Telecom-free homes coming soon

By CHRIS BARTON

Southland's decision to select Walker Wireless and Vodafone for its future telecommunications needs should bring something never seen before in New Zealand - competition in the residential market.

For the first time an entire region will not only have a choice in telecommunications services but also be able to entertain the impossible - a home without Telecom. This extraordinary possibility is made possible by new wireless technology which can bypass Telecom's monopolistic stranglehold on the phone wires to our homes. But it's also happening because of some forward thinking people in Southland.

Several years ago Southland realised the key to its future health was a modern telecommunications system and that Telecom, left to its monopolistic ways, was never going to provide it. Like much of the country outside the cities, Southland has appalling line speeds - so slow that many Southlanders don't even try to make dial-up internet connections.

You have to ask how on Earth we have got this. The answer lies in the Labour Government's 1990 decision to sell off Telecom to the Ameritech/Bell Atlantic/Fay, Richwhite, Gibbs, Farmer syndicate for $4.25 billion ($1.81 a share).

Government failure following the sale to properly deregulate the market left Telecom's monopoly largely intact. That guaranteed a significant revenue stream meaning Telecom has, for more than a decade, been able to under-invest in its network and still return fantastic profits to its investors. Since 1993 Telecom's capital expenditure as a percentage of sales has averaged just under 17 per cent. Compare that with the global average of 28 per cent for 2001 - or the Asia-Pacific average of 25.5 per cent.

So should Telecom be worried with real competition invading its Southland turf? Yes and no. Yes, because many of the services proposed by Walker Wireless/Vodafone simply can't be achieved over the existing Southland infrastructure. To reach 95 per cent of the community and 100 per cent of the region's schools with broadband - as set out in the Government's Probe initiative - Telecom has to make a substantial investment in its network. Or piggyback on the uncompleted national digital microwave infrastructure of TVNZ's transmission arm BCL - the option Telecom prefers. In other words Telecom is continuing to under-invest in Southland and proposing the Government shoulder the cost of modernisation - yet another example of how poorly handled state asset sales end up costing the country.

But while Telecom is going to be miffed that Walker Wireless/Vodafone is now going to get some of the much-vaunted "tens of millions" of Probe funds, it probably isn't too worried. The wireless consortium still has to deploy in Southland and then set its prices. That gives Telecom plenty of time to sure up some customers by offering discounts on its phone rentals - just as it has done in parts of Lower Hutt and Christchurch where TelstraClear's cable infrastructure provides competition.

That's going to make life difficult for Walker Wireless/Vodafone which is relying on cornerstone customers to provide a revenue stream for its investment. While many of those customers have committed in principle to the competing infrastructure, Telecom will be doing its best to woo them back with tempting price cuts. Let's hope Walker Wireless/Vodafone has done its sums right. Not to mention proving its technology can deliver and finding the necessary backhaul capacity if broadband demand takes off.

But the greatest problem with the arrival of competition in the market lies with the Government. Not just in dealing with the inevitable flak from Telecom for helping the competition, but what on Earth it is now going to do with the Kiwi Share.

That's the minimum level of service requirement - now called a telecommunications service obligation (TSO) - that the Government attached to the sale of Telecom when it gave the asset away so cheaply. It includes providing basic telephone access, untimed local calling areas and low speed (14.4Kbps) internet access for 95 per cent of residential lines.

The new Telecommunications Act sets out a mechanism to assess the net cost - if any - to Telecom of meeting these obligations and deems that other telcos should pay their share. But the problem for the telecommunications commissioner is to offset the TSO cost against the profits Telecom reaps by virtue of its monopoly. It's also got to figure out what to deduct from Telecom's costs for all those customers in Southland and other parts of the country who don't get the minimum TSO line speeds. And now, with competition, the commission will have to figure out what to do when Walker Wireless/Vodafone and not Telecom shoulders the TSO burden.

Clearly the TSO farce should not be allowed to continue. But what to do? It's important to keep some sort of universal service obligation to ensure all New Zealanders get decent telecommunications. But while Telecom continues to drag the chain on providing the minimum of service perhaps Southland's solution deserves serious consideration. The region proposes that Telecom be allowed to contract out of its Kiwi Share obligation which is estimated to cost between $100 million and $500 million nationwide.

Southland suggests this cost of modernisation should be valued on a region-by-region basis, "called up by the Government and set aside as an open and contestable Telecommunications Development Fund to be applied to the development of telecommunication services in the regions".

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