Wholesale effort to be carrier of choice

By Richard Braddell

Between the lines

Telecom's outgoing chief executive, Dr Roderick Deane, doesn't care a bit that his successor is a woman, and a young one at that. But he does mind if competitors build infrastructure that attracts business away from Telecom's network.

To explain. Being big and incumbent has obvious advantages. For some services, Telecom is the only player in the market. Who else, for instance, goes to remote rural areas, or provincial towns?

But incumbency has drawbacks which go beyond having to put up with incessant complaints from competitors.

For instance, if competitors take too much of his business, then Telecom's network is in danger of becoming underutilised, thus driving up the unit costs because the fixed and maintenance costs have to be spread across a smaller amount of revenue.

So it is perhaps not so curious that Dr Deane yesterday talked about pricing Telecom's business so that it becomes the carrier of choice, not just for the ultimate customer, but for other carriers as well, both locally as well as internationally.

It's a delicate balancing act for two reasons. Without getting into the argument on how much Telecom is losing on its Kiwi Share obligations, the fact remains that Telecom's network costs vary around the country. The second point is that competitors considering new infrastructure will use new, and thus cheaper or more effective, technologies for their own facilities which will skip servicing the low profit locations out in the wops.

But to remain in the market and price at a level that will discourage competing facilities, Telecom will have to offer prices to competitors that are determined as much by the cost of providing cheaper new capacity as by the costs of its own network.

It all points to the development of a wholesale market and, maybe, the erosion of prices in interconnection agreements that set the terms under which carriers deliver calls to customers in other networks.

Yes, interconnection. As Dr Deane pointed out yesterday, there are a dozen carriers with interconnection agreements. Not all of them have substantial networks, but enough do, he says, to create a market that will inevitably drive down interconnection prices.

Is this a Road to Damascus conversion? "We always knew that wholesale competition was going to take place, but now it's a reality," he says.

But the timing of his discovery is interesting. Had Telecom moved sooner, it may have destroyed the economic case for the construction of Saturn's Wellington network.

It's just as interesting that Dr Deane raised the prospect of cheaper interconnection in the context of the tough local loop disclosures the Government has just mandated.

Telecom lost that battle. But a more accommodating stance now may seem a jolly good way to head off demands for complete unbundling of the local loop.