Telecom pulls Xtra closer as LLU looms

Competitors say Telecom is drawing its Xtra brand ever closer as the industry contemplates the possible opening up of the "last mile" of phone line to competing ISPs and telcos.

Competitors say Telecom is drawing its Xtra brand ever closer as the industry contemplates the possible opening up of the “last mile” of phone line to competing ISPs and telcos.

If the government does decide to unbundle the local loop, the subject of a Commerce Commission conference in Wellington last week, Xtra will be as competitively placed as possible to meet the challenge of competing ADSL networks. If Telecom retains its control of the copper network, many in the industry expect Xtra’s only real broadband competition to come from non-ADSL providers such as Woosh Wireless and BCL.

Telecom was once expected to offer Xtra for sale or to spin it off as a standalone company, but that now appears unlikely or even impossible.

Telecom now often refers to JetStream ADSL services as “Xtra JetStream” in marketing materials and the JetStream website. That’s drawn the anger of competing ISPs, who privately say new phone subscribers are routinely signed up for Xtra JetStream without being told that other ISPs also offer the service.

Telecom declined comment on the issue, referring questions to Xtra. An Xtra representative wouldn’t say what proportion of the ADSL market uses the ISP.

Ihug CEO and former Telecom executive Martin Wylie (pictured) says Telecom’s refusal to let other ISPs offer ADSL services with different offerings, prices or branding reflects “a deeply rooted culture of control”. ISPs are unable to differentiate themselves from Xtra, he says.

“When they brand those products Xtra JetStream, that’s about right, to be honest ... The customer’s always going to regard this as a Telecom or Xtra product. They’ve got total and utter market control.

“They’re clearly just looking at maximising their return in a slow-growth strategy.”

Telecom and Xtra used to operate with a corporate “Chinese wall” separating them, according to former Xtra general manager Bob Smith (pictured). The wall has been removed, he says. “Really, Xtra is getting embedded as an intelligent layer in Telecom’s network.”

Smith, now CEO at Woosh Wireless, says ISPs need to find other methods of delivering broadband if they are to compete with Telecom. “We have come out and said we’re not in favour of unbundling the local loop,” he says. “Unbundling is a regulation that has its roots in the US. It’s been competing infrastructures that have driven customer choice.”

Broadband subscribers in the US had a choice of cable or ADSL service, Smith says. He believes the choice here is between ADSL and wireless, which is “ideally suited” to New Zealand’s geography and demographics.

“Market intervention may artificially concentrate services into ADSL,” he says. “Our view is that regulations should be encouraging competing infrastructure to give customer choice.”

Ihug’s Wylie disagrees. He says ISPs have been forced to look at alternatives to ADSL to avoid Telecom’s restrictions, citing Ihug’s satellite service and Woosh’s wireless broadband. “I think those sorts of technologies would be struggling if you had true competition and unbundling. [ADSL] is economically the most sensible way to go.

Xtra, however, doesn’t accept that other ISPs are disadvantaged. Chris Thompson, head of internet and online, says it’s up to Xtra’s competitors to differentiate themselves.

“Our strategy is to offer our own products,” he says. “When we wholesale goods to other people or channels we do not offer access to our sales people.”

Thompson says “true competition” happens when providers use their own networks, rather than allowing access to a single telco’s infrastructure. “There are tons of people putting infrastructure into the ground or up in the air, but increasingly those things are being taken to market as packages with telecommunications services.”

“I think that the market is moving more towards an integrated service offering … there are very few ISPs that aren’t telcos.”

What about some of the smaller, internet-only ISPs? “That’s a decreasing proportion of the market,” Thompson says.

If the loop is unbundled and other providers get access to Telecom’s copper. Wylie says Ihug would “absolutely” roll out its own ADSL services.

TelstraClear, which offers JetStream through its Paradise.Net ISP and its own broadband service to customers in Wellington and Christchurch, says it would offer a “true broadband” service, comparing it to Xtra’s 128kbp/s JetStream Starter package.

All agree that a sale or spin-off of Xtra is now unlikely. “They’re entrenching Xtra back into the heart of Telecom,” Wylie says. “It would make a spin-off extremely difficult now.”

Thompson says Xtra operates as a division within Telecom and also as the telco’s internet brand. A split would be possible, he says, but unlikely.

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