TelstraClear: in or out?

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TelstraClear concerned about government's dual role as investor and regulator under broadband scheme

By Rob O'Neill | Auckland | Wednesday, 29 April, 2009

TelstraClear appears wary of the government's broadband plan, flagging the potential for the government to set itself up as a competitor to private infrastructure providers.

TelstraClear isn't prepared to comment beyond its actual submission to the government's fibre proposal, but that document appear equivocal when it comes to investment.

TelstraClear says it is willing to participate in the government's plans, as a competitor, supplier, customer and a partner. The word "investor" is conspicuously downplayed.

One clue as to why, may lie deep in the heart of the submission. In an echo of what has turned into a long-running debacle across the ditch, TelstraClear expresses its concerns over the government’s "dual role as investor and regulator and the safeguards to protect both access seekers and alternative providers of infrastructure".

"The Government should maintain clear separation between its ownership interests and regulatory oversight of the LFCs. The LFCs should be regulated in the same way as other operators, including the requirement to provide regulated access where the LFC faces limited competition," the submission says.

In another part of the submission, this: "Done wrong, there is a risk that infrastructure competition could be crowded out, the mantle of monopoly will pass back from private to public ownership, and the regulatory clock will be reset to 2001 as the grinding process of controlling the new LFC monopolies under the Telecommunications Act reboots."

TelstraClear says the broadband initiative should be guided by principles of contestability, maximising potential for innovation, equivalence, reflecting risk in returns, regulatory certainty, prioritisation of needs and regulatory transparency and symmetry.

It then goes on to question the demand side of the broadband business case, a question that is emerging as a major concern from potential private investors in the government's plan.

"While the cost to build fibre networks is generally well understood, the potential demand in the near term is uncertain," its submission says. "Equal attention must be given to the likely demand for such services when evaluating business cases, including the impact on demand of competing networks."

It says setting the right terms of the government’s proposal will "enable companies such as TelstraClear to innovate, invest and extend its great telecommunications services to customers in new parts of New Zealand in the future". It then goes on to deliver practical advice, but little in terms of commitment.

"Architecture, technical and commercial standards must be agreed upfront, including multilateral Operational Support Systems (OSS), to ensure access seekers can efficiently use Local Fibre Companies (LFCs) to deliver end-user services," it says.

It also argues that local fibre company (LFC) areas should be based on broader criteria than static population.

"This includes the number of businesses, education and health facilities, any impact on the wider region, and the anticipated population growth. Towns such as Queenstown and Greymouth, which are currently excluded, could then potentially participate in the LFC process."

In its submission, Telecom includes Queenstown and a number of others currently outside of the government's core initial coverage.

TelstraClear says the historical approach to access regulation, which applied in the legacy world, may not be appropriate to investment in next generation networks "given the substantial, unquantifiable risks associated with those networks".

"However, it may be necessary for some regulation of LFC access terms given the critical importance of the wholesale inputs they will supply and the potential lack of competitive constraint on them."