Chris Barton: New networks have head start

Two signs in the last week indicate competition in broadband telecommunications may at last get a chance.

The first was the Commerce Commission's announcement that it is to broaden the scope of its inquiry into local loop unbundling - the opening of Telecom's line monopoly to competitors.

The second was Counties Power's announcement it will offer customers in the Counties region one megabit per second access for the same price as 128 kilobits per second.

The two announcements reflect the opposite poles of the telecommunications regulatory debate. On the one hand the Government is preparing - belatedly - to impose rules on Telecom to force it to rent out its wires in a variety of ways. On the other with no, or very little, Government regulation involved, Counties Power has built its own hybrid wireless-fibre network and is delivering an entry level service eight times faster than Telecom's Jetstream Starter for roughly the same price.

Which would appear to be a good argument for saying regulation isn't necessary and that the free market is a much better mechanism for introducing competition. It's an argument advanced by not just Counties Power, but also Walker Wireless and state-owned networking company BCL which are also building alternative high-speed networks in parts of the country. They all say local loop unbundling per se is not a bad thing, but introducing it by regulation will have a detrimental effect on their future investment.

Counties Power believes if the market is left to its own devices, Telecom will voluntarily unbundle its network to competitors because it will have to compete for wholesale traffic revenues - especially when companies that are building alternative networks are taking retail business off them. To Counties Power that's a much better outcome and a sign of true competition in action. Not surprisingly Telecom backs the argument. It says competition by "builders" of alternative networks is how it should be. Competition by "bludgers" on its network assets is just plain wrong.

That leaves TelstraClear, a few smaller carriers and the Telecommunications Users Association of New Zealand (Tuanz) as the small band beating the unbundling drum. Their argument points out that in Australia, where unbundling and a robust wholesaling regime are in place, Telecom is happy to bludge on Telstra's network. They also argue the Telecom monopoly is inherently inefficient. By paying rent for the use of Telecom wires, competitors can ensure the legacy network is used to its maximum benefit and bring choice to consumers.

There's also the issue that even with new networks being built, some regulation in the form of interconnection to the Telecom network, is necessary. The interconnection rates set by the commission have clearly benefited Walker Wireless as it prepares to become a fully fledged telco and offer voice services as well as data.

Counties Power isn't totally opposed to Government intervention either. It would dearly like the Government to regulate on the ability to take your phone number with you when you switch carriers - something Counties wants residents in its area to do in droves when it begins to provide voice services later this year. At present customers wanting to change to another carrier have to get a new phone number which can be a huge disincentive to switch.

Meanwhile, the Government is widening the scope of its local loop unbundling investigation. Instead of just looking at the lines from our homes to the local exchange, the commission is looking at the whole area: access to the main distribution frame where the copper lines terminate at the exchange; co-location of competitors' equipment in the exchange; backhaul of competing providers' voice or data signal back to their own network; and line sharing the copper wires to allow for data-only services separate from voice.

All are part of the complex jigsaw that makes up local loop unbundling - a regulatory mechanism that is not without problems mainly because incumbent telcos resist it at every turn.

But because New Zealand is one of the last countries in the OECD to go down this regulatory path, we have the benefit of hindsight. Which is why the commission is going to look at the implementation of unbundling in other countries. If it is going to be introduced here, we may as well learn from others' mistakes.

So should we bring in unbundling by regulation or wait for the market to make it happen? The truth is we are so far behind in unbundling, we can do both.

If the commission did rule in favour of unbundling, that recommendation doesn't happen until December. Even then, the final decision rests with the Government. Given its track record on the issue, and the intense lobbying that will come from Telecom, there's likely to be more procrastination for another three months.

Then it's going to take 12 to 18 months for the effect of the new regulations to come into play. By my reckoning that gives the new network builders a two-year head start on the bludgers - more than enough time to demonstrate their business case.

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