Telecom NZ responds to Government meddling with split
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Jesse Hogan
April 14, 2007
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TELECOM New Zealand's dismay at Government attempts to dilute its market power has prompted a drastic, unexpected response from the company — a commitment to voluntarily split the business.
New Zealand's incumbent telco — like Telstra, it owns mobile, fixed-line telephone and broadband networks — made the declaration after Communications Minister David Cunliffe last week expressed support for an operational separation model that would require Telecom to maintain three separately run divisions for wholesale, retail and the copper-wire telephone network.
But Telecom believed that option would be its worst-case scenario because it would require significant funding — estimated at $NZ330 million ($A291 million) initially plus $NZ40 million a year thereafter — and up to 710 new staff, with no guarantee it could earn more by investing in new broadband networks.
"When you have one set of shareholders and one board, we cannot literally understand how you would implement some of the Government's procedures," Telecom chief financial officer Marko Bogoievski told BusinessDay.
"It's pointless undergoing a massive operational separation if you don't explicitly account for the fact that FTTN (fibre-to-the-node broadband) is right on your doorstep."
Telecom revealed its intentions and preliminary separation plan to the market but will not make its formal submissionuntil closer to the April 27 deadline for feedback.
The plan is, however, dependent on the Government agreeing to regulated access prices that would guarantee the "netco" — the network owner — a minimum return on investment, with the proceeds to be used to further expand the network.
Mr Bogoievski agreed its separation plan "obviously … doesn't reflect the way we thought about life a couple of years ago" but believed it would lead to a situation where the level of telco regulation would be significantly reduced.
"That's a massive change in thinking for a formerly integrated business, and it's something I think that small countries like Australia and New Zealand should contemplate because you just can't afford to make many false steps in massive investments — particularly around broadband," he said.
The stance is in direct contrast to Telstra, which has steadfastly dismissed any suggestions pricing and network upgrade disputes could easily be solved by splitting the company's network assets into a separate company, to ensure all retail telcos get access on the same terms.
Telecommunications analyst Paul Budde praised the announcement — "it's not often that you can congratulate an incumbent" — and said it would significantly increase telecommunications competition if it was introduced.
"Obviously the countries that are brave enough to make the decision to go for structural change are going to be the leaders," he said.
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