Telecom NZ pushes its luck too far

Smack down: it seems the Independent Oversight Group (IOG) set up to keep an eye on Telecom NZ's regulatory undertakings as part of the operational separation of its business takes its task seriously.

Over the past few months, there have been rumblings in NZ telco land over a loyalty discount scheme introduced by Telecom Wholesale. Put at least 90 per cent of your business with us, Dear Wholesale Customer, and we'll slash your costs, was the siren song from Telecom Wholesale.

The idea behind the loyalty discount scheme is to keep providers in the Telecom Wholesale fold, and to stop the likes of TelstraClear from unbundling further local exchanges. TelstraClear's talking about unbundling 70 exchanges next, some in provincial centres as well as the bigger cities.

Plus, the discounts are designed to keep providers away from buying wholesale services from Vodafone and Orcon that have already launched unbundling in Auckland. It appears the discount scheme came all the way from the top, from CEO Paul Reynolds, who has committed Telecom to containing unbundling at no more than 15 per cent of the country's local exchanges.

Now it looks like the wholesale discounts scheme has backfired rather badly, however. The IOG has apparently found that Telecom's in breach of its undertakings with the scheme, and if the matter goes to the Commerce Commission and is enforced in the high court, there's a NZ$10 million fine coming, backed up with NZ$500,000 a day to be paid until the situation is rectified.

Telecom, emboldened by conciliatory noises from the new National Government and small amounts of regulatory roll-back, obviously decided to test the waters with the discount scheme, to see how far it could go. Now it knows, and it's good to see that the IOG has passed its first test.

Local loop unbundling is under fire anyway, with fibre-to-the-node and providers being shut out of the sub-loop due to the recent regulatory decision that made it economically non-viable. If the wholesale discounts had gone through, Orcon, Vodafone and TelstraClear might as well have packed up their gear and kissed their million-dollar investments goodbye as it would've been the early end of LLU in NZ.