Chris Barton: Unnecessary bleating about unbundling

God of telcos at thy feet,

Hog-tied by monopoly we meet,

Don't unbundle we entreat,

God defend our Telecom ...

Okay, it doesn't quite scan, but that's the anthem most are singing to the Telecommunications Commissioner following his draft decision to unbundle the phone wires to competition.

Even its fiercest rivals are saying leave poor Telecom alone and keep the monopoly intact.

Have they all gone mad? Yes, because they are all terrified of the competition this new regulation will bring.

It's a sorry sight. Suddenly most of Telecom's would-be competitors - the ones who are building new networks - are saying their business cases don't stack up if unbundling goes ahead.

State-owned network company BCL has the loudest bleat.

"In its present form, the draft report will result in BCL either withdrawing or not expanding further into the provincial and rural New Zealand broadband markets."

Woosh Wireless has a similar whinge: " ... unbundling on the broad scale proposed will expropriate the significant existing investment which Woosh has already made in its network ... It will be a form of regulatory predation which will undermine some competitors such as Woosh and favour other competitors".

Then there's Counties Power, which apparently isn't against unbundling but believes "based on electricity industry and telecommunication industry experience, that unbundling won't work unless Telecom wants it to work and that enforcement is likely to have unintended negative effects". Just the message every regulator likes to hear - "don't regulate because you'll stuff it up".

So is this just posturing to limit competition, or genuine fear? And if it's fear, is it of competition or of Telecom? Perhaps both? Sifting through the raft of submissions on the Commerce Commission website shows the following arguments:

Unbundling will limit investment in new infrastructure:

Competitors such as Counties, Woosh and BCL are worried that an unbundled Telecom copper wire will be a cheaper option for providing services than their own networks.

If that's true then they're using the wrong technology and they might as well give up now.

The fibre and wireless technologies proposed by the new networks have huge advantages over Telecom's ageing copper in terms of cost, maintenance and delivery of services. If the business case doesn't stack up against a Telecom line leased at a wholesale rate of about $25 a month, then the business is fundamentally flawed.

Unbundling stifles innovation:

Similar to the above, the argument here is that innovation comes only from new networks. But that's partly because Telecom wholesales products entirely on its own terms, resulting in re-branded versions of its limited offerings.

With unbundling there is wholesale access to the raw copper or its bitstream, so competitors will be able to use their own equipment, software and networks to deliver customers different products and services.

Unbundling will hurt Telecom:

And what's good for Telecom, our largest listed company, is good for the country - an argument in favour of a monopoly. And if it's a monopoly, it should therefore be regulated. Even if Telecom is forced to unbundle, the company will still make huge profits.

Wholesale business is still good business for incumbent telcos because there's less cost in the equation. If the whole market grows as a result of the increased competition, revenue can increase, too. Telecom is already a lean, mean, fighting machine. When it decides, or is forced, to drop its fortress mentality, it will be both an aggressive wholesaler and a formidable competitor.

There can be only one:

The argument says New Zealand's small population and spread-out geography mean only one nationwide telephone network is sustainable. Network builders such as Woosh, Counties Power and BCL beg to differ, but even their most expansive plans do not envisage covering the entire country - just the small pockets where they each believe they can make money.

Unbundling provides a mechanism for more than one to more efficiently use the existing network, providing the potential for competition on a much wider scale. But even then, it's not viable everywhere.

TelstraClear, in its best estimate with local loop unbundling and bitstream wholesaling (the latter is not yet mandated by the commission), believes it will be able to reach 80 per cent of residential and 88 per cent of business lines.

The argument for multiple network competition is also a double-edged sword. Overbuilding of infrastructure can result in drastic unsustainable price reductions as hungry new entrants struggle to get traffic on empty networks. The high-risk game has seen some would-be telcos in Australia, for example, fail.

Unbundling doesn't work:

Not true, but it is a far-from-perfect regulatory mechanism and takes an awfully long time to come into effect. Telecom says unbundling would not take effect until 2007 at the earliest.

Unbundling impinges on Telecom's property rights:

The absurdity of this argument was demonstrated last month by Act communications spokeswoman Deborah Coddington, who compared unbundling to the fashion industry.

"We could increase competition in the fashion industry and deliver cheaper prices to fashion victims by forcing Karen Walker to stock Trelise Cooper, World, Kate Sylvester and Carly Harris labels, but that would be breaching Karen Walker's property rights by doing so. That is, the right to sell in her shops the clothes she chooses to sell."

Coddington's analogy shows she may know something about fashion, but she knows nothing about telecommunications. For it to make any sense, Karen Walker would have to be a monopoly controlling the supply of, say, the wool the fashion industry needs to get garments on to our backs.

At the moment Telecom is making sure the whole mall can sell only one brand.

Let's stop moaning and get on with it:

In telecommunications, competition is good and monopolies are bad. The economic benefits that come from competition are most pronounced in the broadband market which, if it was allowed to flourish, could deliver huge economic gains.

* Email Chris Barton