TelstraClear deal a big win for Telecom, says analyst

Deal reduces risk of increased regulation of the incumbent.

The wholesale deal between Telecom and TelstraClear last week is seen by financial analysts Macquarie Equities as a big win for Telecom, suggesting the government will back away from changes to the regulatory environment as a consequence.

Macquarie Equities believes the minister of communications, David Cunliffe, will conclude that after the deal, there are no further significant regulatory issues for him to deal with.

As the deal is likely to increase broadband uptake in New Zealand, thanks to TelstraClear migrating its 100,000 dial-up customers to wholesale DSL, analysts suggest Telecom will not face additional political pressure to open up its last-mile monopoly to competitors.

While not commenting on whether or not he intends to further regulate Telecom, Cunliffe welcomes the telco deal as a further step forward for the telecommunications market. He believes another major competitor in the industry will immediately increase choice and potentially provides better service at a lower price for consumers.

Cunliffe says however that he will watch the deal closely to see how it pans out in practice and notes that some supply terms in it may be less than those in the regulated service. The government’s priority is faster and cheaper broadband access for all New Zealanders, he says, and it will streamline processes in the Telecommunications Act to benefit consumers by the end of the year.

TelstraClear applied to the Commerce Commission in November 2004 for regulated access to bitstream service. A year later, the Commission determined that TelstraClear should be given wholesale access to a regulated service that runs at the maximum speed technically possible with today’s DSL equipment, or 7.6Mbit/s, with 128kbit/s upstream at a price of $27 a month.

However, the service would not be available until June this year and Telecom has signalled that it would challenge the determination in April, a move that could further delay TelstraClear’s access to the regulated service.

Faced with the possibility of further delays and an uncertain regulatory outcome, the second-largest telco in New Zealand decided to accept the Telecom deal rather than staying out of the market for any longer, says TelstraClear spokesman Mathew Bolland.

Thanks to the telcos reaching an agreement on wholesale costs, both TelstraClear and Telecom have withdrawn the earlier applications for review of the Commission’s previously regulated pricing on services and products. That leaves the other ISPs somewhat up in the air over the full “unconstrained bitstream” regulation.

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