Sunday, May 07, 2006

Peter Griffin: Unbundling order not before time

Why didn't someone send Helen Clark to South Korea sooner? Last year the Prime Minister came back from that country, a high-speed internet Mecca, and said she'd felt like a "country cousin" on seeing internet services there.

By the time parliament resumed in February she was talking about urgent new regulatory measures to increase competition in broadband.

"Our country is on a journey - away from the old economy to a new one," she said. We need to increase competitiveness to keep up with the rest of the world. Last week's decision to open Telecom's network to its competitors was a welcome one that should have been made three years ago.

The template for what was decided last week was set out in a report by the Commerce Commission back in 2002. But the commission did a U-turn after hearing submissions on the matter. The then communications minister Paul Swain took the recommendation not to unbundle to the Labour cabinet and despite his own reservations, it was approved.

Instead of unbundling we got a flaky wholesale internet regime that Telecom's competitors haven't been able to make any money out of.

Unbundling means you won't have to keep paying Telecom $42 a month in line rental just so you can have a broadband connection with another supplier. It means that competitors can deliver internet and phone services at speeds and levels of service they decide on.

These companies can put their equipment in the Telecom exchanges that will make them money, the ones in urban centres. It's inevitable that customers in rural areas won't initially benefit from unbundled services and the Government will have to step in.

The biggest winner will be TelstraClear which has been restricted from selling residential broadband services profitably outside of its cable networks in Wellington and Christchurch.

The ball will now be in TelstraClear's court. Its Australian parent, Telstra, knows the unbundling game; it's spent years trying to keep competitors out of its exchanges across the Tasman. The other winner is iHug and its Australian parent iiNet which has been putting its equipment into Telstra's exchanges to deliver unbundled services.

It knows what's involved and has in the past pledged to invest $20 million in rolling out services here if unbundling was mandated. Depending on the pricing and Telecom's level of cooperation, things are looking up for businesses and consumers.

Be warned, wherever unbundling has been introduced, it takes a long time to get right. Incumbent operators drag the chain and haggle over price.

Britain's unbundling regime got off to a shaky start. But in 2004 after four years of minuscule progress, the British regulator Ofcom demanded that BT lower the prices it charges competitors for granting access to its lines.

Suddenly it became economical for internet providers like Easynet, UK Online and Wanadoo to put equipment in BT's telephone exchanges. America Online entered the British phone and internet market in January. British consumers are spoilt for choice when it comes to internet services.

Early last year, only 31,000 BT lines had been unbundled. By February of this year 300,000 lines were unbundled.


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