Peter Griffin: Hard questions on Probe's problems

COMMENT

Some heated conversations in the corridors of power are likely to take place in the next few weeks after the partial breakdown of the Government's Project Probe initiative.

Woosh's withdrawal from three regions which had enthusiastically backed it as a credible alternative to Telecom leaves a bunch of people with some explaining to do.

The minister responsible for the project, Trevor Mallard, may be able to brush off reporters with "no comment" but it will be a different story when the questions are put to him in the House.

The most obvious question is this: Why has Telecom, a monopolistic telecoms operator and one of the most profitable companies in the country, been left holding millions in Government funding and contracts to service most of the country, when one of the aims of Project Probe was to stimulate competition?

Probe's primary aim was to get broadband to all schools by the end of the year - a target looking shakier by the day.

The default result is that it will now be harder for challengers to take on Telecom in regional areas.

Telecom is using taxpayer money to subsidise its high-speed internet services to undercut competitors.

How much money did the Government and regional bodies spend on consultation and negotiation of contracts with Woosh?

A conservative estimate of Wairarapa's spending on Probe consultation was reported last week to be $80,000. It was probably a lot more - consultants, especially in telecoms, don't come cheap.

Why didn't the Government, the Probe management team and the regional bodies move more quickly to ditch Woosh?

Last year, Probe's Government-appointed project manager, Tony Van Horik, said that all the preferred suppliers had met the "tender criteria". Presumably, that meant the selected operators could launch a network in time.

Woosh met the criteria and for over a year publicly spoke of its determination to sign contracts with the regional bodies and roll out networks in its regional strongholds. Was this taken at face value by the Government-appointed officials running Probe? Was there a progress framework in place?

Why were there no penalties for companies unable to meet their obligations? The only risk lay with the Government.

The Northland Probe steering group representative, Chris Mathews, says he knew "several months ago" that Woosh was in trouble. Why wasn't the plug pulled sooner?

Why was Counties Power awarded the tender and funding for Auckland based on its wholesale model when Telecom, a retailer of BCL's wholesale service, was given the money for other regions?

Wired Country receives Government funding and is able to fairly pass on the benefits to resellers, such as ihug, Iconz and Wave Internet. As a result, any provider can strike a deal with Wired Country under the same terms.

In the 11 regions won by Telecom, the telco itself received the funding even though it was selling a service provided by BCL. Other providers seeking to sell the BCL service in the same regions as Telecom are at a disadvantage because they do not have the Government money to subsidise their services.

Maybe the wholesale model employed in the case of Wired Country should have been applied throughout the country.

That would have seen Government-owned BCL handed millions in funding. BCL would have been able to deliver a cheaper service, leaving retailers such as Telecom, ihug and Iconz to compete on a more equal footing.

In reality, Telecom could subsidise its rural service heavily without the Government grants, but it would be hard to do so without appearing anti-competitive.

The most exciting thing about Probe was the prospect of an ihug or Iconz eventually launching a voice over wireless service to compete directly with Telecom's monthly telephone line rental. Those Wairarapa and Northland free-calling zones could have been a reality.

Farmers, rural businesses and schools could have been able to sever the umbilical cord with Telecom, giving all of their business to a nimble competitor.

The structure of Probe has ironically had the effect of limiting competition rather than stimulating it. The scary thing is that we haven't seen BCL deliver voice capabilities - even in a public trial.

As for the future of Probe, Probe 2 or the "e-regions" initiative, Telecom now has the muscle to dominate those initiatives, fairly reasoning that with the bulk of the Probe regions, it should have the most input.

Probe was touted as a competitive way to bridge the digital divide. It will eventually do the latter, but at a cost we might be counting for some time.

* Email Peter Griffin