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Telecom has signalled it is willing to sell its copper line network rather than face a proposed regulatory three-way split.
Chief financial officer Marco Bogoievski said that the model put forward in a Ministry of Economic Development (MED) consultation paper last week would make it harder for Telecom to compete and removed its incentive to invest.
Losing the copper wire network, which requires hefty upkeep, made for a "potentially simpler regulatory framework".
Telecom has been grappling with a Government order last May to make its network more accessible to rivals, in order to speed up the rollout of broadband.
The MED proposed Telecom be split into a wholesale business, a retail unit and an access network services unit, nicknamed "Netco" by Mr Bogoievski.
Telecom initially favoured a two-way split: retail, and wholesale which would include the network.
Today's suggestion went further than the MED's proposal and would be quicker, Mr Bogoievski said.
"...We think if you go down a structural separation path, downstream deregulation is a natural consequence, at a later date."
He said Telecom's incentive to invest stemmed from its vertically integrated businesses.
Once the retail business was separated "and you can't enter into any fixed commitments with the Netco any more, you lose a lot of your incentive to go out and build stuff...so the only way to get it right is to create pricing signals that drive that kind of investment."
"What we're saying is that what's proposed is like a halfhouse that could be the worst of all worlds, and you've got a choice: you go back to a much simpler form of separation or you push on and do a cleaner form of separation."
Mr Bogoievski rejected the notion that Telecom might deliberately take its time if forced to go the Government's way.
"We can't manufacture instantly 700 IT people, you can't undo the fact that we currently run a very integrated tight IT business so there's some practical constraints.
"It's not about resisting the Government's calls, it's just saying do you really want us to spent the next two to five years unpicking this, not delivering any new retail services or innovation in the market, given that we could end up with something that is almost certainly is not going to deliver the extra investment you guys are looking for."
Asked what Telecom might expect to receive from the sale of "Netco", Mr Bogoievski said analysts estimated it was worth $3 billion to $4b.
Earlier, Telecom chairman Wayne Boyd also said the plan was inconsistent with the desire of wholesale customers to see new regulated services in the market as soon as possible.
"Our principal concerns are that the consultation document released last week proposes a very complex form of separation that goes significantly beyond the (British) BT model, and in our opinion fails to address important questions around investment."
Telecommunications Users Association chief executive Ernie Newman welcomed the proposal to structurally separate the access network, describing it as "potentially a watershed for the telecommunications landscape".
"On the face of it there are several very important benefits for users compared to the current approach," Newman said.
Newman said severing the link between the network and Telecom's other businesses will provide certainty for future investment and access for rival telcos, plus reduce regulatory oversight.
"Nonetheless with proposals of this kind, the detail is crucially important. There is a huge amount of this to work through," said Newman.
Telecom planned to present a full submission on the MED white paper by April 27.
IN BRIEF:
The Government last week
As signalled in the Telecommunications Amendment Act introduced late last year, Telecom will split into three parts:
* An access unit, a completely new unit within Telecom, responsible for Telecom's network and the implementation of local loop unbundling.
* A wholesale unit to sell Telecom's services to wholesale customers, for example, broadband services to other internet service providers (ISPs), and Telecom's retail operations.
* A retail unit to sell services like phone lines, mobile phone services and internet to business and home customers.
Each unit will have its own management and staffing who will not be able to work for other units.
Likewise, the management will report to the Telecom chief executive but not share information with the other units.
The access unit is required to be physically separate to the other parts of Telecom.
Telecom today
The company said the Government proposal was too complex, expensive and goes beyond the separation used by British Telecom.
* It wants to form a structurally separate company - 'Netco' - to run the network, which could be then sold by Telecom or run in partnership with other telcos and/or the Government.
* Claims the establishment of Netco will ensure equitable network access for all telco players, give telcos the confidence for future network investment and reduce long-term regulation.
* Voiced concerns about its ability to deliver local loop unbundling and naked DSL - broadband services where the customer is not required to have a telephone service - while putting the Government's operational separation in place.
* Says the Government model will cost in excess of $330 million and require up to 700 extra staff at a time it is struggling to fill 250 IT vacancies.
* Wants to ensure pricing of regulated services will reward future investment in the network.
* Will make a firm undertaking to invest in services and infrastructure if the Government agreed with its proposed model.
* Laments the separation of telco regulatory management between the Commerce Commission and the Ministry for Economic Development and wants to see more coordination of regulatory efforts.
- NZPA/NZ HERALD STAFF
