Rival steps up pressure on Telecom

Number three internet service provider ihug is stepping up the pressure on the Government to regulate Telecom by going public with its investment plans and promising to buy up smaller competitors.

The ISP said it would spend $20 million over three years on installing its own equipment into Telecom's phone exchanges if the Government opened up the company's network to competition in a process known as "local loop unbundling".

Mark Rushworth, chief executive of ihug, also vowed to swiftly and drastically improve the speed and quality of internet connections available.

"If the Government unbundles the loop on Christmas Day, on Boxing Day we will install [equipment] providing download speeds of 24 megabits per second," he said.

New Zealand's internet speeds are among the slowest in the Organisation for Economic Co-operation and Development, with 2Mbps the fastest available to residential customers. Ihug's parent, Australia's number three ISP iiNet, is today launching a 24Mbps service for A$29.95 a month in that country.

Ihug will today present the investment plan to Communications Minister David Cunliffe. Rushworth said the company wanted its lobbying process to be transparent, especially in light of the recent uncovering of a secret letter to the Government from Telecom chief executive Theresa Gattung.

Rushworth also predicted consolidation among ISPs next year, as costs of providing services to customers are rising while prices of offerings are dropping. He said ihug, which has 120,000 subscribers, had been given clearance by its parent to acquire other providers with established customer bases.

The company is not interested in "distressed ISPs" but will instead look at providers whose customers are primarily on dial-up and can be migrated to broadband, and which can deliver a return of at least 18 per cent.

The unbundling issues stretch back to 2003, when the Commerce Commission recommended it as the best way to spur internet access competition and improve the country's broadband uptake. But, under pressure from Telecom, the Government instead implemented the company's "unbundled bitstream" wholesale scheme.

Telecom promised it would sign up 250,000 customers by the end of this year and - it was understood by the industry and Government - that one-third of those would be through wholesaling to competitors. While Telecom has met the first target, it has fallen well short of the second and now disputes ever committing itself to that goal.

New Zealand and Mexico are the only countries in the OECD not to unbundle the loop and are, consequently, stuck at the bottom of broadband uptake rankings - 22nd and 29th out of 30, respectively.

Some ISPs are not in favour of unbundling because it will require investment in expensive equipment. Rushworth said unbundling would still pay for smaller ISPs because ihug, TelstraClear and CallPlus had all committed themselves to making the investment, and would thus give them at least four choices of supplier, rather than just Telecom.

Annette Presley, founder of CallPlus's ISP unit Slingshot, also called for unbundling in an open letter to Cunliffe. She wrote that Telecom's promises had not materialised and the decision to not unbundle had cost New Zealand two years.