Transtasman telco rivals play tit-for-tat

By PETER GRIFFIN and agencies

The Air New Zealand-Qantas deal is not the only major transtasman issue before the Commerce Commission: telecomunications regulation is also transforming the relationship between Telecom and Australian-owned TelstraClear.

Since the inception of the Telecommunications Act in December 2001, the commission has targeted Telecom's strangehold on most sectors of the communications market.

Decisions have presented Telecom's competitors, in particular TelstraClear, with lower network interconnect charges and the ability to wholesale a greater range of Telecom services at larger discounts.

As a result, Australasia's two largest telcos, Telecom and Telstra, are coming to terms with the regulatory implications of playing in each other's backyards.

In Australia, Telecom's AAPT division has benefited from regulation imposed on incumbent Telstra. In its home market, Telecom is the target of the regulator with TelstraClear pushing for concessions that its parent has spent years resisting across the Tasman.

So far the impact of regulation on Telecom has been a cost of some $30 million in the year to June 30, largely offset by a $22 million Kiwi Share payment to Telecom from its competitors, which must contribute each year to the losses Telecom incurs in providing basic telephone and internet services nationwide.

As wholesaling gathers pace, the impact on Telecom will increase, but local loop unbundling may prove to be the biggest thorn in its side.

Unbundling aims to increase competition among telephone companies by forcing the dominant carrier to rent its lines to rival companies at cost, plus a specified profit margin.

Telecommunications Commissioner Douglas Webb will release a draft ruling on unbundling by September 18 and make a final recommendation to Communications Minister Paul Swain by the end of the year.

Telecoms consultant Brian Savin says that unbundling the local loop network is essential to foster competition and improve services to consumers.

Telecom is not prepared to take the challenge because of an inability or unwillingness to confront greater competition, he says.

"By and large Telecom will find that wholesale is one of the most, if not the most, profitable line of business it can engage in," says Savin.

But Telecom sees no bright side and is fighting to keep its near monopoly. TelstraClear, Telecom's main land-line rival, accuses Telecom of trying to stymie the unbundling review process to cling to its status as the main telephone provider.