Telstra retreat seen as wake-up call to stimulate competition

TelstraClear's decision to scale back its ambitions in New Zealand reflects a severe failing of the telecommunications regulatory regime, industry observers say.

"This is the first time that telecoms competition has failed to such an extent anywhere in the world," said Sydney-based telecommunications analyst Paul Budde. "It will be interesting to see how the Government now intends to stimulate innovation and competition in the New Zealand telecoms market.

"Competition is the key driver for this purpose and TelstraClear's retreat will severely undermine future progress."

On Monday, TelstraClear said it would not be "a contender and a source of competition in every market" and instead limit network expansion and focus on existing areas of business that are profitable. The company also said it would limit reselling of Telecom phone lines to high-density, high-profit areas.

Slingshot chief executive Annette Presley mirrored Budde's sentiment and said the Government would now have no choice but to finally implement stronger regulation.

"If this isn't a wake-up call for the [Communications] Minister, I don't know what is."

Ernie Newman, chief executive of the Telecommunications Users Association, called TelstraClear's decision "furiously disappointing" but said it would definitely "strengthen the hand of the incoming minister" in terms of regulation.

"New Zealand has been too slow to get in place a regime that allows resellers to resell Telecom's services on a satisfactory business model. Sadly, time has run out," he said.

With the Government's status still unknown, Communications Minister David Cunliffe issued only a brief statement yesterday that said "any incoming government would seek advice on the impact of [TelstraClear's] decisions and consider whether any action is required".

The markets, meanwhile, took the news in its stride. Telecom shares were steady yesterday at $6.04 while Telstra shares dropped 4c to $4.71.

Telecom was not surprised by the news and likened TelstraClear's strategy decision to its own situation in Australia, where its AAPT unit has in recent years rebranded itself as a niche player.

"We made the decision not to be all things to all people, but to focus on the niche markets where there are most opportunities," Telecom spokesman John Goulter said.