Telecom's new era

Telecom's separation day has been a long time coming but the company's split into network, wholesale and retail divisions should usher in a bright new age in New Zealand's telecommunications sector, writes The Press in an editorial.

 As the separation beds in, greater competition and transparency in the sector should flow through into cheaper and better services for residential and commercial users. And for Telecom itself, the separation offers it the chance to fully shake off its reputation as a poor corporate citizen.

The company had been criticised for not being customer friendly and for exploiting its vertically integrated structure to stifle competition in the sector. Eventually the Government lost patience with the corporate giant and legislated to split Telecom into the three units which will operate at arm's length.

As part of this separation Telecom must provide services on the same terms and at the same price to all market participants, including its own businesses. Ultimately this should lead to greater choice and lower prices, as well as eventually encouraging competitors to invest in their own infrastructure.

Alongside this, Telecom is committed to spending $1.4 billion on a high-speed broadband network covering more than 84 per cent of customer lines by 2012. This is an ambitious programme, but one which is sorely needed.

There have been long-standing and justified consumer complaints about limited and slow broadband access, even in our major cities, which is frustrating for household users and an impediment to the growth of an innovative economy.

Telecom had no real choice but to accept the separation agreement, albeit after some to-ing and fro-ing over the detail with David Cunliffe, the Communications Minister. Cunliffe, who is fast emerging as a Cabinet go-getter in both his communications and health portfolios, made it clear that he wanted the agreement with Telecom to be robust and he appears to have achieved this.

Although Telecom has welcomed the final agreement, the company's critics will question how seriously it will actually embrace the separation's competitive spirit and whether it will meet its broadband target. But Telecom has been given the compliance incentive of a strong supervision regime, with hefty financial penalties to back this up.

Telecom must fund an oversight group with a majority of its members independent of the company and implementation of the separation will also be monitored by the Commerce Commission. Breaking the agreement could lead to Telecom facing a fine of up to $10 million for each breach and $500,000 for every day the breach continues.

For Telecom, the separation represents a massive challenge, and its many shareholders, who have traditionally enjoyed good returns, will be nervous about their investment. The company faces restructuring costs of about $360m, plus its huge infrastructural investment, including the broadband commitment, and the potential penalties of not complying with the agreement.

But the separation also presents new opportunities, especially through growth in its wholesale business as new retailers enter the market. If the company can grasp these opportunities, then separation could produce a triple win result, for Telecom, its competitors and, most importantly, for New Zealand consumers.

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