KEY POINTS:
Telecom will be forced to pay the same price it charges its rivals for access to its network under a new regime which will see it split into three divisions.
If it fails to deliver a fair price, it will face penalties of up to $10 million, and further fines of up to $500,000 a day under a shake-up recommended by Parliament's finance and expenditure select committee yesterday.
The committee's recommendation for the Telecommunications Amendment Bill will see Telecom split into three units - a network access arm, wholesale arm and retail arm.
The retail arm will sell Telecom's services to the consumer. The wholesale arm will re-sell Telecom packages to other companies. The network access arm will set charges for all companies, including Telecom's retail unit.
Internet New Zealand executive director Keith Davidson said it was a 'very robust model" that would ensure "true competition" in the phone and internet market.
The "crucial" amendment to the bill was the addition of a network access arm with an independent oversight group, said Davidson.
"Having the network separated out from wholesale and retail is absolutely necessary. The network is the enduring bottleneck and needs to be separated," he said.
The network wholesale unit would be responsible for Telecom's entire phone and broadband network and selling access to Telecom's retail unit and other phone and internet companies.
A network access unit would have to give equal pricing to competitors who wish to place equipment on Telecom's phone network, said Davidson.
Telecom described the bill as more complicated than it had hoped for and said it would be costly for New Zealanders.
Telecom's separate business units would have to disclose financial statements, pricing and terms to the Commerce Commission, said Telecommunications User Association of New Zealand chief executive Ernie Newman.
"In an industry where there is this degree of market dominance, if the wholesale price is out of kilter it will become apparent," he said.
Telecom would operate as if it was three separate companies even though it has the common ownership, he added. It would be easier for the Commerce Commission to set retail prices for Telecom because the business case was more solid.
The recommendations stopped short of a full structural separation - which would mean splitting into separate companies.
But in practice this model was almost the same thing, said Goldman Sachs JB Were analyst Andrew White. That was because the Commerce Commission could require that Telecom produce its own set of accounts and data on costs, revenues and transfer pricing,
The Minister of Communications would also take charge of managing Telecom's split, instead of the Telecommunications Commissioner, and Telecom would be required to prepare a draft separation plan with the minister not later than 20 days after the bill was enacted.
The minister will invite public submissions on the draft separation plan and can decline or approve the plan.
The select committee believed this would give the minister a "high degree of control" over any separation.
Telecom chairman Wayne Boyd said the model was "not ideal" but the company would do its best to work with it. The company's chief executive, Theresa Gattung, was not commenting yesterday.
The bill's proposed separation was more "complicated and costly than we believe is necessary for New Zealand", but "we will work to implement it as swiftly as reasonably possible," said Boyd.
"To date most of the focus has been on competition; we do continue to urge a balanced focus on investment as well," he added.
Telecom's rival TelstraClear approved the bill, saying consumers could now look forward to better services from more providers.
Ihug regulatory manager David Diprose said, on first reading, he was "very pleased".
Finance and expenditure select committee chairman Shane Jones said the construction of the legislation was made easier by Telecom's willingness to move "beyond the chapter of acrimony" to a new legislative framework.
Communications Minister David Cunliffe welcomed the report and said he would consider the recommendations before deciding on the next step.
The Government introduced the bill to Parliament in June after saying that it would force Telecom to open its network to competitors.
THE THREE NEW FACES OF TELECOM
1. Network Access Unit
This unit will be responsible for Telecom's entire internet and phone network and will sell network access to Telecom's retail service and its competitors who want to put their own equipment onto the telco's network to create innovative, different services to Telecom.
2. Wholesale Unit
This unit will sell its own packages to other internet and phone companies, who will resell them as their own.
3. Retail Unit
Telecom's business that offers services to consumers and business.
