Telecom wins in access verdict

By PETER GRIFFIN and KEVIN TAYLOR

It was the news Telecom's competitors had expected but did not want to hear.

The Government yesterday rubber-stamped a Commerce Commission proposal to give rivals limited access to Telecom's telephone and internet network.

That rejects the open-slather access regulators in every other OECD nation except Mexico have granted, albeit with mixed results.

It is a coup for Telecom, and its share price yesterday rose 9c to close at $5.66.

For Telecom's competitors it sends a clear message - build your own network if you really want to challenge the incumbent.

Communications Minister Paul Swain's decision focused on improving New Zealand's dire record in broadband take-up - and quickly.

"From the Government's perspective we wanted much better broadband uptake. One of the key things holding that back is price," said Swain.

He expected competition to take off as competitors lined up to settle terms for "bitstream access" that would enable them to deliver high-speed internet services.

TelstraClear's chief executive, Rosemary Howard, said she had a business plan that entailed spending hundreds of millions of dollars on laying copper lines to supplement using unbundled parts of Telecom's network.

That plan would not be activated because it was feasible only with unbundling.

"It will diminish the rate at which we can invest," she said. "Beyond our network reach we'll continue to be frustrated in what we can offer."

It was now "plan B" for TelstraClear, which would be able to provide "me-too" type services without much room to vary its services from Telecom's, said Howard.

She did not expect Telecom to be overly co-operative in negotiating broadband deals.

"I haven't yet seen Telecom do anything it feels it doesn't have to do. That's been going on since 1991."

Malcolm Dick, the founder of third-ranked telco CallPlus, said the decision was a disaster for the longterm development of competition.

The Telecommunications Users Association, a vocal advocate of unbundling, said New Zealand's future in the knowledge economy would now lie firmly in the grip of one company, Telecom.

Business NZ said "significant commercial uncertainty" had been removed and the market would remain competitive as a result.

Investment banker Macquarie said Swain's decision removed the "major short term risk" for Telecom and cleared the way for it to undertake share buy backs or issue special dividends.

ABN Amro is tipping Telecom to make "substantial capital returns to shareholders".

Its analysts say Telecom's capacity for returns of more than $400 million a year would pay for special dividends of around 20c a share annually.

The Government studied other examples of unbundling but was not enthused by what it saw.

"It's the thing that bedevils regulators around the world," said Swain.

He said he weighed up claims that a failure to unbundle would hurt trade deals with the fact that unbundling did not appear to have stimulated competition.

The decision

* Competitors get access to Telecom's copper wire network to deliver high-speed internet service similar to standard Jetstream services already sold by Telecom.

* The Government will monitor an offer by Telecom to provide within six months data circuits to competitors wanting to reach businesses.

* There will be no full "local-loop unbundling" which would allow competitors to provide full telecommunications services over Telecom's wires.