Communications Minister Paul Swain's decision today not to allow competitors access to Telecom NZ's copper network is a body blow, for major competitor TelstraClear and will force a strategy re-think for the company.
Describing the decision as "a slap in the face for consumers", TelstraClear chief executive Rosemary Howard said made life harder for her company, but it remained committed to the New Zealand market.
Swain today announced he had decided to adopt Telecommunications Commissioner Douglas Webb's recommendation to accept Telecom NZ's offer to supply wholesale high speed Internet (broadband) services to competitors in a scenario known as "bitstream unbundling".
Telecom NZ investors celebrated by raising Telecom NZ's share price by nine cents to $5.66. Analysts said that while not unexpected, the decision had cleared an uncertainty hanging over it.
The alternative -- forcing Telecom NZ to give competitors access to the copper wires that link residential consumers to telephone exchanges or "local loop unbundling" (LLU) -- was rejected by Webb in his final recommendation on the subject.
Full LLU would have seen Telstra and other competitors given more freedom to develop their own telephone and broadband services in competition with Telecom NZ.
Under the scenario adopted by Swain, Telecom NZ will retain more control over the quality, speed and cost of broadband services, supplied by both itself and competitors.
Howard said the bitstream unbundling plan accepted by Swain offered "the absolute minimum speed that could be considered broadband".
Furthermore she said TelstraClear had so far seen no details of service description or pricing.
TelstraClear has very little of its own residential infrastructure, and already resells Telecom NZ services in some sectors.
The company clearly saw full LLU as its best way forward and led the Call for Change campaign to lobby Swain to adopt it in the wake of Webb's final recommendation. In his initial report on the matter Webb found in favour of LLU, saying it would encourage competition resulting in lower prices and faster consumer uptake of broadband.
Howard told NZPA Swain's decision today was a failure for consumers, businesses and the economy.
"It's a real slap in the face for more than 60,000 New Zealanders who demanded a choice through Call for Change," she said.
While choosing to emphasise the downside for consumers, Howard acknowledged it was a setback for her company.
"It means that the business model that we had -- to spend hundreds of millions of dollars over the next few years to build out on copper -- we'll keep that in the bottom drawer".
She said TelstraClear remained committed to providing choice and competition in New Zealand. "Without unbundling it will take longer than it should, but we will continue to make a difference."
Howard was clearly disillusioned by the process by which today's decision was reached.
"It's very interesting that they came to such an extraordinarily different outcome from every other developed country in the world."
ABN Ao Craigs broker Matt Willis described today's decision as bad from a broad industry perspective but good for Telecom NZ.
"It's not great for consumers. From an investor point of view its great news for Telecom," he said, adding that the threat of regulation would still overhang Telecom NZ.
In a statement announcing his decision today, Swain said he understood Telecom NZ intended to exceed the recommendations for bitstream unbundling set by Webb.
"The message to Telecom is that there is a chance to show good faith and truly pave the way for more competition," he said.
But Howard was sceptical Telecom NZ would show good faith on the matter.
"Can I see any reason why suddenly they think they should work in good faith with other players? No. I believe their strategy blatantly is to hang on to their monopoly at all costs and preferably to kill the enemy...I can't see any hope of better behaviour from Telecom".
Howard said it was "bizarre" the Government was willing to trust Telecom NZ to deliver the benefits of competition "when its own agency, the Commerce Commission, is taking Telecom NZ to court for anti-competitive behaviour."
In March the commission filed High Court proceedings against Telecom NZ, alleging the company had misused its market power to deter competition in high speed data transmission.
The alleged behaviour included Telecom NZ setting retail prices lower than wholesale prices for a particular product.
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