Peter Griffin: Pressure on for TelstraClear's Plan B

COMMENT

Here's the big question that comes out of last week's knockback for the local loop unbundling lobby.

Does Communications Minister Paul Swain's decision not to return the issue to the Commerce Commission effectively write off TelstraClear's chances of being anything more than a struggling niche player in this country?

It would appear the Australian challenger now has two options - invest serious money in New Zealand, which is what the Government was implicitly trying to tell it, or prepare itself to be sold.

One thing's for sure. The limbo in which TelstraClear has existed for the past few years can't continue much longer.

When TelstraClear canned its grand plan to build a national fibre network in 2002, it was looking to the opportunistic gains that unbundling would bring.

A couple of years ago, most informed observers would have said unbundling was a given, though of limited value in the short-term.

Indeed, the commission recommended the unbundling of Telecom's copper network in its draft report, so a sensible chief executive would have stopped digging trenches and laid off the contractors to await the outcome.

But the decision has now gone against TelstraClear. Telecom executives weren't out celebrating in Wellington last Wednesday night for old-times sake.

Unable to get its hands on Telecom's network except for providing some low-speed Jetstream-type services, TelstraClear has received its biggest set-back yet.

The lack of provision for full unbundling at the very least removes a bargaining chip for TelstraClear in its dealings with Telecom.

Fresh from signing off the A$636 million ($730 million) acquisition of the Trading Post Group and the A$333 million purchase of IT services company KAZ, the Telstra board will now be mulling over "Plan B" for the New Zealand outpost.

TelstraClear chief Rosemary Howard has talked about Plan B vaguely, but has never articulated publicly what it is.

We know she has no faith in wireless as a mass market solution, so my guess is that Plan B has "fibre to the kerb" written all over it.

By laying fibre to the kerbs of Auckland suburbs, TelstraClear can hit the biggest market in the country with VDSL - that's not a nasty disease, but shorthand for very high-rate digital subscriber lines.

With a sophisticated national IP (internet protocol) network already in place, TelstraClear could potentially lay fibre out to the suburbs and use cheaper copper lines, possibly overhead, to cover the last 300m to 400m to homes.

According to the DSL Forum, VDSL can deliver between 51Mbps (megabits per second) and 55Mbps over that last 300m. Downstream speeds of up to 13Mbps can be achieved over lengths beyond 1500m.

That would meet the targets the Ministry of Economic Development set in a report leaked last week. It wants most households to have access to a 50Mbps service by 2010.

At those speeds we're talking about pay TV, true broadband internet and bandwidth-sucking services like video on demand.

Sydney-based telecoms commentator Paul Budde says more efficient cabling methods are driving down the price of network roll-outs.

"The developments have enabled network infrastructure costs to be reduced to less than US$350 per home passed and a home connected cost of less than US$1000 in total," Budde wrote in his 2004 report on the New Zealand telecoms market.

And "microtrenching" is reducing the public outcry usually associated with laying cables. This involves cutting a trench an inch wide and two to six inches deep in footpaths or through street asphalt in which to lay the fibre cables.

The method means the base of the road is not disturbed and there is less disruption to traffic while cable is being laid. It is not suitable for highways, where deeper trenching is still required.

While nothing's signed, it appears TelstraClear and lines company Vector are exploring the idea of collaborating on fibre, despite their past legal squabbles.

Vector is an ideal ally. It has fibre resources through its former Tangent division and the fibre network it inherited in buying United Networks.

Vector also holds the key to Auckland's network of overhead power cables. TelstraClear this month ditched plans to string fibre cables overhead following the "cable city" outcry at the idea back in 2002. But it may have more luck proposing thinner copper wires for the last hop to homes.


But by and large they will still have to do it the expensive way - by going underground.

Just how expensive will it be?

Hard to tell exactly, but an Allen Consulting Group report commissioned by Ericsson that looked at the cost of laying fibre in south east Queensland, including Brisbane, gives some indication.

This analysis factors in a network cost of approximately A$850 million ($975 million) over a four-year period to cover a catchment area roughly similar in size to Auckland.

Industry sources suggest a 20 per cent premium would allow for all of the cabling to be underground, so you're looking at about $1.2 billion to cable the Auckland area alone.

In the Queensland example, the economic impact was considered to be positive to the tune of at least A$2.6 billion over 15 years, with the creation of at least 1000 jobs.

For any company $1.2 billion is not an inconsiderable amount, but TelstraClear would not have to foot it entirely if it involved co-investors and built an open-access network.

Investors will have to ask, however, whether the Telstra board would be throwing good money after bad if it committed serious capital investment to New Zealand.

Last year Telstra wrote down its investment in Asian joint venture Reach by A$965 million to zero. That brought to A$4billion the total write-offs Telstra has undertaken of its Asian assets, including Hong Kong mobile phone venture CSL.

TelstraClear also believes that being a 3G mobile player is crucial to its long-term success. That means it is faced with the prospect of laying fibre as it also builds a mobile network. That's a daunting task, but one that's nevertheless essential to make TelstraClear a viable long-term organisation.

A plan like that outlined above would mean some disruption for the public. But come on! We've decided that we won't let competitors piggyback on Telecom's network to any great degree.

But we're sick of not having much choice for our communications. Do we have to learn the hard way that we can't have it both ways?

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