Should the Government own Orcon?

The overwhelming feedback I've had to the news that state-owned Kordia will partner with Pipe Networks to build a trans-Tasman undersea cable, is that it makes Kordia's ownership of internet provider Orcon an increasingly bad fit.
Kordia stumped up $24 million in July last year to buy Orcon, picking up a second-tier retail player in the telecoms market. The reasoning behind the purchase was that it made Kordia a vertically integrated company, free to sell its own products under the Orcon banner.
Kordia's first foray into the broadband market, where it sold wireless broadband services covering the rural sector under the Extend brand, wasn't a success. Kordia blamed a lack of support from retail partners like Telecom and seemed to be frustrated that its status as a mere wholesaler gave it very little control over the commercial success of its services.
But the wholesale market seems to be what Kordia is best suited to. It wholesales broadcasting services to the main broadcasters and the Freeview consortium. It will run a metro Wi-fi network for the Auckland City Council. It leases wireless and fibre capacity to a range of players. Now it will also sell international capacity on its submarine cable to local ISPs.
It would seem then that this Government-owned asset is the best vehicle to supply open-access network connectivity to broadcasters, telcos and ISPs without bearing the risk of playing in the retail space itself and competing with its wholesale customers. That sounds like the logical role of an SOE.
Why then, many ask, is Kordia playing in the retail space and taking the risk of investing in local loop unbundling with Orcon?
After all, the ISP is already a drain on Kordia's resources. During the period covering the six months to December 31, 2007, Orcon contributed a loss of $962,000 to Kordia.
"Orcon has not met profit budget this half year due to inadequate margins available on the resale of Telecom DSL," Kordia noted in its interim report
At least one industry executive has a problem with that explanation.
"The Kordia comment doesn't make sense - wholesale DSL margins have actually been slightly on the rise in recent times - the effect of regulation," he told me.
Orcon has been spending up to win new customers with aggressive phone and internet deals, which may explain the loss.
"However," my source continues, "an almost $1 million loss in 6 months seems high and the turn-around of margins via local loop unbundling will take years given Orcon's customer base will be distributed all over the country and further split by cabinets soon enough."
The fact is, the Orcon losses worn by the Government could continue for some time as the ISP invests in local loop unbundling, something that has a fair amount of risk attached to it due to Telecom's plan to bypass some exchanges with fibre directly to roadside cabinets.
Was the Orcon purchase an ill-conceived move given the uncertainty in the ISP market and Kordia's broadening reach as a wholesale provider of services to the telecoms market? Should Kordia keep Orcon or sell it and return to a wholesale-only model?