Worth a bundle

Are we simply trading away long-term sustainable growth for short-term gains by unbundling the local loop?

Are we simply trading away long-term sustainable growth for short-term gains by unbundling the local loop?

Forcing competition on the local telephone loop rather than encouraging competition with it is why, instead of it being the usual case of Telecom on one side and everyone else on the other, we're seeing Telecom's opposition to unbundling supported by both Woosh and BCL.

For these two telecomms service providers it pretty much comes down to self-interest. Both are investing in separate non-local loop networks. If it suddenly becomes much cheaper to offer services on the loop, they'll have lost part of their business case. Or so the thinking goes.

I'm not so sure. If they're relying on the local loop remaining a monopoly for years to come, they're probably not making a very good business case to begin with. Even under the current wholesaling regime we're seeing more interest in buying broadband service over the loop, and that's without seeing any major price competition among the resellers. Not a lot of interest, granted, but some. While unbundling isn't likely to make any impact on user-level prices for years to come -- estimates vary from a couple of years to five or more -- if Woosh and BCL haven't started to make inroads into the market in that time, they never will.

Another side to the argument is that Telecom simply won't invest in network upgrades if it's forced to open up its network capacity for a relatively low margin. Telecom tells me that number, in the commissioner's draft report on unbundling, is a 6% return on investment. If Telecom were to put that money in the bank it could make about that without all the risk. What's in this for Telecom?

I don't think Telecom will stop investing. Telecom has to protect its shareholder's investment, and 10 years from now a copper line in the ground isn't going to be worth as much as it is today. In a decade we will all be expecting at least 10Mbit/s to the premises; that's certainly where overseas estimations lie. If Telecom is by then struggling to do that on the copper network -- and I think it would struggle despite the advances in DSL capability -- then non-loop competitors will reap the benefits. Telecom simply won't allow itself to be beaten on the thing it does best -- provide network capacity in New Zealand -- so it will have to continue upgrading its network.

But the other side of the equation is almost as compelling. If everyone's using the local loop to deliver broadband, where's the incentive to move up to much faster networks? How can you compete with an existing network that's being used highly efficiently when you have to build an entirely new network from scratch? That possibility lends credence to the idea that in the short term we would see an uptake of local loop-based broadband but in the long term we'd be stuck with an outdated copper network.

I would hope that increased demand for broadband and the commensurate use of the network would be the basis for investment in satellite and fibre and wireless and all the other good things to come, but it's a balancing act that could go either way.

Expect more, much more, debate and rhetoric on this, between now and the Telecommunications Commissioner's final report in late December.

Brislen is Computerworld Online'sreporter. Send letters for publication in Computerworld to Computerworld Letters.

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