

If, as seems likely, the merger creates with a year or two a giant capable of tackling Telecom head-on in all markets, it does not necessarily follow that prices will come down. Indeed, duopolists very often have every reason to leave prices as they are, even if they compete fiercely in other ways.

The days when Clear Communications and Telecom had the long distance market sewn up between them are a case in point.

Prices fell a bit, but nothing like as much as when the small players, the WorldxChanges and the Global Ones, got into the market.

But it is not just keener pricing that the small players can bring. The rebilling dispute between Telstra and Telecom - whose court hearing has yet again been delayed, this time until June - is all about a niche player trying to build a market position by offering a new kind of service.

A giant in Australia, Telstra is still a comparative minnow in New Zealand. It has adapted to that status by pursuing a strategy of managing large companies' telecommunications for them, even when it is not providing the services itself.

Those suppliers inevitably include Telecom, since it is still the only company with a comprehensive local access network. Logically, Telstra should simply have bought those services from Telecom and resold them to its customers. But Telecom allegedly refused to play, at least at prices that were equal or lower than those Telecom charged Telstra's customer.

Often Telstra was asked to pay more, which is why it devised the rebilling arrangement under which Telecom sent the bill to Telstra for management.

Suffice it to say, the legal arguments are complicated. But the message is straightforward: if a service that enables large companies to get more out of their telecommunications is lost, then that is a deadweight on the economy.

It follows that the inquiry's task goes well beyond ensuring that a few new entrants like Telstra, Clear and Saturn, have a level playing field to compete upon.

It's not just those three who bring innovation to the market. Particularly in the blossoming area of the internet, it is a host of small internet service providers, many of whom have suffered through Telecom's imposition of 0867 net access - at the same time as Telecom's market share has soared.

The small players are vital for two reasons: they are the innovators, and they are the young plants on the forest floor. It is up to the inquiry to find ways to ensure saplings can thrive in the shadow of the mature trees.