KEY POINTS:
The separation of Telecom into at least three separate divisions will mean faster cheaper broadband and phone services for most consumers, Communications Minister David Cunliffe says.
Mr Cunliffe today announced he had approved Telecom's plan for a three-way split in its operations.
Telecom had been required to put forward the plan as part of the Government's decision in 2006 to reregulate aspects of the industry to boost competition and investment in broadband infrastructure.
The amended plan - legally enforceable from today - breaks Telecom into network, wholesale and retail divisions.
The Commerce Commission will oversee the implementation of the plan.
Mr Cunliffe said Telecom's wholesale division would now have to give other retail companies the same prices as it gave to its own retail division.
That would mean increased competition, better services and cheaper prices over time.
"What that means is a level playing field, more choice, lower prices and Kiwi families benefit," he told reporters.
Mr Cunliffe said the separation plan would also speed up Telecom's roll out of a new-generation fibre optic network.
Under the agreement Telecom had committed to rolling out the network to the bulk of New Zealand by 2012, with penalties if it failed to comply.
That would mean speeds of at least 10 megabits per second for 80 per cent of New Zealand.
He said recent advances meant Telecom expected to surpass the terms of the agreement and provide 10 megabit per second speed for 84 per cent of users and 5 megabits for 89 per cent by the target date.
"So that will penetrate right into rural New Zealand."
The agreement also contained enhanced provisions for rural New Zealand.
Mr Cunliffe said he expected the plan to see Telecom benefit from increased growth in the wholesale area as more retailers entered the market.
Telecom's new network access division, Chorus, is expected to be unveiled today.
"The robust operational separation of Telecom has been a priority for this government.
"It is one of a number of measures in the Government's strategy to deliver a more effective telecommunications sector for the long-term benefit of all New Zealanders," Mr Cunli ffe said.
"Our strategy is to improve market conditions to increase competition, innovation and investment to support New Zealand's transformation to a stronger, more productive knowledge-based economy and s ociety."
Mr Cunliffe said the deal was not the end of the road for enhanced market competition.
"Work will be ongoing in the Telecommunications Service Obligations, the broadband pathway, the Digital Strategy refresh and several other regulatory matters," he said.
Mr Cunliffe said Telecom would have three months to ensure its divisions had proper systems to ensure no information sharing took place.
The agreement did not preclude Telecom from selling off some of its divisions.
Telecom chief executive Paul Reynolds said the agreement marked the conclusion of a lengthy and exhaustive process of negotiation.
"As a consequence of thousands of hours of conversations, we have a clear understanding of both the words and the spirit of the undertakings."
He said the undertakings were challenging, but achievable, and Telecom already had several large infrastructure investment projects in train, including the roll out of its fibre network.
"Collectively these investments will deliver more choice and better products and services for telecommunications users, whether they are business or household consumers."
Separation Day - the official approval for the separation plan - will be one milestone on a long road for Reynolds.
Like Cunliffe, who is hoping to use the popular telecommunication shake-up as a selling point for Labour at the general election, Reynolds has some big challenges ahead.
And investors, wary after the company's half-year warning that things will get worse before they get better, are demanding Reynolds clear up some of the uncertainty over the telco's future.
Reynolds is to hold a briefing with Telecom investors in Sydney on April 10 and ABN Amro has warned that the cloudy future needs to be made clearer.
On Friday, Reynolds marked another milestone, this time in the company's $1 billion-plus capital programme of cabinetisation.
It is central to Telecom's renewal.
Reynolds said the investment in cabinetisation, so Telecom can hold on to its fixed line business, illustrated the new role of the three-headed Telecom following Separation Day.
Under cabinetisation, the networks division - called Chorus - delivers the infrastructure, such as fibre optic cables, to cabinets.
The wholesale division then sells capacity at the cabinets for both competitors and for Telecom's retail operation.
Reynolds and top technical brass converged on a footpath in the Auckland suburb of Pt Chevalier on Friday to open the first blocks' cabinetisation structure. Telecom is replacing long copper wire from phone exchanges to distant suburbs - in this case around 5km - from its Mt Albert exchange to Pt Chevalier.
Telecom's lines have relied on copper wire, which has been adequate for carrying voice traffic for phones.
But broadband internet speeds drop rapidly 1.5km from exchanges to homes using copper wire.
By installing fibre optic cables to cabinets established closer to consumers, there will be a lot less leakage from high-speed services.
How much faster are we talking? Telecom says that a 5MB attachment that used to take five minutes-plus to download will take 10 seconds under the new speeds.
But cabinetisation is expensive. And the company is already facing big capital expenditure problems.
As cabinetisation progresses, exchanges will continue to service consumers in their immediate vicinity. But each of the purpose-built cabinets services only about 300-400 customers and Pt Chevalier alone will require 10.
Another 1500 are planned for the next two years, with more to follow after that.
Beyond restructuring and cabinetisation, Reynolds has seen the first effects of the enforced unbundling of Telecom's local loop.
On March 13, state-owned Orcon installed its new high-speed equipment into Telecom exchanges, offering the first phone services that do not require a relationship with Tele-com.
But other prospective investors, such as Vodafone-owned ihug, are cautious about installing millions of dollars of new equipment into exchanges when cabinetisation could change the shape of the market and price for access.
Some, such as CallPlus, are sceptical about the two developments coinciding and suggest Telecom is trying to delay competitors investing.
Under a regulated programme, exchanges are being gradually opened up to outsiders.
And the cabinets have space for competitors.
The price for that access will be overseen by the Commerce Commission later this month and will be a key factor in deciding whether it is viable for competitors.
Because the cabinets are so numerous and serve small groups of consumers, it will cost a lot of money to invest in them.
The level of regulation for those charges will have a direct effect on Telecom's ability to rebuild the strength it once had as an anti-competitive, dominant telco.
At next week's briefing Telecom investors who need the new-look Telecom to stay dominant while growing with the market will want to know how that price balance is set.
PIVOTAL POINT
* Telecom is at a pivotal point as it adjusts to a newly regulated telecommunications market.
* Earlier this month Orcon became the first competitor to unbundle the local loop at five Telecom telephone exchanges.
* Telecom is spending more than $1 billion on fibre optic cabling to bring fast broadband closer to consumers and improve speeds.
* The telco faces Commerce Commission oversight on how competitors access its new cabinets, unbundling the sub-loop.
* Next week Telecom will face impatient investors at a briefing on how it plans to grow in its new regulated market.
- With NZPA
