Chris Barton: Telecom's battle of the loop

From the outside, the Warkworth telephone exchange is an unprepossessing place - a utilitarian box with yellow brick walls punctuated by slits of floor-to-ceiling windows and capped by a flat steel roof.

It's hard to fathom how a building this bland could be a site of conflict. Inside is just as bland, but eerily empty. Abandoned spaces - a kitchen, staff toilets, a lunch room, offices - tell of time when people worked within these walls.

But there are no people here now - just corridors of beige steel cupboards and racks filled with humming telecommunications electronics.

It's not until we move into the rooms with the wires that I encounter the source of the power struggle. Racks and racks of wires everywhere - at once ordered in the confines of blocks and tangled in seeming chaos as they spill out the other side.

This mess of copper wires - replicated in exchanges around the country - is the last bastion of the Telecom monopoly. These are the wires that wend their way to our homes.

To their owner, Telecom, they're a stronghold it wants to keep and control. To Telecom's competitors they're a stranglehold that must be loosened. To the Government they're a festering sore it would prefer to ignore.

Welcome to the wires and wherefores of what's known in telco jargon as "unbundling the local loop".

Translated, that means freeing the wires to competition. How do they do that? Through regulations that allow competitors access. Why? So that the monopoly doesn't detrimentally control the market and to provide greater choice and benefits for consumers.

If our local loop was unbundled, it would work something like this: competing telcos would pay Telecom to collocate some equipment in their exchanges that would enable them to offer residential consumers their services.

If a consumer took up the offer, the competing telco would direct Telecom to connect that consumer's copper wires to their equipment.

It would also pay Telecom an agreed rental for the use of that asset. From that point on the consumer would no longer be a customer of Telecom, and would be billed by the competing telco.

There are various technical ways this "unbundling" can occur: by physically taking over the raw, cold copper and independently powering it; or by taking over parts, or all, of the "bitstream" on a powered wire.

The topic of unbundling has been kept off the regulatory agenda ever since the Inquiry into Telecommunications dropped the ball in October 2000. That was despite nearly every other civilised country deciding it was essential for a competitive telecommunications market.

The issue did, however, make it into the Telecommunication Act, which was passed in December 2001 - but only to delay any investigation into unbundling until December 2002 and delay any decision until the end of this year.

Meanwhile, most countries have worked through the difficult mechanisms needed to put unbundling in place and are beginning to reap the benefits.

But finally, the topic - "Local Loop and Public Data Network Unbundling" - is back on the agenda in a Commerce Commission issues paper.

Communications Minister Paul Swain should have the commission's final recommendation by October.

The evidence in the issues paper shows unbundling should be a foregone conclusion. The main argument against it - that it discourages investment in alternative networks - has proved untrue in OECD countries. In fact, unbundling increases investment in competing infrastructure because it removes the barriers to entry.

The evidence also shows that, after a slow start, benefits - in the form of lower costs for broadband, faster access speeds and more choice in services - do eventually flow to consumers.

But as the Commerce Commission goes through the motions to end our delay in unbundling, consumers continue to suffer. With one of the lowest uptakes of broadband in the world - 1.36 subscribers per 100 inhabitants - New Zealand ranks a sorry 23rd out 32 OECD countries.

All of which adds up to making the commission's recommendation, and Swain's decision, a no-brainer.

* Email Chris Barton

Inquiry into Telecommunications

Local Loop and Public Data Network Unbundling