Warning: wholesale review under way

This year the Telecommunications Commissioner has promised to review the vexing question of whether or not New Zealand should completely unbundle the local loop from Telecom's clutches instead of, or alongside, wholesaling.

This year the Telecommunications Commissioner has promised to review the vexing question of whether or not New Zealand should completely unbundle the local loop from Telecom's clutches instead of, or alongside, wholesaling.

Wholesaling, the trade without retail margin of products and services -- as opposed to unbundling, the process of making an incumbent carrier's local network copper cables available to competitors -- has barely begun here. Telecom has yet to establish a wholesale division and the other telcos and ISPs are still coming to grips with just what it will mean for their business model. One of the daunting questions facing the commissioner and indeed the whole business is that of apportioning the cost. Currently Telecom pays for the network itself; if other companies want access they'll have to pay. The only question is how much.

If we look at wholesaling by market share then Ihug, for one, is in for a rude awakening. If Ihug has 10% of the market then it'll be liable for 10% of the network costs, which works out, by my stirling maths and guesswork, to be roughly a million times the profit it actually makes. Bye bye profit margin, hello short-term pain.

While I'm sure that's an interesting business model, I'm also sure it's not one any of the ISPs want to enter into. It will, in effect, grant the network-owning companies a huge power over those that are getting too big for their boots.

There are other problems. Telecom, as the largest network provider, gets to call the shots on new services and rollouts. Nobody can offer a product or service that uses the provider's network which the provider doesn't offer, which means Telecom gets to control the pace of development. Remember that Vodafone also owns a national network and it too gets the final say on what goes on with its infrastructure.

So that's still to be sorted out. Meanwhile, the commissioner is looking at the rights and wrongs of taking the whole thing one step further and simply unbundling the local loop for all and sundry.

The advantages are easy to see. No more waiting for Telecom or TelstraClear or Vodafone to roll out a new service so you can wholesale it. Simply buy space on the network and do what you will. Want to introduce a new type of DSL service? Go right ahead. Want to offer a hybrid WiFi/GPRS/CDMA network? Go right ahead. There's a certain clean simplicity to unbundling that will appeal to many but may also bring more problems than it solves.

But it's another area fraught with problems. Unbundling simply hasn't delivered the benefits it might have in countries that have introduced it. Both Australia and the UK are still struggling to work out the best business model in an unbundled environment and smaller telcos around the world are going to the wall when faced with the real costs of the process.

The problem is that unbundling ensures a smaller telco can access the network. That's it. That means any company that wants to, like Ihug or Iconz, both strong tier-two ISPs, must provide its own equipment, its own technicians and so on. In Britain this has proved difficult at best for the smaller telcos and they are struggling to even take up space in BT's exchanges. Buying your own DSL network device and setting it up, connecting in to a network and managing the traffic is all well and good in theory but it has proved too costly for many.

The commissioner will take all this on board and try to decide whether or not the advantages make it worthwhile.

Meanwhile, here on Planet Earth, we still face the almost complete lack of movement in the market at the user end. For all the advances and changes and talk there's been very little impact for users, and that's really the true test of any regulatory regime. So far, so what?

Brislen is IDGNet’s reporter. Send letters for publication in Computerworld to Computerworld Letters.

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