Telecom letter reveals determination to defend turf

Theresa Gattung

Telecom was so keen to persuade the Government that rivals should be kept away from its local network last year that a confidential letter from chief executive Theresa Gattung spelt out threats to the sharemarket and the super fund.

The letter from Ms Gattung to then Communications Minister Paul Swain, dated May 5, 2004, talked about a potential 30 cent fall in Telecom's share price if "unbundling" was required, reminded Mr Swain that the health of the sharemarket was at stake because of Telecom's high weighting - its shares make up more than 20 per cent of the market, and said the Government superannuation fund was invested in Telecom.

The letter was released under an official information request by Wellington newspaper The Dominion Post.

At the time, a Government decision on whether to accept the recommendation of Telecommunications Commissioner Douglas Webb not to "unbundle" the local copper network was hanging in the balance.

Communications Minister Paul Swain and the Economic Development Ministry backed unbundling and did not support Mr Webb's recommendation.

But Mr Swain was rolled by the cabinet, which protected Telecom from unbundling. Other developed nations have forced the incumbent telecommunications company to open up its network to rivals to stimulate competition.

Ms Gattung said: "The reality is that more than 20 per cent of the sharemarket is at stake at a time when it is crucial for New Zealand to see growth in its equity and investment performance."

Ms Gattung also played the anti-Australian card. She said TelstraClear would benefit from unbundling.

"I struggle to see why it would be in New Zealand's interests to shift that value to an Australian company and to undermine the performance of the New Zealand sharemarket, and a stock which is of course a key component of the Government's superannuation fund," she wrote.

Ms Gattung also said Telecom would not invest in "next generation" network upgrades for residential customers if TelstraClear got access to its network.

"If TelstraClear was to get the bitstream service it is after, then we would never be able to make the economics work for this form of NGN (next generation network)."

Ms Gattung concluded by telling the Government how it should proceed. The Government should accept Mr Webb's recommendation for a watered-down form of unbundling, she said. At the same time, Mr Swain's message should include an expectation that Telecom would deliver on the commission's recommendations.

If the Government signalled it was not satisfied that Telecom was delivering, it would "revisit" the need for further regulatory options.

Mr Swain's later statements showed he followed Ms Gattung's advice.

In the letter she also offered Telecom's commitment to have 250,000 residential broadband customers by the end of 2005.

"We forecast more than a third of our projected growth in broadband (connections) will come from other players who will be wholesalers or resellers of Telecom's product," she wrote.
- nzpa