The Telecommunications Commissioner yesterday warned Telecom he's not happy with its attitude and raised a scenario where the telco could even be broken up.
Speaking at this year's Conferenz Telecommunications Conference, held in Auckland, Douglas Webb told attendees that Telecom was running the risk of alienating its customers, its competitors and the Government with its attitude towards wholesaling.
"Telecom's approach is to treat the regulatory requirements on wholesaling as if they were compartmentalised into some kind of box embedded in its wider operations," Webb says.
He says that Telecom works hard to deliver what's in the box but works "equally hard to deliver nothing whatsoever beyond the limits of that box". Webb describes the resulting wholesale service as "relatively crippled" and says it's incapable of supporting "a strong, diverse, competitive telecommunications market".
Webb says the decision not to unbundle Telecom's network was taken because he was trying to balance the increased regulation with the need for increased investment. Webb has consistently claimed only Telecom has the money and the desire to invest significantly in the existing infrastructure. However, he says if the light-handed regulatory approach isn't working, a stronger approach may be needed.
"Where an incumbent response is excessively timid or defensive, or ignores the needs of the market, then pressure goes on for stronger regulatory measures."
Webb then astounded attendees by pointing to recent developments in the UK where incumbent network operator BT has voluntarily undertaken a "functional separation" of its retail and wholesale arms.
In order to fend off a regulated break-up, BT has agreed to set up a wholesale division that is staffed, incentivised and structured deliberately around providing equal access to BT's network for both wholesale customers and BT's retail arm.
The Australian communications minister, Helen Coonan, is reported as saying Telstra could learn a lot from BT's move with regard to its own wholesale operation.
While stressing that he isn't suggesting structural separation of a similar mould be adopted here in New Zealand, the implication was clear: Telecom needs to do better or face increased regulation.
Webb also points out the harsh realities of the Government's stated objective of being in the top half of OECD rankings by 2007 and the top quartile by 2010.
"Those goals require New Zealand to leapfrog ahead of Australia, Italy, Portugal, Germany, Spain, Luxembourg and Austria inside the next two years. Then, in the ensuing three years, further leapfrog the UK, France, US, Sweden, Norway, Finland and Japan to reach last place in the top quarter."
Webb says on our current trajectory there is "no chance whatsoever that New Zealand will achieve those targets". He points out that while most New Zealand broadband plans offer 256kbit/s download speeds, overseas the entry level plans typically offer "1Mbit/s to 1.5Mbit/s".
Webb says if Telecom "grabs the ball and runs" New Zealand has a chance of making those goals. When asked by the chief executive of the Telecommunications Association (TUANZ), Ernie Newman, whether he had a backup plan should Telecom fail to follow through, Webb referred back to the original decision not to unbundle.
"We made a very specific choice: we chose forbearance instead of regulation. If forbearance isn't delivering what we're looking for, we have to look again at whether we're preventing investment by forbearing."