KEY POINTS:
With Telecom's plan for handling operational separation getting the thumbs down from the Government on Friday it is up in the air as to whether everything will be drafted, lawyered and approved by the March 31 "separation day" everyone initially had in mind.
The knock-back for Telecom highlights
the bizarreness of the step the Government took just before Christmas to agree a provision in the separation plan that would allow the chief executive of Telecom's wholesale division, Matt Crockett, to have 80 per cent of his incentive remuneration tied to the overall performance of the Telecom group.
That proviso was made without consultation with the rest of the industry and featured prominently in submissions criticising Telecom's proposed plan for the three-way separation of its business.
As InternetNZ wrote in its submission "It encourages a rational wholesale manager to put the interests of the group at the core of their work. Allowing incentives only on the basis of wholesale division performance, as previously required, aligned incentives on wholesale with pro-competitive behaviour. That is no longer the case."
Telecom's wholesale division is one of the fastest growing parts of the overall business as competitors buy wholesale services from Telecom in increasing volumes. But under separation, Telecom's retail division will be by far the biggest customer of the wholesale division.
Tying the bonus scheme of the head of the wholesale division to the overall performance of Telecom would logically encourage the wholesale manager to serve Telecom's interests above those of other players shopping for wholesale services. It is actually very strange that communications minister David Cunliffe approved this as it is the remuneration issue that has proved to be the major stumbling block in getting the proposal's seal of approval from interested parties.
It smells of some sort of unofficial deal being done between the Government and Telecom back in December, a sort of quid-pro-quo the details of which haven't emerged. Either that or Cunliffe simply bought Telecom's argument of "that's how it was done at BT". Either way, the provision is likely to go.
Anyway, at least once everything is ironed out we look to have a better system for wholesaling Telecom's network services than which exists across the Tasman, where there are increasingly calls for Telstra to face the same sort of separation due to the hardball stance it takes with wholesale customers.
"Owning both retail and wholesale/network operations involves [Telstra] in an intractable conflict that must be fixed if telecoms users are to get better prices, which in turn will help the economy to run more efficiently and improve national competitiveness," writes Michael Sainsbury in the Australian.