Where to run rings around Telecom?

By Richard Braddell

Between the lines

Saturn Communications has $100 million in its back pocket and bankers who should be more than satisfied with its Wellington network.

As the Wellington rollout nears completion this year, Saturn could be expected to announce plans to build a phone network serving households in Auckland or Christchurch.

Such an expansion would keep its cable workforce intact.

But there is one small problem: the competitive environment is not quite what Saturn expected when it entered the market.

Saturn has done well in Wellington, claiming a quarter of households and expecting to have more cash coming in than is going out by the end of the year. At the very least, says chief executive Jack Matthews, it should achieve the business plan set when it entered the market.

So a few wrinkles in the regulatory environment are hardly likely to stand in the way if money is to be made, particularly when some of the more objectionable features in New Zealand's competition law are being reformed.

But which city should it go to next?

While Auckland would seem the obvious target, industry expectations are that it will tackle Christchurch first.

Christchurch's flat topography lends itself to a quick rollout.

Auckland, in contrast, is a nightmare. Its multiplicity of local authorities have very different attitudes to granting resource consents.

Laying cables underground is made no easier by corridors already clogged with other services, a factor thought to be among those that deterred Telecom from completing its First Media cable network.

But for Saturn to turn its back on Auckland is risky. To be a force, or at least a name of substance, Saturn has to serve the region.

And the longer it delays, the easier it will be for competitors, and Telecom for that matter, to take advantage of cheaper new technologies and build their own beachheads.

Nevertheless, no rule says Saturn has to serve all of Auckland. It could just go to easier parts, perhaps settling for a smaller catchment of say 150,000 homes, or a potential market much the same size as in Wellington.

Meanwhile, evidence suggests the environment is moving towards new entrants such as Saturn. The dispute over Telecom's management of internet traffic highlights inadequacies in interconnection agreements that Telecom may be just as keen as the new entrants to resolve.

But for Saturn the best thing as it embarks on a new market may be another marketing and public relations disaster from its competitor. That was exactly what Telecom's street-by-street price matching in Wellington became.