KEY POINTS:
Telecommunications Commissioner Douglas Webb has blasted Telecom's proposed model for structural separation, saying it will lead to reduced competition, less regulatory oversight and increased prices for consumers.
In another blow for Telecom's separation plans, Webb said the Telecom model was far from being the "fresh approach to regulation" the company touts it as.
"Telecom's proposal is reminiscent of a type of rate-of-return regulation that has been discarded in most countries, due to its tendency to lead to 'gold-plating' of investments and to weak incentives for cost minimisation," said Webb in the Commerce Commission's submission on Telecom's plan for structural separation.
"It is in marked contrast with international regulatory best practice for industries such as telecommunications where technology changes are common."
Webb, due to step down from the commissioner role in mid-July, is critical of Telecom's plan to bypass the independent oversight of its wholesale and network divisions proposed in the Government's model.
He said the "highly unusual contract-based" agreement between the network company and the Government would shield Telecom from regulatory scrutiny.
"This would be coupled with promises of future investment similar to those that Telecom has made in the past and which have been proven to be fluid in nature and hence difficult to monitor and enforce."
Webb's submission comes after Telecom advocated splitting in two, which would see its retail and wholesale units operating under the Telecom banner and the network assets held in a separate company.
Its plan has come in for vociferous criticism from its competitors, who have accused it of trying to stall the Government's implementation of its telecommunications reforms.
The Government plan is for Telecom to be operationally separated into three units - retail, wholesale and network - with independent regulatory oversight.
The separation would force Telecom to open its network to rivals, bringing a greater range of products and services to consumers.
Webb's comments are the latest setback for Telecom, after Communications Minister David Cunliffe said this month that the company's plan for a structural separation fell outside the scope of the Telecommunications Act and the Government's separation proposal.
"Unless and until a voluntary structural separation model can be demonstrated to better achieve the outcome sought by the Telecommunications Amendment Act, operational separation remains the requirement of the act," said Cunliffe.
The Commerce Commission is currently determining the terms and conditions, including price, for rivals to access Telecom's broadband service, called bitstream, and the company's local loop network.
Webb disputes Telecom's "unfounded" assertion there is a bias towards lower returns and a "propensity on the part of the commission to expand regulation once investments have been made".
He said the commission recognised that under-investment could be detrimental to consumers.
Access pricing - what Telecom charges competitors to use its services - leaned towards the higher end of the scale, where a low price would risk jeopardising investment. Webb warns that Telecom has downplayed the negative impacts in favour of a focus on achieving investment certainty.
At the beginning of the month, Cunliffe gave telco players and the public an opportunity to comment on Telecom's plan to spin off its network business. Telecom's share price yesterday closed up 1c at $4.77.
Expert scrutiny
Commissioner Douglas Webb's criticism of Telecom's split plan:
* Shields Telecom from regulatory scrutiny.
* Makes Telecom's investment promises difficult to monitor.
* Does not strike the right balance between competition and continued network investment.
* Could lead to higher prices for consumers.
