Govts shouldn't damage their creation

There's something disturbing when government demands a business split itself to gain broadband contracts.

There's something disturbing when government demands a business split itself to gain broadband contracts.

Such is the dilemma faced by Telecom New Zealand if it wants to take part in NZ's NZ$1.5 billion broadband initiative.

The government here has ruled Telecom New Zealand must fully separate its retail and networking divisions if it wants to gain work on the project.

The argument is, this puts other retailers on an equal footing. But it seems alarming for governments to intervene to such a great length. Shouldn't businesses be allowed to operate more freely?

Telecom CEO Paul Reynolds has this week been explained the issues both in New Zealand and at an investor day in Sydney.

IDC analyst Rosalie Nelson likens a proposed separation of Telecom NZ to "untangling spaghetti".

Just what bits do you chop off? And that's just the start of the problems.

Indeed, there is talk of de-mergers and even a nationalisation of Telecom's Chorus networking division!

Now, Ernie Newman of the Telecom Users Association of New Zealand says the country will be better off if Telecom works with the government in implementing the ultrafast broadband initiative.

Wasteful duplication would be avoided, he argues.

Well, I just feel the price of separation could be too high for Telecom and too high for New Zealand.

All the talk of Telecom NZ splitting has badly hit its share price and with Telecom being a major part of the Kiwi financial scene, the rest of the country's sharemarket has been hit too.

Mum and dad investors were hit enough when shareholder value was destroyed by the Local Loop Unbundling of the former Labour government.

If I were Telecom NZ, rather than undergo a costly and risky split, I would certainly look at competing against the government's own network.

Given this, if I were government, I would look at letting Telecom take part in the ultrafast broadband project, even if only in regional projects. Rather than join the Telecom bashers, government must recognise the value of a successful Telecom for New Zealand.

Whatever happens, it will certainly be interesting for all to see what Telecom New Zealand does and how it fares. Telstra is negotiating similar plans with the Australian government.

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