Friday, May 05, 2006

Editorial: Telecom must accept new reality

When, in a symbolic act, a statue of Saddam Hussein was toppled in central Baghdad, it was tempting to assume the battle for Iraq was over. A malign influence had been removed, and peace, prosperity and freedom beckoned. Now, three years on, we know it was only the beginning. It is not stretching too long a bow to wonder how, three years hence, we will regard the Government's momentous decision to end the tyranny of Telecom and open its network to competitors. Will the euphoria that followed the announcement of the unbundling of the local loop have been justified? Or will this country remain burdened by expensive high-speed internet access and a slow uptake of broadband?

The answer lies, first, with the Government's fortitude in pressing ahead with, and overseeing, the changes. But it also rests, more importantly, with Telecom's response. It is unlikely to be mature cooperation. But will it be resistance or insurgency? The company's history is not encouraging. Since its birth, legal haggling over alleged anti-competitive practices and formidable lobbying, in which it portrayed itself as a Kiwi battler assaulted by giant overseas rivals, have become its stock in trade. Millions of dollars have been garnered in the process. The defence of this last vestige of its monopoly has been no less zealous.

Now, Telecom will be considering whether to persevere with that policy. It knows that the more it can stall, the longer its profits will continue unimpaired. It can also draw inspiration from across the Tasman, where the long-running obduracy of Telstra, the incumbent, has meant that only some 3 per cent of broadband connections have been supplied via the unbundling of the local loop. Telstra's competitors claim it has prevented greater penetration by charging ridiculously high sums for hooking up to its network.

But if Telecom is tempted to mimic that obstinance, it should consider where it has led. A feature of the Government announcement was the absence of even a smidgen of compensation for the company. The botched privatisation of 1990 meant Telecom could claim a property right, and, in return for the opening of its network, could expect, say, a leavening of its Kiwi Share obligations. But all it got was a warning from the Communications Minister that if it did not play ball, the structural separation of its retail and lines operations would be next in line.

The strength and scope of the Government's decision suggests its patience has been exhausted. It will no longer countenance New Zealand being ranked 22nd out of the 30 OECD countries for broadband uptake, unlike the National spokesman and Telecom's chief appeaser, Maurice Williamson, who argues we are poor and that explains poor broadband rates. The Government may also have recognised the situation is the product of its own gullibility.

As long ago as 2000, a ministerial inquiry recommended unbundling. Yet since then, Telecom has persuaded, first, the Telecommunications Commissioner and, then, Cabinet, to reject it. In the second instance, in 2004, even the advice of Paul Swain, then the Communications Minister, was ignored. Now, and most worryingly, Telecom's reach has been re-emphasised by its receipt of confidential Cabinet papers within hours of the unbundling verdict being signed off. There could be no clearer illustration of the company's proximity to the seat of power. This breach must be investigated rigorously: the papers were official Budget secrets.

Telecom's suspicious omniscience has not stopped this decision, however.

The message is clear. Telecom's best response, for its shareholders, consumers and the economy, would be to accept the new reality and put all its energy into competing for customers. Its huge presence and profile are significant pluses, and have already been used to advantage in the likes of the cellphone market. Telecom is being asked no more than to compete in what, internationally, is the telecommunications norm. It is about time.

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