KEY POINTS:
Fewer than half of Telecom's competitors now rate regulation as a barrier to growth - a result of the Government's telecommunications reforms that began last year.
In March 2005, 73 per cent of internet service providers said the regulatory environment was hindering business growth - ranking it as the top impediment, alongside strong competition.
But by March this year, just 42 per cent of ISPs said regulation was hindering growth, according to a Statistics New Zealand survey.
CallPlus chief executive Martin Wylie said if the survey was run today that figure would have fallen back even more.
He said the Commerce Commission's draft determination on the price of local loop unbundling, announced on Tuesday, signalled the telecommunications regulator was "quickly coming to grips with what needs to be done".
"That does give you some confidence that the more proactive regulatory stance might actually deliver," said Wylie.
Last year the Government announced sweeping regulatory changes to the telecommunications industry, including a plan to split Telecom into three operationally separate business units - retail, wholesale and network divisions.
Telecommunications analyst Phil Harpur, of Paul Budde Communications, said regulatory changes had seen the pendulum swing back slightly towards the second-tier ISPs in the retail broadband market.
However, he said Telecom's stranglehold on network access had meant the move to open up its networks to competition had come far too late for ISPs struggling to survive on slim margins.
"The successful operational separation of Telecom will be key in creating a more level playing field for the rest of the market," said Harpur. "The next 12 to 18 months will be crucial and a lot rides on the Government in making sure that Telecom fully co-operates in the regulatory process."
Wylie said that while the regulatory environment would eventually become less of a barrier to ISP growth, the need for international bandwidth as internet use increased would stall growth.
The reliance on international bandwidth was a feature of geographic isolation, he said, and most internet content came from overseas.
"It's one of the things that you can do very little about," he said.
The main internet pipeline out of the country is the Southern Cross cable, half-owned by Telecom.
The Statistics New Zealand survey showed 57 ISPs had nearly 1.5 million subscribers. While most people (739,700) were using dial-up connections, broadband connections had jumped 18.5 per cent to 724,600 since September last year.
Blockers
Top five barriers to ISP growth:
* Strength of competition, 63 per cent.
* Cost of international bandwidth, 47 per cent.
* Telecommunications regulatory environment, 42 per cent.
* Access to financing, 26 per cent.
* Delays in obtaining facilities from backbone network supplier, 26 per cent.
