Cheaper broadband the big winner, Telecom told

By PETER GRIFFIN

A visiting US academic and regulatory expert has delivered the message Telecom has repeatedly rejected - cutting prices for high-speed internet access will have consumers flocking to sign up.

Jerry Hausman, a professor at Massachusetts Institute of Technology, has spent years studying the telecoms sector and working as a consultant for some of its biggest operators.

From the debris of the troubled US industry, he says, one lesson can be learned - price reductions lure web surfers away from their slow dial-up internet connections forever.

"Once you use broadband you will never go back. We've had broadband in the schools in the US for five years and when they move out into their own apartments, they still want it," explains Hausman.

It is the cheap, flat-rate internet plans offered by New Zealand internet providers that have web surfers clinging to low-speed services, he says.

"New Zealand and the US are the only two countries where you get [unmetered dial-up] access to the internet. In every other country you have to pay by the minute."

Telecom has maintained that the arrival of exciting new applications will trigger an explosion in broadband take-up. But speed has proven to be the internet's biggest "killer app" - people just want to surf faster.

While an advocate of aggressive pricing for broadband, Hausman pushes the Telecom barrow when it comes to regulating the telecoms industry.

In Wellington for a conference focusing on TelstraClear's application to the Commerce Commission to resell many of Telecom's products, Hausman argues that consumers would be better off if TelstraClear built its own network and sold its own products.

He points again to the US, where regulator-imposed discounts have not created "facilities-based competition" but a situation where companies are "selling the same service at a discount". Many of them are now bankrupt.

While Hausman believes the range of discounts the commission has suggested TelstraClear should receive from Telecom are reasonable, he disagrees on what services Telecom should be forced to wholesale.

"National and international toll call services shouldn't be included.

"There's adequate competition there."

Hausman is also critical of Telecommunications Commissioner Douglas Webb's decision to examine wholesaling issues before tackling the notion of local loop unbundling - opening Telecom's copper network to competitors.

But he believes arguments about fixed-line networks and who can access them will largely be made irrelevant in the next five years with the proliferation of third-generation (3G) wireless services.

The Telecommunications Commissioner is facing some big issues this year and Hausman says the regulator seems to be doing a competent job.

If New Zealand thought it had a debate on its hands over who should stump up with Kiwi Share contributions, it should look at the US, says Hausman.

"In long-distance and cellular there's a tax rate which is almost 10 per cent now to cover high-cost areas."

Subsidies for uneconomic regions of the network were an issue dominated by "pork barrel" politics, where politicians with large rural constituencies fought for what they could get.

"Downtown Alaska is just as densely populated as downtown Wellington, but for historic reasons they get a huge subsidy," explains Hausman.

One answer, says the academic, is to auction off to the cheapest bidder the contract to run rural services and reward that provider with a subsidy.