Peter Griffin: TelstraClear's withdrawal may be just a gamble

Is it genuinely throwing in the towel or just making a scene to shake the powers-that-be?

TelstraClear's announcement this week that it is shedding its ambitions of being a fully fledged telecoms provider can be taken either way.

The language is certainly strong, with TelstraClear chief executive Allan Freeth describing his company as "little more than a debt collector on behalf of Telecom".

"We are not a social service and nor will we allow ourselves to be used in an attempt to show that there is true competition in the New Zealand marketplace," he said.

So TelstraClear will now only sell services where it can make a buck - mainly in the business market.

If anything shows the new thinking in TelstraClear's boardroom, it is this week's u-turn. It follows setbacks and disappointments for the company formed from the merger of Clear Communications and TelstraSaturn in 2000.

Things went pear-shaped for TelstraClear in 2001 when it was stymied in its attempts to string overhead cables around Auckland city, as it had done in Wellington. Putting cables underground was deemed too expensive and running the cables along power poles was too ugly for Aucklanders to stomach.

TelstraClear's dreams of reaching the Auckland suburbs were dashed. The company went into a huff, but soon boss Rosemary Howard had picked herself up and was fighting for concessions in wholesale services. Telecommunications Commissioner Douglas Webb duly obliged.

Last October, I stood in the cavernous atrium of TelstraClear's North Shore headquarters as Howard and Paul Swain, at the time Communications Minister, celebrated TelstraClear's push into the residential wholesale market.

It started reselling phone line services from Telecom under the TelstraClear badge and asked customers to take all of their business to TelstraClear. There was a big TV ad campaign.

Some of the deals were more competitive than Telecom was offering. "Home phone line monopoly ends", a TelstraClear press release boldly proclaimed. Within a few months, 50,000 residential customers had been signed and TelstraClear was having trouble meeting the demand.

It was smiles, big screens and champagne all round that day. Freeth's gloomy concession of defeat this week shows what a fizzer the whole thing was - or does it?

The decision to stop pushing services in areas where TelstraClear doesn't have its own network came too late to put telecommunications on the election agenda, but it is nevertheless strategically timed.

Broadband wholesale pricing isn't likely to take centre stage in the deal-making going on between the political parties at present, but dismay with the regime has boiled over recently and politicians have taken notice.

The Tuanz Telecommunications Day last month in Wellington featured a lineup of Telecom's downcast competitors, complaining that the wholesale deals ordered by the regulator weren't working.

The visiting Danish telecoms regulator suggested we should have a fresh look at local loop unbundling.

Just before the election, Communications Minister David Cunliffe said Labour would push for $1-a-day high-speed internet access for all and would put pressure on Telecom to achieve it. The signs point towards a regulatory review of the present mix of wholesale deals.

TelstraClear has never had as good a lobbying presence in Wellington as Telecom and Vodafone, but as Telecom's main competitor its retreat will be greeted with great concern by the architects of the regulatory regime.

As many analysts have pointed out, the present broadband debacle isn't a good look for the Government.

"The sight of New Zealand's largest fixed-line competitor to [Telecom] ... admitting it can't compete will be seized as evidence of the failure of the regulatory regime," Macquarie Equities analyst Tim Smart said.

While Freeth may be playing a major bluff to win the concessions Howard never could, his messages are mixed. On the one hand, Freeth is talking about scaling back and delivering services only where it is profitable to do so, and that generally means where it has its own network.

On the other hand, he wants to sink a huge amount of money into building a mobile phone network.

While the highest-value 3G services will be used by businesses on high-use flat-rate calling and data plans, mobile networks are generally run by standalone players such as Vodafone, which have no vested interests in fixed-line networks, or by full-service players such as Telecom.

Companies in the middle tend to engage in virtual mobile network deals, and TelstraClear certainly courted this idea last year, even considering arch-rival Telecom as a mobile partner.

But with 86 per cent saturation in the mobile market, any player entering it is up against it.

Whether aspiring mobile minion Econet Wireless should still be considered a credible player or not, its boss Tex Edwards isn't making hollow excuses when he says the mandatory roaming and cellsite co-locations enshrined in legislation may not be enough to make setting up a third mobile network viable.

Analysts say TelstraClear would have to spend between $200 million and $600 million to build a mobile network and wait up to five years for a decent return. That hardly sounds to me like focusing only on business that makes profit.

With jobs set to go in a reorganisation driven from across the Tasman by a Telstra head office hellbent on cost cutting, I can't see the 3G card being played any time soon.

Howard's game was much easier to read - she wanted a mini-Telstra in New Zealand, and left bitterly disappointed when she failed to get it.

Freeth has been told to bash TelstraClear into better financial shape, but is his talk of withdrawal from some areas of the market a gamble to shock the Government into further regulatory action?

Consumers should hope that it is, and that the gamble pays off.