Telecom hints at voluntary separation

Telecom has promised a positive response to the Government's sweeping regulatory shake-up of the industry and yesterday did not rule out voluntary separation of its network and retail operations.

Although last week the company branded the rejig a "flawed approach", chief executive Theresa Gattung said: "We accept that the rules have changed".

"We understand that the public supports those changes. We believe that that's likely to lead to more competition in the market.

"Our response to that is to think about how that means we need reshape our strategies in order to win our customers' business, and that we are getting on with it. We want to make this new environment work."

Gattung's comments came as chairman Roderick Deane expressed confidence in her, saying the board "supports fully ... Theresa Gattung and her management team in pursuing this new direction".

Gattung has faced calls for her resignation after appearing to have been blindsided by the severity of the regulatory package.

In his first public statement as Telecom chairman since the Government announced it would open Telecom's network to competitors, Deane said the company was "committed to reviewing our strategy and future planning to respond to the new environment".

Gattung said Telecom would not follow Telstra's approach in delaying enactment of local loop unbundling.

"We're not going to be dragging our feet, we're going to be getting on with this work programme with the commitments we've made to having more independent wholesale and with what we'd do for customers," she said.

Telecom said it had appointed a team of senior executives led by Gattung charged with "reshaping the company's overarching strategy".

The team will continue and accelerate work on several areas already under development but, significantly, it will also review wholesaling arrangements, "including an in-depth review of lessons from models in other countries".

One analyst said the company might look to follow British Telecom's lead in embracing unbundling by voluntarily separating its network and retail operations.

Such an outcome was threatened by the Government last week, and Prime Minister Helen Clark this week indicated it was the Government's preference.

"When you look at the arguments in the Cabinet paper there's a lot of arguments around how do you get non-discriminatory behaviour from Telecom at a network level," the analyst said on condition of anonymity.

"I think one of the only conclusions is separation. The parallels to BT are very similar. If Telecom reaches that same conclusion then they'll do it voluntarily."

When asked if the company was considering voluntary separation, Gattung said the company was looking at its wholesale business on a "first-principles basis based on the conversations we've had with our wholesale customers here and our experience as being Telstra's biggest wholesale customer in Australia".

"We have already made commitments to our wholesale charter; we've already changed the organisation to separate out retail and wholesale so I think we've already made tremendous steps directionally in terms of responding to the first-principles issues.

"We will be reviewing that as part of the work programme and we will be looking at other models offshore but it would too early to make any other comment."

Communications Minister David Cunliffe yesterday welcomed news of Telecom's commitment to review its strategy.

"While the proof of the pudding will be in the eating, this looks like it is a positive response to the Labour-led Government's package."