Telecom proposal weak, says advocate

Telecom's proposed split is fundamentally weak and will not achieve the Government's aims of a truly competitive broadband market, says Internet New Zealand.

The not-for-profit advocate for the New Zealand internet community made the comment in its submission to Parliament's Finance and Expenditure on the Telecommunications Amendment Bill, which aims to force Telecom to share its fixed-line phone network with competitors.

The comment comes after the presentation by Telecom chief executive Theresa Gattung and other executives to the select committee on Wednesday.

Gattung told the committee that Telecom had already begun the process to split into wholesale and retail units - called operational separation - as outlined in its submission.

Telecom said its proposed operational split was based on British Telecom's model, which is favoured by the Government.

But Jordan Carter, policy officer for Internet New Zealand, said "the model Telecom proposes is misconceived and well short of the benchmark BT model they adopt".

Carter said there were "significant differences" between the two models.

To achieve transparency and equal access for its competitors, Telecom has proposed that an independent oversight group be set up to monitor the wholesale units' performance based on legally binding undertakings.

But Carter said this proposition was in direct contradiction to the British Telecom model, which does not need an oversight group.

British Telecom's wholesale business Openreach ensured that it sold network access to its competitors on similar terms to its own retail arm by pegging Openreach's profitability to the number of unbundled lines it sells to all of its customers. Its profitability is independent of BT's overall profitability.

Carter said it was critical to get the most appropriate model in place to secure the Government's desired outcomes.

Internet New Zealand said structural separation - which would see Telecom split into two separate companies with separate chief executives - should be investigated by the Commerce Commission.

"Structural separation eliminates both the ability and the incentives to restrict competition. In particular it eliminates the incumbent's [Telecom's] incentives and possibilities to raise the costs of its rival firms by reducing quality or increasing the cost of access."

Internet New Zealand urged the Government to look at the implications of the reforms over the next 10 to 15 years and not just short-term wins such as faster internet access.