TelstraClear's 3G exit

TelstraClear's decision not to go ahead with its expected mobile phone network build should be ringing alarm bells in Wellington, New Zealand, on many levels.

The regulatory regime in place today is supposed to be as light handed as possible so as to encourage investment in the telecommunications infrastructure. Given the number of times Vodafone and Telecom have both threatened to stop investing, on the surface this seems to be the right approach.

However, when you consider the astonishing amount of money the mobile phone network operators charge in this country you'd have to say it's not hard to make a buck in the mobile market. Given the low levels of regulatory interference and the high levels of demand for mobile services, why is it that Telstra feels it cannot invest here?

The answer is simple: the whole mobile market, if not the entire telecommunications market itself, is heading for a fall and Telstra doesn't want to be caught up in it on the wrong side of an investment decision. Better to play the aggrieved wholesale partner and keep its money in Australia where it seems likely Telstra will be investing in a brand new 3G network and throwing out its perfectly good existing infrastructure.

But if there's anything the mobile market has taught us it's this: the Kiwi Share is a red herring. New Zealanders are willing to pay for local calls and pay handsomely.

Cellphones outnumber landlines these days by a huge margin and the only advantage having a landline seems to bestow on its user is the ability to also buy a DSL broadband service from Telecom or one of its resellers. So why do we continue with the misbegotten belief that we're firstly getting free local calls and why does Wellington believe that New Zealanders would rise up and storm the Beehive should any government try to remove that right?

First things first: they're not free. Most customers pay around NZ$40 (US$28) a month which equates to plenty of minutes of talk time. More than most of us who work in an office for at least 40 hours a week would use, I'd guess.

Secondly, the lack of free local calls hasn't dented uptake of mobile phones in the slightest. We're nearly all carrying them these days and that's despite New Zealand having the most expensive cellphone calls in the known universe. The Kiwi Share, however, appears to be the one thing the government won't dare touch despite all its bluff and bluster, holding it up as though it were some banner of freedom when in fact it's a blanket pulled up over our eyes to protect us from what's really going on.

However, it's Telstra's other recent announcement and the fallout from that that's really telling. Telstra has said it will spend A$10 billion (US$7.4 billion) building a next generation network but only if it gets some kind of regulatory support from the Australian government. The ISPs across the Tasman are up in arms and with good reason. If Telstra is given a monopoly on the next generation of internet services, it's back to square one for the industry. Telstra's decision to extend the reach of the fiber network out to the roadside cabinet makes good sense, both commercially and technically. However for an unbundled marketplace it's a shocker of a decision. Can you imagine Optus, AAPT, iiNet and all the other carriers fighting to fit their mini DSLAMs into roadside boxes instead of large-scale exchanges? The fallout from that alone would keep Telstra's competitors tied up in knots for years.

If that scenario is sounding familiar, it should. Telecom is also building a next-generation network. Telecom is investing a billion dollars over the rest of this decade to extend the reach of fiber to the roadside cabinets. It's also decommissioning as many of its exchanges as it can, from the dozens down to a handful. While there are good solid sound business and technology related reasons for this, and I wouldn't want Telecom not to build out its fiber network, the upshot is the government had better decide right now what it wants to do about unbundling because if it comes back at the decision once the NGN is built, it'll be far too late. There won't be any room to unbundle. One way or another the government has to make that decision now, despite not knowing the full impact that decision will have on the economy as a whole.

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